Mr Speaker, Sir, I beg to move, That Parliament approves the financial policy of the Government for the financial year 1st April, 1972 to 31st March, 1973. Last year, when I presented the Budget for the financial year 1971-72, 1 tried to assess the probability that the high growth rate of 15 per cent for the Singapore economy as measured by the Gross Domestic Product (or G.D.P.) in the preceding years could be sustained in 1972. I was fairly confident that the general policies we had adopted, including our emphasis on the major growth sectors including export-oriented manufacturing industries, were basically correct for rapid economic growth but warned against possible adverse factors which might upset our carefully laid plans. Preliminary figures show that, in the event, with a 14 per cent G.D.P, increase, we did not quite attain the 15 per cent growth target, although the outcome of the last year's working must be considered highly satisfactory. With the momentum generated during the preceding year, the economy initially moved forward rapidly but was subsequently slowed down by the instability caused by the international monetary crises which occurred in the latter part of 1971. Survey of International Economic Events That year will probably go down in the annals of economic and financial history as a turning point for the world monetary system. For the first time since it established its complete dominance after the Second World War, the strength of the U.S. Dollar was called seriously into question. At first, it was suggested that the U.S, should favour a policy of "benign neglect" of the dollar's weakness. This casual attitude soon disappeared. In May, the first indications of potential trouble came with the free floating upwards of the German Mark, and the revaluation of the Swiss Franc and the Austrian Schilling. This was followed by a period of intense speculation in the Mark, the Yen, and finally against the U.S. Dollar, which resulted in a rapid deterioration of the dollar's position. Finally, the international monetary system devised at Bretton-Woods, of internationally agreed par values and strictly maintained exchange margins of not more than 2 per cent, collapsed with the "Nixon shock" in August, announcing suspension of the convertibility of the dollar and the imposition of a 10 per cent surcharge on all U.S, imports. The draconian measures adopted to shore up the dollar's crumbling defences and to exact trade concessions from her trading partners (including restraints in textile exports under "voluntary" agreements) had widespread repercussions on world economies. Many countries were obliged to float their currencies or to restrict dealings in their currency exchanges, and the resultant uncertainties on prices had a depressive effect upon world trade. There was even talk of retaliatory restrictions being imposed against U.S, goods. By the end of the year, wiser counsels prevailed and the crisis began to recede with an agreement for the devaluation of the dollar against gold and realignment of all other major currencies on new parities or central rates either in terms of the U.S, dollar or gold. To ensure further stability, the limits within which currency rates were allowed to fluctuate were widened from 1 per cent to 2� per cent on either side of parity. This wider band should, theoretically, give greater flexibility to governments intending to defend their central rates against speculation. The financial world has therefore been given respite from impending disaster, but the basic problems underlying the monetary crisis remain to be resolved. The year 1972 may yet see a recrudescence of the old symptoms and a recurrence of the disease. In the general realignment of currencies when the dollar was devalued in terms of gold by 8.57 per cent, Singapore followed the British Pound in maintaining its gold parity. In other words, the Pound Sterling was revalued upwards against the American Dollar by 8.57 per cent, and the Singapore Dollar maintained its parity with Sterling and was also revalued upwards by 8.57 per cent against the U.S. Dollar. However, in relation to all of Singapore's world trading partners the effective net revaluation for the Singapore Dollar has been calculated to be only 0.53 per cent. Our trade with Malaysia will be completely unaffected as parity between the Singapore and Malaysian dollars has been maintained, but one consequence of Singapore's decision not to follow the-American Dollar downwards may be some small increase in the overall cost of imports. However, this increase could be reduced if trade and capital transactions are changed in direction to take advantage of the altered currency rates. Thus, unless prices also change, imports from Japan and Germany which are now relatively more expensive as suppliers, may be reduced while imports from the United States, cheaper because of devaluations, should be increased. The monetary uncertainty had a deleterious effect on trade last year. In a preliminary assessment of international trade in 1971, the General Agreement on Tariffs and Trade (G.A.T.T.) Secretariat indicated that there was a marked slowdown in the rate of growth of world trade in 1971. The volume of trade grew by a mere 5 per cent - well below the average annual growth of the sixties. In dollar values, the increase in trade was close to the average of 9.3 per -cent for the last decade. However, the value figures are inflated by the parity changes during the year and even so, the rise remains well below that recorded in 1969 and 1970. The British Government's decade-long quest to join the European Economic Community (E.E.C.) on acceptable terms has finally succeeded. The British Parliament endorsed by a sizable majority in October 1971 the principle of Britain's entry into the E.E.C. In spite of the narrow majority recently on the Second Reading of the legislation to effect such entry, we must expect that Britain will be in the European Common Market in January 1973. Britain's move to identify herself more with the European community of nations will have major effects on her relationship with other Commonwealth countries and on the role and status of the Pound Sterling as an international currency and the monetary reserve assets of other Sterling Area countries. Singapore will now, therefore, like other members of the Commonwealth and of the Sterling Area, have to consider her position in relation to these two matters. First, in regard to the change in its trading relationship with Commonwealth countries under the present system of Commonwealth preferences, the British entry into an outward-looking E.E.C, should not have too serious effects on Singapore's trading position. The main dislocation is likely to arise from the application of the common external tariffs of the E.E.C, which the United Kingdom will have to implement in stages on imports from non-E.E.C. countries. The ultimate situation will be the eventual elimination of preferential tariffs enjoyed by Commonwealth members in their trade with Britain in the past. While our entrepot trade may be affected in volume and our earnings reduced on the export of entrepot trade commodities to the E.E.C., it is mainly our domestic exports into Britain which will be affected by the difference between the Commonwealth preference rates and the E.E.C, common external tariff. Less than one-third of Singapore's present exports to Britain are of domestic origin, but this is likely to increase considerably in the future. Singapore would benefit from freer entry into an enlarged E.E.C, market for its goods. It is therefore our intention, by establishing an official representation to the E.E.C, in Brussels, to investigate the possibilities of negotiating an associate member status or a trade agreement with the E.E.C, which will facilitate such entry. This could be done bilaterally and also, as has been suggested, in a common approach with other ASEAN (Association of Southeast Asian Nations) countries, on the 1ineX of the South American Andean Common Market talks with the E.E.C. Secondly, there is the question of Singapore's Sterling reserves. After Britain's entry into the E.E.C., she is.; committed to Sterling playing a diminishing role as an international reserve currency, and consequently, I assume, to the running down of the Sterling area reserves and its replacement by some other international currency in general trading use, or by funding in some form of created reserve asset, such as the I.M.F. Special Drawing Rights (or S.D.Rs). The latter is the more likely in view of the British Chancellor of the Exchequer's Speech at the I.M.F./ I.B.R.D. (International Monetary Fund / International Bank for Reconstruction-and Development) meeting in Washing-, ton last year favouring S.D.Rs or some, new form of it as the num�raire in the new international monetary system. In that event, since we do not regard S.D.Rs, as at present constituted to be a satisfactory substitute for the Pound Sterling,, we may have to consider how we can, safeguard the value of our external. reserves. By an agreement signed between the-British arid Singapore Governments, not less than 36 per cent of Singapore's, external reserves are at present required, to be held in Sterling. In consideration of this obligation, 90 per cent of such. Sterling reserves are guaranteed by Britain against a devaluation of the British Pound by more than 1 per cent from its old parity of US$2.40 to 1. The currency realignment after the recent international monetary crisis resulted in. Sterling having a parity or central rate-of US$2.6057 to the Pound and a wider margin of 2� per cent on either side of parity, which clearly renders the Sterling Guarantee Agreement inapplicable without major amendment. To meet the new situation, therefore, I propose to initiate discussions with the British Government for the cancellation or amendment of the Sterling Guarantee Agreement in order that some further diversification of our external assets may, if necessary, be considered. Singapore's Economy in 1971 I would now like to discuss in some -detail the performance of our economy. I am again distributing, for the convenience