Mr Iswaran's reply to Parliament Questions on the impact of the US sub-prime mortgage crisis

Name and Constituency of Member of Parliament
Dr Lily Neo, Member for Jalan Besar GRC

Question
To ask the Minister for Trade and Industry (a) to what extent, if any, will the lingering United States sub-prime mortgage crisis negatively impact Singapore’s economy; and (b) what are the short and long term measures in place to ensure that Singapore will not be negatively impacted.

Answer
It is still too early to assess with a high degree of confidence how the sub-prime mortgage problem in the US housing market will affect the credit and other financial markets, and whether this will eventually spill over to the real economy in the US and Europe.

There are growing concerns that uncertainty in financial markets will lead to a loss of confidence and result in a more general credit squeeze. This will in turn hurt investment and consumption in the US and Europe. If growth slows in these major economies, Singapore will be affected. Strong growth in the region and the diversity of our export markets will provide us some buffer, but we are not immune to a slowdown in the major industrial economies. At this stage, although the risks have increased, it is not clear that there has been significant spill-over into the real economy. Barring the unforeseen, MTI’s growth forecast of 7-8% for this year remains unchanged.

Taking a longer term perspective, the current shakeout in the sub-prime market, if well-managed and contained, can yield some positive outcomes. If it results in more realistic risk assessments and stronger credit standards, it will make for healthier markets and more sustained growth. Governments and central banks are working together to minimize the fallout and help bring about a smoother adjustment in credit markets.

Restoring confidence to financial markets is key. Like central banks around the world, MAS has been closely monitoring the situation and stands ready to inject additional liquidity if necessary. To-date, our markets have been functioning in an orderly fashion.

MAS is also closely monitoring our financial institutions’ exposure to sub-prime and other structured credit markets, at both the domestic and global levels. Our exposure remains small and contained at this stage. At the systemic level, the potential impact on Singapore’s banking system is being monitored in consultation with the industry and subject to routine stress-testing exercises. MAS is also working with SGX to monitor its members, and to ensure that its clearing funds have sufficient resources to meet outstanding obligations.