By staff reporter Wang Huan in Singapore

From Caijing Magazine

Reluctantly, Singapore is recognizing a distressing fact: the country has sunk into recession, the first among Asian economies. According to Monetary Authority of Singapore, its GDP shrank by 5.7 and 6.3 percent respectively in the second and third quarter of 2008, compared with the previous quarter.

Only a year ago, Singaporeans enjoyed a shining GDP growth of 7.5 percent and a GDP per capita of US$ 48,900, ranking fifth in the world. A four-year golden period featuring high-speed growth screeched to a sudden halt. Now it is time for Singapore to reflect on how much it has accomplished and how it can power the next wave of growth.

In 2002, the city state set up a special Economic Review Committee (ERC) to sketch out a route for Singapore that blends both globalization and diversification. It also put together an Economic Evaluation Committee, composed of 200 entrepreneurs and academics, to scrutinize the work of the ERC. Both actions marked the nation’s determination for a growth jolt – switching from a dull, conservative state to energetic “Eastern Monaco.”

The new ambition is evident in its coastal boulevard, where the world’s most expensive casino is under construction. Despite its conservative name, Integrated Resort, the casino and a new art center advertised the state’s confidence and hope.

However, the engine of Singapore’s growth between 2002 and 2007 was tourism and electronics; both rely heavily on the overseas market and have taken heavy hits from the global economic meltdown.

According to Singapore’s Tourism Bureau, visitors in September 2008 dropped by 4.9 percent compared with a year ago. The bureau declared that the hope to meet 2008’s target tourism revenue of US$ 10.6 billion dimmed.

Massive job cuts also churned the city state. Lim Swee Say, minister of the Prime Minister’s Office, said in November that layoffs might exceed 10,000 in 2008.

A report from the International Monetary Fund said that since Singapore is in the upper stream of the production chain, its economy is more closely linked to developed nations. IMF predicts that 1 percent negative GDP growth of the U.S. would drag down Singapore economy by 0.9 percent, twice in severity than the impact of the 1997 Asian financial crisis.

Singaporean Prime Minister Lee Hsien Loong said the country’s recovery doesn’t hinge on its own policy, but on how soon the U.S. economy can heal.

Currently, Singapore and Indonesia are the only two Asian countries that haven’t loosened their monetary policy. The central bank of Singapore brushes aside any possibility of interest rate deduction prior to its rate-setting meeting in April 2009. The country also doled out fiscal stimuli very sparingly, only SG$ 2.3 billion so far, which indicates the country’s faith in its natural ability to heal.

However, the Monetary Authority of Singapore follows a policy to tightly control its currency exchange rate instead of its interest rate, in order to stabilize investments. Singapore's economy is mainly dependend on overseas investments, which are likely to react on the exchange rate.