of Members, a number of statistical tables (See Appendix, cols. 553-88), upon which I shall partly base my remarks. Appendix to Annual Budget Statement(Cols. 553-588) I have previously mentioned the figure of 14 per cent in connection with our preliminary figures for G.D.P, growth in 1971. The more commonly used indicator of overall growth, the Gross National Product (G.N.P.) has also been calculated this year. Preliminary estimates of G.N.P, at current prices for the year show that it rose by $860.8 million to reach the level of $7,000.8 million. In percentage terms, this represented an increase of some 14.0 per cent which, though somewhat lower than the 17.2 per cent recorded for 1970, nevertheless compared favourably with the average growth rate of around 14.1 per cent per annum for the period 1966-70. Estimates of G.N.P, at constant prices are not yet available at this moment. However, since the general price levels except for certain lines of consumer goods have been observed to show mild increases, it can be expected that the real growth in G.N.P., discounting price increases, would not deviate significantly from the current price estimation. Growth was, therefore, in the main non-inflationary. With the population growth of nearly 2 per cent in 1971, the per capita G.N.P, at current market prices advanced by about 12.1 per cent from $2,960 in 1970 to $3,317 in 1971. At these levels the per capita G.N.P, is the second highest in Asia after Japan. Another interesting indicator is that for Gross Domestic Expenditure (G.D.E.) representing resource use. Preliminary estimates of G.D.E, also registered a comparable high rate of increase. The expenditure on all goods and services for 1971 amounted to $6,759.3 million, which is about $1,000 million, or 17.4 per cent higher compared to the 1970 estimates. As for G.N.P., the G.D.E, growth rate was slightly below the level experienced in 1970 of around 21.0 per cent. The increase was contributed by both components, namely, consumption and gross domestic capital formation. Capital formation rose substantially by $383.6 million, or 27.9 per cent, to reach a high level of $1,759.3 million, which consumption rose more moderately hut still at a sizable rate of 14.1 per cent to reach $5,000 million. The rise in capital formation, though somewhat less than that achieved in 1970 of $421 million, or 44.2 per cent, was still substantial, and it can be said with confidence that Singapore's political stability and its potential for profitable economic development continue to be recognised by investors both local and abroad. Economic Development Board estimates of commitments for additional foreign investment in new industries or for expansion of existing ones indicate that this will total $930 million, not much less than the $1,000 million for 1970. Gross Domestic Capital Formation, which registered a growth rate of 27.0 per cent per annum for the period 1967- 69, rose sharply to a peak level of 44.2 per cent in 1970 over 1969. Although the growth for 1971 of 27.9 per cent was noticeably below the rate experienced in 1970, nevertheless it measures up to the trend of growth for the earlier period 1967-69. The lower growth rate of new investments in 1971 can be explained partly by the slowing down of construction activity, due primarily to the shortage of capacity - labour and material resources - in the industry generated by the boom in building activity during the past two to three years. This lack of capacity has also led to the control of urban renewal development. Further, a relatively smaller growth rate in expenditure on machinery and equipment was also registered compared to 1970, and this has also contributed to the smaller growth rate in the Gross Domestic Capital Formation during the year. This was due to the establishment in 1970 of a number of large industries where expensive plant and machinery have been set up. The substantial expansion in Gross Domestic Capital Formation in 1971 reflected the increased pace of development efforts in both the public and private sectors. Private sector investments increased by 29.3 per cent to $1,304.3 million and public sector by 23.9 per cent to $455 million. As in previous years, the private sector's share of capital expenditure was maintained at a high level, accounting for about 74 per cent in 1970 and 1971, as against 26 per cent for the public sector. The increase for the private sector was mainly in respect of expenditure on transport equipment and construction of non-residential buildings, primarily of offices, shopping complexes and factories, whereas for the public sector, it was mainly in respect of machinery and equipment and public housing. Expenditure on transport equipment by the private sector increased very substantially from $108.2 million to $271.5 million, giving an increase of 150.0 per cent, and this comprised largely of purchases of ships and air--craft by Neptune Orient Lines and Malaysia-Singapore Airlines. In the case of consumption, public sector expenditure rose much more sharply by 35.1 per cent than did private