Singapore Defence and Security Report Q1 2011

An extremely stable regime and booming economic outlook have helped the People’s Action Party (PAP) maintain power and oversee continuous development since independence in 1965. Singapore faces very limited political risks in the near term, and we expect the ruling People's Action Party (PAP) to retain its monopoly on power. However, over the longer term, the city-state will come under greater pressure from its citizens to become a more vibrant democracy and foster credible opposition parties.

A generally robust economy is by far the main reason for the PAP's continued rule. Real GDP grew by an average rate of 6.9% from 1980 to 2009, raising per capita income to around US$35,600. However, with Singapore having caught up with developed economies, maintaining competitiveness is going to prove difficult. With labour costs rising, it is conceivable that Singapore will become uncompetitive and that jobless rates will begin to increase. Should this happen, the PAP could come under growing criticism. Our view of a slowdown in Singapore's economic growth in H210 has played out well. However, despite the sequential contraction of real GDP growth in Q310, given the high growth rates in H110, we are happy to maintain our real GDP growth forecast of 12.9% for 2010. Going forward, we believe that external demand growth will moderate, thereby accounting for our muted 3.3% real GDP growth forecast

for 2011. A land swap agreement reached between Singapore and Malaysia on the 20th September 2010 has further strengthened the country’s strategic alliances within the region. Malaysian authorities agreed to vacate the Tanjong Pagar railway station (which lies deep within Singapore's territory) and relocate their train operations to Woodlands, closer to the border between the two countries. We regard the finalisation of the land swap agreement as a win-win deal for both parties. Indeed, the agreement will allow Singapore to reclaim full sovereignty over large tracts of land, while Malaysia stands to benefit more from closer bilateral economic cooperation and investment.

The main security concerns for Singapore are still piracy and terrorism. Security in the Malacca Strait is a key issue for the government with the waters around Indonesia classified as one of the world’s main maritime ‘chokepoints’. Attacks have increased greatly in recent months with over 30 attacks in just part of 2010 compared with just seven for the whole of 2009.