Tony Tan: global recession risk higher now

On Singapore Business Times:

• Business Times - 24 Jul 2010
  
  Tony Tan: global recession risk higher now
  
  Dangers to world economy include Europe's debt turmoil, deleveraging in the United States, and protectionist pressures
  
  By CHEW XIANG
  
  A FRAGILE economic recovery could see the world tip back into recession 'sooner than expected', says Tony Tan, deputy chairman of the Government of Singapore Investment Corp (GIC).
  
  Dr Tan, also GIC's executive director and chairman of Singapore Press Holdings (SPH), told delegates at the Swiss Re Forum here yesterday that downside risks to the global economy have increased, highlighting three in particular: the debt turmoil in Europe, deleveraging in the United States, and protectionist pressures around the world.
  
  'It will take a long time for the developed world to fully heal from this crisis,' Dr Tan said. 'The economic recovery, while real, is fragile and there is a risk that negative shocks could push the global economy towards a recession sooner than expected.'
  
  Meanwhile, the developing economies will gain in economic importance and will expect more say on world affairs. 'The shift in economic power to the emerging world will likely increase geopolitical risks,' he said. 'Conflicts could also arise over access to natural resources.'
  
  Investors, meanwhile, will have to place a larger proportion of their assets in emerging markets. 'Far from being a risky and perhaps optional part of their portfolios, emerging markets will become a core and unavoidable asset class in global portfolios,' he said.
  
  But one major risk investors face is that the global recovery has so far been supported by extraordinarily benign government policies. 'Changes in policies or mistakes will thus have a significant impact on the global economic and financial environment,' Dr Tan said. 'A key challenge for policymakers is to properly time the withdrawal of unprecedented monetary and fiscal policies.'
  
  However, governments will have to juggle exit policies with, in some cases, the pressing need to repair public finances. 'The challenge for policymakers in many developed economies will be to convince markets that they have credible plans to ensure sustainable public finances over the medium to long term, while minimising the negative short-term impact on growth,' Dr Tan said.
  
  Asia meanwhile will have its own set of problems. 'Asia will increasingly face labour, natural resource and commodity constraints to its high-growth strategy.' As well, growth will have to depend on a more balanced economic model in that case, he said, which should boost Asian currencies and consumption. But policymakers will have to beware asset price bubbles, rising inflation and populist anger in the developed world that could lead to 'excessive regulation and protectionism', he warned.
  
  Dr Tan said: 'Asia is at the cusp of the next stage in its development. There will likely be bumps along the way - perhaps a few crises - but if we learn the right lessons from history, especially those of the recent Great Crisis, Asia will innovate and adapt.'

http://www.businesstimes.com.sg/sub/news/story/0,4574,396388,00.html?

GIC: Worst Recession In 30 years!

This could be the worst recession in 30 years, so says Dr. Tony Tan, the deputy chairman of Government of Singapore Investment Corp (GIC).

Published on TODAYonline, Worst recession in 30 years: GIC

• Dr Tony Tan calls for urgent action by policymakers
  
  Christie Loh
  christie@mediacorp.com.sg
  
  Just weeks before global financial markets were first sucked into a vortex last August, Dr Tony Tan (picture) was sounding alarm bells about "dark clouds", which had already prompted the Government of Singapore Investment Corp (GIC) to cash out of some of its multi-billion-dollar investments.
  
  Yesterday, GIC's deputy chairman was back with an even more harrowing prediction. "We could be facing a recession which is longer, deeper and wider than any recession that we have encountered in the last 30 years," he said.
  
  Dr Tan delivered this warning during his opening speech at the fund's inaugural staff conference yesterday, the only part of the one-day programme open to the media.
  
  GIC, which manages over US$100 billion ($135 billion) of Singapore's foreign reserves, has spared itself some of the pain.
  
  In the third quarter last year, it sold some of its equities before financial markets nose-dived. This helped provide the funds for GIC to pump a total of about US$16 billion into sub-prime-hit Citigroup and UBS over January and December, in exchange for bonds convertible into shares.
  
  Since then, Citi and UBS have unveiled more losses and writedowns, causing their share prices to fall about 7 per cent and 38 per cent respectively.
  
  But Dr Tan said yesterday that GIC believes the two "long-term" investments will bring "good returns when markets stabilise and economic conditions return to more normal levels". Until then, however, these one to two years will be "extremely nervous and volatile".
  
  He revealed yesterday that GIC had set up three group committees to oversee risks, organisational issues and investments.
  
  The group risk committee, which will be chaired by chief risk officer Sung Cheng Chih, provides oversight and guidance for the development and implementation of policies and practices for the entire group.
  
  Lack of oversight has shown up as a major weakness in the financial industry since the collapse of United States' sub-prime mortgage market, as certain banks and investment firms have only recently discovered the extent of complicated, high-risk instruments on their balance sheets.
  
  As banks continue to reduce lending activities and cause the credit supply to contract, the world economy is fraught with "considerable downside risks", said Dr Tan, adding that "a period of extreme uncertainty" is afoot.
  
  However, he said a sharp turnaround in sentiment and the markets could take place if policymakers in the US and elsewhere respond "strongly and appropriately".
  
  On the other hand, "if such actions by the authorities are not taken within the next three to four months, it will be left to the market forces of supply and demand to stabilise the US housing market before we can see the light at the end of the tunnel", said Dr Tan.
  
  "This will be a considerably more painful and long drawn process."
  
  He told some 500 staff in the audience: "The next few years may well be among the most challenging years for GIC since our establishment in 1981. We have to brace ourselves for trying and difficult times, but we are well prepared."

Link: http://www.todayonline.com/articles/249657.asp