consumption expenditure (10.2 per cent). The increase in Government consumption expenditure, which has been expanding rapidly since 1969, far exceeded the rate achieved in 1970 of 25.5 per cent, whereas for private consumption expenditure it was below the 1970 level of 13.5 per cent. The net result of these changes is that the share composition of private consumption expenditure fell from 64.3 per cent in 1970 to 60.4 per cent in 1971, whilst that of Government consumption expenditure and Gross Domestic Capital Formation rose from 11.8 per cent and 23.9 per cent to 13.6 per cent and 26.0 per cent respectively. It is significant that the share of consumption expenditure (both private and public) to total -expenditure fell from 93.4 per cent in 1960 to 74.0 per cent in 1971, whereas for Gross Domestic Capital Formation it rose markedly from 6.6 per cent to 26.0 per cent, an increase of nearly four times. The largest increase in private consumption expenditure in 1971 was registered in expenditure on clothing, furniture and durables, housing and transport, which was in line with the trend experienced during the past few years. The outcome of this is that the share of expenditure on basic necessities, primarily food, has fallen from 32.3 per cent in 1960 to 25.4 per cent in 1971, whilst the shares for other items have risen accordingly. This is a reflection of the rising economic well-being of the population. With respect to public sector consumption, the sharp increase of 35.1 per cent in 1971 as well as for the previous two years of over 20 per cent was largely for the defence build-up. Gross Domestic Product by Industrial Origin Before we turn to review the Republic's performance in the various sectors of the economy in 1971, it is perhaps in order to mention that the rapid growth, particularly during the past five years, has been accompanied by some degree of structural transformation of the economy. The manufacturing and construction sectors registered rapid growth particularly during the last five-year period whereas the trade and other services sectors had a relatively lower rate of growth. The net result was that the share composition of the manufacturing and construction sectors jointly rose sharply from 11.2 per cent in 1960 to 25.5 per cent in 1970 and 28.5 per cent in 1971. On the other hand, the ratio of the trade and other services sectors to the G.D.P, has slipped from 70.7 per cent in 1960 to only 58.6 per cent in 1970 and 55.5 per cent in 1971. I should now like to review the development of the major sectors, primarily manufacturing, construction, trade, Government services and utilities, and other services sectors, of the economy and their impact on the overall growth of the Republic. (i) Manufacturing Sector In 1971, manufacturing industries generated an income contribution of $1,490.9 million to G.D.P., an increase of 30.3 per cent compared to 27.5 per cent in 1970. This was nearly eight times as much as in 1960, while G.D.P, grew by three times over this period. This rapid development has raised the share composition of the manufacturing sector to total G.D.P, from 9.2 per cent in 1960 to 23.0 per cent in 1971. Our manufacturing industries are becoming increasingly characterised by orientation towards exports and by the higher quality of their products. Overall, some 40 per cent of our domestic manufactures is exported. Among pioneer companies, exports account for some two-thirds of their output. Last year, more than one-third of our domestic exports went to developed countries, as compared with less than one-fifth five years ago. The fastest growth was recorded by the petroleum refining, manufacture of electrical machinery and apparatus, and ship building and repairing industries where increases in value added averaging around 40.0 per cent were recorded. In addition to these industries, other sub-sectors also registered favourable growth during 1971 as compared to 1970. One of the major obstacles in industrial growth experienced in 1971 was the acute shortage of skilled labour for specific industries. Up to 1971, increases in output were matched by increases in employment. The average labour productivity in manufacturing appears to have risen very little and rapid industrial expansion has been wholly dependent on a growing labour input. However, this is not likely to continue since the rapid restructuring of the economy and the raising of the technological level of the labour force through retraining and the acquisition of new skills are now being actively promoted, as I shall describe later. The growth of the industry will also-have to depend on higher productivity and Government's policy is aimed at achieving this target. Data from the Census of Industrial Production showed that the largest industrial sector in the economy is petroleum refining which accounted for about 33.4-per cent of total output for the manufacturing sector in 1971. By the end of 1970, total refining capacity in Singapore amounted to 368,000 barrels daily. In 1971 the capacity was increased by a, further 250,000 barrels per day. However, although