Key political risks to watch in Singapore

Rich and orderly Singapore, a regional base for many multinationals and fund managers, is one of Asia’s smoothest-running and least risky countries, and is rated triple-A by both Moody’s and Standard & Poor’s. Its long-ruling People’s Action Party (PAP) is, however, losing support from an electorate unhappy about the widening income gap and the government’s liberal immigration policy, and there is greater openness in political debate than at any time in the past decade. Last August, former Deputy Prime Minister Tony Tan was elected president with just 35 percent of the vote, a result seen as a blow for Prime Minister Lee Hsien Loong who had backed Tan in the fight for the largely ceremonial role. Inflation is high even as the economy slows, putting pressure on the government to address rising prices. Five-year credit default swaps for Singapore state investor Temasek — used as a proxy for gauging sovereign risk — are trading at a spread of around 84 basis points, having eased from the peak of over 100 they hit in October, along with many sovereign debt markets, as worries about a global recession grew. Following is a summary of key risks to watch: Political change After winning the May parliamentary elections in which the opposition made historic gains, Prime Minister Lee removed unpopular ministers, tightened immigration, and increased the supply of government-built apartments to help slow the rise in property prices. Still, Tony Tan’s narrow win over former PAP parliamentarian Tan Cheng Bock in the August presidential election shows many voters are unhappy with the PAP, though they are voting for moderate rather than radical opponents. In January, Singapore removed its chief of civil defence and replaced the head of its police anti-drug unit in an investigation by the anti-corruption watchdog. The probe of senior government officials risks damaging Singapore’s reputation as a graft-free haven of efficiency and clean government. What to watch: ·The PAP, co-founded by Lee’s father Lee Kuan Yew, has ruled Singapore since independence in 1965 and markets will be watching how the party competes for the support of voters in a more open political environment. ·Outcome of the corruption investigation, and whether any other senior officials are scrutinised. ·Lee must address soaring property prices which have upset many young Singaporeans who feel they can no longer afford homes, unlike their parents’ generation. Demographics and the income gap Foreigners account for over one-third of Singapore’s 5.1 million people, a demographic which is not without problems. The trend of foreign bankers and other professionals moving to Singapore is overall an inflationary one. Though headline inflation rate fell to its lowest in eight months in January, the central bank’s core measure of price changes rose, indicating that monetary authorities are likely to keep policy tight. In addition, some Singaporeans feel they are being cut of the job market by immigrants. In its 2012/13 budget, the government said it will lower the proportion of foreign workers companies can hire, starting in July this year. Finance Minister Tharman Shanmugaratnam — who predicted a budget surplus of S$2.3 billion for the fiscal year ending March 2012 — said Singapore must reduce its reliance on foreign labour. What to watch: ·Property prices. In early December, the government took new steps to cool property prices, with the toughest measures aimed at foreign buyers who have become increasingly visible in the residential sector. Still, a government land tender on Dec. 8 drew 22 bids, indicating that developers remain bullish. ·Inflation and economic data. The economy contracted in the final quarter of 2011, but the government said in February it may avoid recession, and that growth in 2012 would be between 1 and 3 percent. — Impact of new regulations for fund managers, due for 2012. Singapore’s $53 billion hedge fund industry is expected to shrink as the new rules will mean higher costs. ·The government is trying to address growing public discontent about migrant workers, as more Singaporeans feel foreigners are taking jobs away from them. New measures have been introduced to screen for better qualified semi-skilled migrant workers and differentiate privileges between citizens and permanent residents. Security Militants have long had Singapore in their sights. In September, the government said it had detained three people on suspicion of involvement in “terrorism-related activities”. The Ministry of Home Affairs said two of the men were members of Jemaah Islamiyah (JI), a radical group behind several attacks in Indonesia including the 2002 and 2005 Bali bombings. In July, Indonesian anti-terrorism officials said they arrested 11 people suspected of planning an attack on Singapore’s embassy in Jakarta. What to watch: ·Defence spending. Singapore is likely to spend $23 billion on aircraft, helicopters and other military equipment by 2015, analysts IHS Jane’s said in December. ·Singapore is coming under pressure from rights groups and activists to repeal its Internal Security Act, which allows detention without trial. ·Assessments of strength and tactics of JI and its offshoots. Most analysts believe the main JI movement has abandoned attacks on civilian targets, while a violent splinter group was badly weakened after the death of its leader Noordin Mohammad Top.