SINGAPORE'S CONTINUING ECONOMIC BOOM

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00875R001600030156-6
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 12
• Document Creation Date: December 22, 2016
• Document Release Date: October 24, 2011
• Sequence Number: 156
• Publication Date: October 1, 1970
• Content Type: IM

Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030156-6
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intelligence emorandum
Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030156-6
 Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030156-6
WARNING
This document contains information affecting the national
defense of the United States, within the meaning of Title
18, sections 793 and 794, of the US Code, as amended.
Its transmission or revelation of its contents to or re-
ceipt by an unauthorized person is prohibited by law.
GROUP I
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CONFIDENTIAL
CENTRAL INTELLIGENCE AGENCY
Directorate of Intelligence
October 1970
INTELLIGENCE MEMORANDUM
Singapore's Continuing Economic Boom
Introduction
Singapore's strateg'.c importance continues to
grow as a parallel development to the growth of trade
between Japan and the rest of the Far East with Europe
and the oil-rich Middle East. The city-state has the
only port along this trade route with a good harbor
and drydocking fcilities capable of servicing large
ships. While many other Southeast Asian countries
have experienced varying degrees of political turmoil,
Singapore has been relatively calm. Singapore's
rapid economic growth has not been without numerous
problems, Much of tile. success in overcoming them can
be credited to Prime Minister Lee Kuan Yew.* This
memorandum examines the Republic's economic achieve-
ments, the reasons for its growth, and the contribution
made by its Prime Minister.
* Prime Minister Lee is spending about one month
(7 October to 7 November) in the United States
during which time he is visiting Harvard University,
speaking to the 25th session of the U.N. General
Assembly (if a time suitable to Lee can be arranged),
and will meet unofficially in Washington with US
government Zeadera about 1 November.
Nc:te: This memorandum was produced solely by CIA.
It was prepared by the Office of Economic Research
and was coordinated with the Office of Current In-
teZZigence.
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Growth, Welfare, and Stability
1. Singapore has faced an'array of serious
problems.during the past eleven years. When the
Island attained internal self-government in 1959,
its 4.6%-annual population growth was among the
world's highest -- a 3.6% natural increase and 1%
from immigration -- unemployment was growing, and
about one-third of the population lived in urban
slums or squatter villages on the city's outskirts.
In 1963, when Singapore became part of the newly
formed Federation of Malaysia, Djakarta cut off
trade relations with Kuala Lumpur because of a
territorial dispute. As a result the island lost
considerable entrepot trade. Before the situation
was rectified, Singapore left the Federation, and
Malaysia decided to develop its own port facilities,
financial institutions, and manufacturing sector.
There was a further blow in 1968 when the British
announced the withdrawal of their relatively large
military forces by 1971.*
2. Despite these adverse developments, Singa-
pore's real GNP increased by 9% a year during the
1960s, a rate comparable to the phenomenal growth
achieved in Japan, Taiwan, and South Korea. As a
result of this rapid growth, the well-being of the
city-state's two million inhabitants has been sub-
stantially improved. Per capita GNP nearly doubled,
reaching $840 in 1969 (see Table 1), the second
highest in Asia after Japan. Unemployment fell
from 9% to 6%. Total population growth was reduced
to less than 2% in 1969 (see Table 2), and over
one-third of the country's inhabitants came to live
in modern, government-built housing. Primary
education is free, there are five university-level.
institutions, and the literacy level of the pre-
dominantly Chinese society is high. Medical facil-
ities are relatively extensive. There are 16
hospitals and 1,200 doctors, and life expectancy is
over 60 years, rivaling life expectancy in many
industrial countries.
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3. All of these achievements occurred along
with remarkable price stability and a highly
favorable balance of payments. The consumer price
index increased only about 1% a year. Foreign
exchange zeserver3 more than doubled in five years,
reaching over $1 billion by the end of 1969, an
enormous sum for this small country. Even more
impressive, Singapore received little foreign aid,
and its external public debt amounts to only a
minuscule $82 million, including quasi-government
agencies such as the Port of Singapore Authority.