petroleum refining is a, major activity in terms of output, in terms of value added the contribution of this industry to total value added of manufacturing is only 20.2 per cent. Associated with the oil industry and. Singapore's position as the fourth largest port in the world is ship building and ship repairing, which is included under transport equipment industry. The transport equipment industry ranked a close second with 15.4 per cent of total value added, and this in turn was followed by the electrical machinery industry, which contributed 14.2 per cent of total value added. Of the more traditional industries, food, beverage and tobacco industries jointly accounted for another 9.4 per cent of the total. value added. (ii) Construction The contribution by the construction industry, which has been growing rapidly since 1967, rose by about 16.6 per cent, to $352.5 million in 1971. Although the growth rate was much lower compared to the previous year of 47.1 per cent, it was nevertheless among the highest rates-registered by the other sectors and was-well above the 14.0 per cent for the-overall G.D.P. As a result, its share in G.D.P, was maintained at about the same level as in the previous years of around S per cent or eight times over 1960. The lower growth rate for 1971 compared to 1970 can be largely attributed to the shortage of capacity faced by the industry both in terms of labour and contracting skills and materials which have been developing for some time now. The building boom over the last two to three years has been caused by a combined demand from the massive public housing programme; the boom in hotel and office construction stimulated by the urban renewal programme; as well as construction associated with the burgeoning industrial expansion. This has exerted excessive pressure on all resources associated with the construction industry, including labour. Suppliers of construction materials were also hard put to meet demands and temporary shortages on a number of occasions in 1971. The situation was aggravated by speculators moving in to corner the market, and Government had to step in on a number of occasions to authorize controlled imports of restricted building materials to meet the shortage. The deceleration of the growth in this sector during 1971 was primarily in respect of non-residential buildings in the private sector due largely to the curtailment of sales of sites for urban renewal projects. Construction of non-residential buildings comprising mainly shopping and office complexes undertaken by the private sector registered a relatively small increase of 21.9 per cent compared to 121.6 per cent in 1970. On the other hand, construction of residential buildings forged ahead with a higher growth rate of 32.6 per cent compared to 28.4 per cent in 1970. The increase has been primarily in respect of public housing and, to a lesser extent, private housing. (iii) Trade The growth rate for the entrepot and domestic trade sector, which formed nearly one-third of the G.D.P., reflected a slight declining trend during the past decade, except for 1968 and 1969 when the accelerated growth reflected the resumption of trade with Indonesia. In line with this trend, the contribution of this sector increased by only 9.6 per cent or $166.7 million in 1971, representing a slower rate of growth compared to 12.6 per cent in 1970. This lag could be attributed to, among others, the pursuit of a direct trade policy by neighbouring countries, the general decline in produce prices primarily of rubber, the de-escalation of the war in Vietnam and, last but not least, the-uncertain trading conditions which prevailed during the recent international monetary crisis. Of the total increase in the trade sector, entrepot trade accounted for 3.6 per cent and domestic trade for 6.0 per cent. The entrepot trade component, which showed a declining trend in growth over the past decade, virtually maintained the same low rate of growth of 3.0 per cent. The domestic trade sector increased by 13.8 per cent which, though higher than the entrepot trade was below the level recorded in 1970 of 20.2 per cent. The increase in domestic trade sector was however close to the overall rate for the G.D.P. As a result, the ratio of the entrepot trade to total G.D.P, declined further from 12.0 per cent in 1970 to 10.9 per cent in 1971, whereas for domestic trade the same ratio of around 18 per cent as in the previous year was maintained. It is interesting to note that within the trade sector there has also been a shift in emphasis with domestic trade gaining in importance as compared to entrepot trade. Entrepot trade, which in the earlier sixties formed 18.6 per cent of the trade sector, dropped to only 10.9 per cent in 1971, while domestic trade gained in importance, particularly from 1968. In value terms, entrepot trade amounted to $703.6 million in 1971 against $1,206.0 million for domestic trade, and this is in sharp contrast to 1960 where entrepot trade amounted to $381.1 million and domestic trade to $269.0 million, The declining trend of entrepot