VZCZCXRO0555
RR RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHGP #1002/01 2880840
ZNR UUUUU ZZH
R 150840Z OCT 09
FM AMEMBASSY SINGAPORE
TO RUEHC/SECSTATE WASHDC 7320
INFO RUCPDOC/DEPT OF COMMERCE WASHDC
RUCNASE/ASEAN MEMBER COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHINGTON DC

UNCLAS SECTION 01 OF 02 SINGAPORE 001002 
 
STATE PASS USTR 
 
SENSITIVE 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EINV SN
 
SUBJECT:  SINGAPORE PREPARES TO PHASE OUT STIMULUS MEASURES 
 
REF: A) SINGAPORE 80; B) SINGAPORE 994 
 
¶1.  (U) Summary:  Singapore is extending for an additional six 
months a popular wage subsidy program widely credited with saving 
thousands of jobs and businesses during the recession.  The program 
was part of an anticipated one-year set of stimulus measures laid 
out in last January's budget.  However, with still uncertain 
prospects of economic recovery the government opted to slowly phase 
out the program, and may keep expiring training and loan guarantee 
programs in a more targeted form.  Business and unions were grateful 
for the programs' assistance during the crisis, but economists were 
concerned Singapore's business competitiveness would lose its edge 
as unproductive workers and unviable businesses stayed put.  The 
Prime Minister hinted in a speech that next year's budget will see 
incentives for businesses to create new jobs in emerging industries 
and boost productivity across the board.  End Summary. 
 
¶2.  (U) Prime Minister Lee announced in an October 13 speech to the 
National Trades Union Congress that the government would extend by 
six months its popular Jobs Credit Scheme (JCS), a wage subsidy for 
businesses designed to discourage layoffs.  The program was part of 
a S$20.5 billion (US$13 billion) stimulus package released in 
January to boost the sagging economy and support workers and 
businesses (Ref A).  The Jobs Credit Scheme gave employers an 
automatic wage subsidy at the end of each quarter equivalent to 12 
percent of the first S$2500 (US$1775) of employees' monthly wages 
for each Singaporean or permanent resident employee on the payroll. 
The program will continue for the first six months of 2010, but with 
reduced payouts.  The subsidy will be reduced to six percent of 
wages in March and three percent in June.  The original S$4.5 
billion budget for the scheme was financed from Singapore's 
substantial fiscal reserves, but the extension's additional costs 
will be taken from the general budget. 
 
Stimulus "Has Done Its Work" 
---------------------------- 
 
¶3.  (SBU) In business surveys regarding the budget stimulus 
programs, the JCS was consistently rated the most effective, helping 
businesses with an immediate boost to cash flow.  The most recent 
tranche of payments at the end of September saw more than 100,000 
businesses employing 1.4 million local workers receive S$890 million 
(US$635 million).  A Citigroup report estimated the JCS program 
alone reduced overall labor costs by nearly seven percent. 
Economists calculated the program saved at least 40,000 jobs in 2009 
and helped some businesses avoid bankruptcy, easing the impact of 
the recession.  However, others criticized the program as wasteful, 
noting that every employer received the subsidy regardless of 
whether it was profitable or faced cash flow problems.  For 
businesses without a high labor component the subsidy made little 
difference to the bottom line. 
 
¶4.  (SBU) Past weeks have seen debate in the press about whether to 
withdraw the JCS and other stimulus programs.  Business and unions 
recognized the significant recovery in Singapore's economy in the 
past two quarters (Ref B), but said they remained concerned about 
uncertain economic prospects in coming months and the potential need 
for additional layoffs.  Singapore's exports still face weak 
external demand, particularly in the electronics sector which is a 
major employer.  However, economists voiced concerns that extension 
of the scheme would distort business decisions and erode 
competitiveness by discouraging businesses from becoming more 
productive.  Loan insurance programs may have helped unviable 
businesses stay afloat.  In his speech PM Lee said that the JCS 
program had "done its work" and given the strong recovery was no 
longer needed.  He also pointed out the long term impacts of keeping 
workers under-employed and unproductive.  However, the PM said he 
decided to extend the program to avoid a sudden shock to company 
balance sheets. 
 
Training and Loan Guarantee Programs On The Hook 
--------------------------------------------- --- 
 
¶5.  (U) The government will also continue another stimulus program, 
the Skills Program for Upgrading and Resilience (SPUR) that 
subsidized up to 90 percent of the cost of training courses to 
upgrade worker skills.  The program enabled employers to manage 
excess labor by sending workers into training for extended periods 
rather than laying them off.  In the first six months of the program 
the Workforce Development Agency reported that over 120,000 
employees from 1800 companies had registered for training courses. 
The S$650 million program is budgeted to run through 2010, although 
registrations for new trainees are dropping steadily as the economy 
improves. 
 
¶6.  (SBU) The Special Risk-Sharing Initiative that guaranteed up to 
 
SINGAPORE 00001002  002 OF 002 
 
 
80 percent of the risk of loans will expire at the end of the year. 
Through September the program guaranteed over 10,000 loans worth 
S$4.7 billion, 92 percent of which went to small- and medium-sized 
enterprises (SME) that had experienced difficulty obtaining new 
loans as credit conditions tightened.  A recent survey of SMEs found 
that only 12 percent continued to have difficulty getting bank 
loans.  However, a local businessman told Econoff that banks were 
still reticent to issue new loans, particularly to businesses in the 
electronics sector, and he suspected that loans were going mostly to 
businesses who would have obtained them anyway. 
 
Getting Back to Business 
------------------------ 
 
¶7.  (SBU) The stimulus programs being phased out will likely be 
replaced by more targeted measures to boost productivity, which has 
been declining in Singapore since 2004.  PM Lee hinted in his speech 
that the next budget due out in February will include incentives to 
shift gears from job protection to job creation for the medium to 
long term.  The newly formed Economic Strategies Committee, a 
public/private group tasked with devising a strategy to restructure 
Singapore's post-recession economy, will be providing 
recommendations in January on how to institutionalize the best parts 
of the stimulus programs and provide incentives on boosting 
productivity, Benjamin Cher, Deputy Director of the Ministry of 
Finance's Economic Programs Office told Econoff. 
 
SHIELDS