This document has been made available in electronic format by the International Co-operative Alliance (ICA) 

Impact of Current Economic Crisis in the Region and Ways Co-operatives adjust to the Changing Environment - View from Singapore (1998)

Oct., 1998
(Source: Co-op Dialogue, Vol. 8, No. 2, July-Sept, 1998, pp.32-33)

by Tan Kin Lian, Chairman, Singapore National Co-operative Federation

1997 Crisis
The economic crisis in Asia started in July 1997 with the devaluation of the Thai baht and has continued up to now. It has affected many countries in Asia with severe declines in the value of their currencies and stock markets. This has led to high inflation rates affecting the prices of food and basic necessities, business failures, retrenchment, loss of employment and a weakened economy.

Before the Crisis
Prior to this crisis, Singapore had a robust economy. The economic growth rate in 1996 was 7.0%. The per capital income was US$30,400. There was full employment with a tight labour market. The healthy economy provided employment for 1,800,000 people, of whom about 350,000 are foreign workers. Interest rates were low and the stock market was healthy.

In this favourable economic environment, the co-operative sector performed well. The total membership of the movement was 972,000 in 1996, with total assets of S$3.5 billion (US$2.2 billion).

The two largest co-ops were in the insurance sector (NTUC INCOME with 518,000 members) and the consumer sector (NTUC FAIRPRICE with 347,000 members). They had to compete in an open market environment. Through operating efficiently and using its co-operative values, they were able to achieve a leading market ranking. NTUC INCOME is the third largest insurer and NTUC FAIR-PRICE is the largest supermarket chain.

The credit sector comprised of 35 co-ops with 66,000 members. Most of these co-operatives operate in their niche areas, catering to members in specific work places and provide opportunities for members to save regularly and to apply for loans.

The remaining co-operatives are largely owned by co-operatives and provide services to the general public in the areas of pharmaceutical products, dental services, food outlets, housing, and radio broadcast. These co-operatives do not have a membership base to patronise their services.

Impact of the Crisis
This economic crisis has impacted Singapore severely, although not to the same extent suffered by some Asian countries.

The Singapore stock market has declined by 30% during 1997. This has affected not only the financial institutions and business enterprises, but large number of people who invest their retirement savings in the Central Provident Fund and their personal savings in equities, unit trusts and insurance policies. At the worst stage, the drop in the stock market was more than 50%.

The economic crisis has led to a sharp increase in interest rate. Prior to the crisis, the short term interest rate was about 3%. This increased to 20% at its peak and is now hovering around 7%. The interest rate on housing and car loans has increased by 1% to 2%, adding to the financial burdens of many people who have bought their homes or cars on financing. We are beginning to see an increase in loss of jobs and retrenchments due to down-sizing, restructuring and business failures.

The Singapore dollar has depreciated by about 20% against the US dollar during the past year. The impact of the economic crisis on the co-operative sectors has been significant. The insurance co-operative suffered a depreciation of about S$230 million in the value of its investments during 1997. While this is a large sum of money, and is the worst in its history, it was well covered by the free surplus and reserves of about S$700 million that was accumulated during the past years. Sales of insurance products have started to decline, as people have less money to spend during the difficult economic climate. A higher percentage of policyholders are starting to surrender or take loans against their life insurance policies. While the increase is still modest, it is expected to continue in the future.

The supermarket co-operative appears to be relatively sheltered from the impact of the economic crisis. People still need food and basic necessities, during hard times. Their supermarket sales continue to show growth, although at a modest rate. There is increasing competition with the entry of large retailers from overseas, but the co-operative is able to compete successfully. The co-operative continues to play an important role in moderating the food prices in spite of higher import cost due to the depreciation of the local currency against the US dollar, where most of its imports are denominated.

The impact of the crisis on the credit co-operatives is more immediately felt. The increase in short term interest rate has resulted in more withdrawals of savings from credit co-operatives to enjoy the higher interest rates paid on bank deposits. Some co-operatives responded by increasing the interest rate paid on their savings, while others have to suffer an outflow of funds. In  the  months  ahead, these credit co-operatives may be impacted by higher default rates on their loans, as their borrowers are unable to repay due to loss of jobs, or higher interest costs. These two factors will impact adversely on the financial position of the credit co-operatives, especially the smaller or weaker ones, and have to be monitored closely.

For the housing co-operative, the problem is more severe. The co-operative has several large housing projects under development. The property market has softened considerably, due to oversupply and an uncertain economic outlook which has depressed demand for private properties. While the housing co-operative is able to delay some of the projects, the carrying cost of the land and unsold properties will impose a heavy strain on the co-operative and its shareholders.

Responses of the Co-operative Movement
The Co-operative Movement in Singapore has been able to weather the economic crisis well. Its two largest co-operatives, which account for 89% of the total membership, are financially strong and robust and have been able to respond well to the impact of the crisis.

They will have to continue to improve their business efficiency and competitiveness, respond to the changes in the market brought out by customer preferences and globalised competition, and strengthen their co-operative identity and values.

The crisis has made it more urgent for the credit co-operatives to improve their business efficiency and management. Two projects are being implemented and will now be accelerated. One project aims to provide computer services to these co-operatives through a centrally operated computer bureau. This will enable the credit co-operatives to upgrade their business efficiency at a modest cost, with the development cost shared by several parties. The second project aims to make the credit co-operatives more aware about their risk exposure and to manage them better.

The Co-operative Movement will also intensify its activities to educate its employees and leaders about co-operative values, principles and practices and to create greater awareness among its members, the general public and leaders in the community about the role of co-operatives in a modern society.