trade may be largely attributed, as mentioned earlier, to an increasing participation of direct foreign trade by neighbouring countries and the low level, of produce prices. On the other hand, the rapid growth in the domestic trade sub-sector has been propelled by the rising purchasing power of the population and increased earnings from the distribution of domestic export which has shown a substantial growth during the past few years. Continued expansion of this sub-sector can be expected in the next few years in line with the general economic growth. On balance it is envisaged that the declining importance of the entrepot trade in the years ahead will be offset by the growth of the domestic trade sector and the trade sector as a whole can be expected at the minimum to maintain the trend of growth rate recorded for the period 1970 and 1971 of around 11.1 per cent per annum. The total external trade reached a record level of about $14,026.3 million in 1971, an increase of $1,736.7 million or 14.1 per cent as against 11.9 per cent in 1970. Exports rose by 12.9 per cent to $5,371.3 million in 1971, while imports advanced at a faster rate of 14.9 per cent to $8,655.0 million, compared with the respective rates of 0.3 per cent and 20.7 per cent for the previous year. The most substantial increase was observed in imports of capital goods and materials to meet the increased pace of development in the industrial sector. In the case of exports, the increase came primarily from domestic exports which rose by 29.6 per cent to the level -of $2,368.2 million as new markets are found for the products manufactured by local industries. The rising trend in domestic exports is expected to continue as increasing promotional efforts are being made to establish new markets overseas. Re-exports or entrepot exports, however, stagnated at the 1970 level of around $3,003.1 million which may be attributed to the general slump in prices of primary commodities, primarily of rubber and the increased participation in direct trade by our neighbours. To the extent that our neighbours continue to pursue their direct trade policies and world prices of primary produce remain at low levels, it can be expected that re-exports will decline in the years ahead and accordingly the contribution of the entrepot trade sector to the G.D.P, would also decline. The recorded trade deficit in 1971 amounted to some $3,283.7 million compared to $2,778.0 million in 1970. The ever-widening trade deficit as recorded, particularly in recent years, has been aggravated by higher costs of imported goods. Unlike other industrial countries such as Japan and Germany, which have accumulated large trade surpluses, Singapore has run a persistent trade deficit and this has been largely financed by earnings from "invisibles" and large capital inflows which have gone into meeting the costs of substantial imports of machinery and equipment. Whilst there may be concern at the consequences of our growing trade deficit in the balance of payments, I have explained in the Budget Speech last year that there is basically no need for alarm. Our preliminary estimates of balance of payments indicate that the balance of payments surplus would amount to $844.6 million, which far exceeds the surplus for 1970 by $383.3 million. In the coming year or two, however, it is felt that unless large capital inflows continue and increase, the balance of payments position may be strained as the Republic would be faced with the total reduction of British military expenditure in Singapore which would undoubtedly have a big impact on Singapore's external financial position. Also, payments for machinery and equipment and materials for industrial development as well as for the public sector infrastructure development are expected to increase in the next two to three years. Thus, the pressure on the balance of payments may, in certain circumstances, be expected to continue till such time when new industries are fully operational and have established export markets for their products and when the anticipated larger earnings from tourism and other "invisibles", such as ship-repairing, materialise. Thus, it is of utmost priority that efforts should be made to increase our domestic exports and invisible earnings and Government's policy is aimed at fostering this. (iv) Government Services and Public Utilities The contribution by Government services in 1971 to the G.D.P, increased by 15.9 per cent, which follows the trend of growth for the past decade where an annual average growth rate of about 14 per cent was registered. The contribution of this sector to G.D.P, in 1971 was $452 million. At this level, Government services accounted for about 7 per cent of the G.D.P. It is interesting to note that the share composition of this sector to the G.D.P, has been maintained at a steady 7 per cent throughout the entire period. The main increases are in respect of expenditure on defence, education and health. As in the case of Government services, public utilities showed a steady growth i-ate of 13.7 per cent for the year under review