Pillars of Growth
4. All sectors of the economy have fueled this
growth. Traditionally, Singapore's prosperity has
been based on its port's strategic location at the
crossroads of Southeast Asia. Its entrepot trade
has increased rapidly even though neighboring
Malaysia and Indonesia have been developing their
own port facilities. Cargo handling doubled in
five years, reaching 38 million tons in 1969 (see
Table .3). The bulk of this growth was in petroleum
products. The country's expanding refinery capac-
ity -- almost 400,000 barrels per day in 1969 --
supplies much of the region's needs. Singapore
also profits from ship repair; it is the only port
between the Middle East and Japan with drydocks
capable of handling large ships. Vessel;, up to
90,000 tons can now be accommodated and there are
plans to expand facilities to service 300,000-ton
supertankers. One major Japanese shipping firm
decided to perform routine drydocking for one-half
of its hanker fleet in Singapore beginning in
October 1970.
.5. The service-based economy has benefited
from expanding tourism and nearby oil exploration.
Tourist spending tripled between 1965 and 1969,
when it reached $69 million. in 1970 these earn-
ings will probably increase at least 30%. These
gains alone have so far more than offset the loss of
revenue caused by the British withdrawal of forces.
The Island's well-developed economic infrastructure
readily Meets the needs of oil companies rapidly
expanding their prospecting operations in Malaysia
and Indonesia. Supply bases are being established,
ships repaired, barges built, and oil men and their
families have settled in Singapore, bringing with
them considerable spending power.
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6. Singapore's highly sophisticated financial
sector has been a major contributor to overall
economic expansion. Although still far behind, it
has been gaining on Hong Kong as the Asian financial
center. By allowing certain banks since 1968 to
hold tax-free deposits (while Hong Kong did not),
Singapore was able to establish the Asian dollar
market.* Deposits, which grew from C30 million at
the end of 1968 to over $200 million in mid-1970,
were attracted mainly from overseas Chinese through-
out Southeast Asia. In addition, Singapore's free
gold market prices are lower than those in Hong
Kong. The country's well-organized and highly
liquid financial institutions can easily accommodate
both public and private needs for development spend-
ing.
7. Although trade and services have been the
traditional pillars of the economy, the most dynamic
sector is industry. The value of manufacturing
output has increased nearly five times since 1960.
Since the local market is small, most new plants
are export-oriented. Oil refining has become the
leading industry. Despite the fact that it has no
crude oil production of its own, Singapore has be-
come the regional refining center because of its
established trading and service facilities and
its well-trained labor force. Today these activ-
ities constitute the largest component of industrial
investment in Singapore, with five refineries
representing an investment of roughly $225 million.
in terms of value added, the petroleum products
industry surpasses all others, including traditional
rubber processing.
8. More recently, foreign investment in labor-
intensive industries is becoming important. Firms
such as Phillips of Holland, Plessey of the United
Kingdom, and General Electric of the United States
decided in 1970 to set up new factories in Singapore
to produce various electronic components. Rollei
Werke of West Germany is moving its entire produc-
tion of 35-millimeter cameras to Singapore to better
compete with the Japanese. In addition, the output
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of textiles, pharmaceuticals, and engineering
goods is growing rapidly. The latest figures
available indicate that at the end of 1968 the
United Kingdom was the main source of overseas
capital, accounting for 37% of the total, followed
by the United States, 21%, and Japan and Hong Kong,
6% each. The US share has risen in the last 18
months and now probably totals well over $100 mil-
lion.
The Lee Government's Role
9. An excellent natural port and a well-
trained labor force are essential ingredients, but
a great part of Singapore's economic success has
been due to political stability and the highly
favorable investment climate created under the
strong leadership of Prime Minister Lee Kuan Yew.
A 47-year-old Cambridge graduates. Lee is an
extremely capable and honest administrator and
politician who has maintained tight control since
1959. He is deeply involved in carrying out
government economic policies, which are largely of
his own making. Indeed, these policies reflect his
own strong ambitions and drive for success. These
characteristics have made Lee impatient with any-
thing that threatens to interfere with Singapore's
economic progress. Partly through personal author-
ity and partly through appeal to Chinese pragmatism,
%ee has minimized communal problems, such as those
occurring in neighboring Malaysia and Indonesia.
10. Lee's policies have promoted investment by
providing fiscal incentives, imposing ii.direct
wage controls, and establish ng self-contained
industrial estates. Initially the government
relied strongly on tax advantages combining a long
tax holiday and ample depreciation allowances.
More recently, to prevent losing investment to
lower wage countries like South Korea and Taiwan,
the government is making a determined effort to
avoid abnormal wage increases and labor disruptions.
Legislation in 1968 reduced the number of holidays,
overtime pay rates, and other fringe benefits. Close
government-labor cooperation reduced the number
of industrial work stoppages from 116 in 1961 to
zero in 1969. The action of Prime Minister Lee
Kuan Yew in not accepting a pay raise in 1969
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(CONFIDENTIAL
symbolizes his personal determination to avoid
rising wages. A more forceful demonstration of
this intention was the government's quashing of
a "go-slow" movement among dock workers. The wage
level in Singapore in 1969 was about $65 a month,
or half that of Japan but double that of Korea and
Taiwan.
11. The Singapore government is known f0* its
relative lack of corruption and its speed i,n.'.and-
lin4` investment applications. For example,_ one
American company, Texas Instruments, was able to
begin production 50 days after submitting an appli-
cation. By far the most impressive Lee-sponsored
undertaking is the industrial estate of Jurong.
Meticulously planned from its inception in 1961,
over $70 million has been spent ( ' )n landfill and
infrastructure to turn a wasteland of scrub and
marsh into a thriving industrial-complex with
nearly 300 factories in operation and plans to
accommodate 500. Moreover, about one-fourth of
the labor force employed in Jurong and their fam-
lies have settled in new housiner there. Stores
and schools are also being provided.
Conclusions
12. Singapore's economic future is indeed very
bright.. Under the present momentum and strong
political leadership, Singapore should be able to
overcome any potential problems and still grow
rapidly. Reaction against the 1968 wage legisla-
tion and the limited growth of wages during the
decade may make labor unions less responsive to
government pressures. Paradoxically, the govern-
ment's success in reducing une!nployment may become
a problem as there is no longer a large unemployed
reserve to keep wages low. However, opening jobs
to foreign workers, as the government has done to
alleviate shortages in certain technical fields,
can be employed as a strategy in areas where wage
pressures are felt. Also the past success of the
government in engaging the support of a disciplined
labor force in making sacrifices for economic
growth augurs well for the future.
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13. Singapore can continue to offset losses
caused by the British military withdrawal and to
finance increases in its own military outlays.
Between 1966 and 1969, UK military, spending in
Singapore declined some 25% but it still amounted
to $135 million. Although Prime Minister.. Heath
has decided to maintain a token force in Singapore,
there will still be a substantial further reduc-
tion in British spending. Singapore's own defense
spending jumped 80% in 1969 and is expected to con-
tinue to increase rapidly. The British troop
withdrawal will undoubtedly create some structural
unemployment but by and large the laid-off workers
will be absorbed elsewhere. Increasing earnings
from tourism alone will probably offset a large
part of the foreign exchange loss caused by-the
British withdrawal, and British aid amounting to
$120 million over five y!ars will pay for much of
the increased local defense expenditures. In any
case, Singapore could easily afford to reduce its
massive foreign exchange reserves and increase its
minute level of foreign borrowing if it needed to.
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CONFIDENTIAL
Sas1c Data on Singapore
1969
2.02 million
(78% Chinese, 12% Malays,
7% Indians, 3% others)
225 square. miles
(about the same as the city
of Chicago)
$1,707, million
Per capita GNP
Foreign exchange
.reserves
$840
$1,030 million
(end of year)
Singapore:
Index of Selected Economic Trends
Year.
GNP
Pop-
ulation
Manufacturing
Output
Tourist
Spending
1960
100.0
100.0
100.0
100.0
1961
109.9
103.3
111.2
103.2
1962
116.3
106.0
141.7
129.0
1963
131.3
108.6
181.1
177.4
1964
132.4
111.4
199.1
196.8
1965
149.0.
114.1
233.0
209.7
1966
165.6
117.1
284.5
267.7
1967
177.3
119.7
362.0
393.5
1968
208.4
121.7,
467.0
467.7
1969
237.5
123.4
565.7
680.6
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Singapore:
Cargo Handled
Thousand Long Tons
Year
Total
Oil
Other
1961
18,258
10,926
7,332
1962
21,067
13,597
7,470
1963
21,594
13,974
7,620
1964
18,05].
12t054
5,997
1965
21,340
14,927
6,413
1966
26,638
19,897
6,1741
1967
30,340
23,044
7,296
1968
35,638
27,535
8,103
1969
37,904
29,208
8,696
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