and its share to G.D.P, has been maintained at around 2 per cent since 1966. The contribution of this sector to G.D.P, stood at $157.3 million in 1971. (v) Other Services (a) Tourism As I told you in the last Budget Speech, it is our intention to develop the tourist industry to increase the flow of foreign exchange earnings and strengthen the balance of payments position. However, care has to be exercised to ensure that the investment is in those facilities and amenities which do not tax the already short supply of labour resources. To this end, the massive hotel building programme of the last few years has had to be slowed down to provide for a more balanced development and the reallocation of building construction and other capacity to development projects of higher priority. The encouraging signs of success in our efforts in promoting tourism is evidenced by the growing number of visitors who come to Singapore each year. In 1971, 632,000 tourists visited the Republic, as against 522,000 in 1970 and 409,000 in 1969. Although the growth rate for 1971 of 21.0 per cent is lower than the 27.6 per cent for 1970, which was partly due to the post-Expo `70 influx of tourists, the growth rate of tourist arrivals is a fairly respectable rate by international standards. Earnings from tourism continued to grow and reached $323 million in 1971 compared to $275.6 million in 1970, or an increase of some 17.2 per cent. This was ten times higher than 1960, thereby raising the share composition from 1.5 per cent in 1960 to 5.0 per cent in 1971. The average stay of visitors also rose slightly from about 3.3 days in 1967 to about 3.9 days in 1970 and 1971. However, despite our past efforts to promote tourism there remains much to be done. A more intensive programme is required to attract tourists to Singapore especially from those countries whose nationals are now providing the major share of world tourists. By these, I mean Japan, Australia, the United States, and the richer European countries. The occupancy rate for hotels has fallen from 73.5 per cent in 1969 to 70.7 per cent in 1970 and 65.4 per cent in 1971. One of the objectives of tourist promotion will, therefore, be to get the occupancy rate back to something like the level of the late sixties, and the hotel industry and the Tourist Promotion Board will each have to play its part to achieve this end. On the infrastructure side and the provision of amenities and facilities the proposed Development Budget for the financial year 1972-73 makes provisions for the development of a large number of projects which should go some way to encouraging tourists to increase their length of stay in Singapore. Thus, with greater promotional efforts, I expect that the tourist industry will increase its earnings in the current and ensuing years. (b) Foreign Military Expenditure Preliminary estimates for foreign military expenditure in 1971 covering both British military expenditure and expenditure by A.N.Z.U.K. (Australia-New Zealand-United Kingdom) Forces indicate that there is practically no change in the level of expenditure from that registered in 1970. The expenditure remained at around $420 million. The phased reduction in British military expenditure, which was only completed by the later part of 1971, was counterbalanced by a corresponding increase in A.N.Z.U.K. Forces expenditure during the year. The full impact of the withdrawal has not therefore been felt in 1971. When the expenditure for this sub-sector is reduced to less than $100 million in 1972, it is hoped that any dampening effect on the economy particularly on domestic demand and employment can be counteracted. Since the major growth sectors of the economy, namely, manufacturing, construction, tourism, banking and port activity, are expected to forge ahead with sustained efforts at expansion, the delayed effects of the complete British military withdrawal in the current year can be fully mitigated and the economy should -continue to grow, though perhaps at a lower level than in the past year. (c) Banking and Insurance I should now like to conclude this sectoral analysis with a reference to that sector of the economy - banking and insurance - which embraces the financial operations of the economy. The contribution of banking and insurance to the G.D.P., which has consistently shown a rising trend, further expanded by 15.0 per cent to $112.6 million in 1971. The share in G.D.P, has been maintained at around 1.7 per cent throughout the past decade. Banking continued to grow in 1971 along the lines of Government policy which is to encourage Swiss type banking procedures as part of the overall programme of developing Singapore into a financial centre for Southeast Asia. By the end of 1971, the number of banks totalled 42 with 192 branch offices. Total deposits rose from $3,194.9 million in 1970 to $3,745.8 million, giving a growth rate of 17.2 per cent. Of total deposits, fixed deposits comprised 57.9 per cent, indicating that banks have funds to lend on a long-term basis. During the same period, bank loans and advances increased from $2,167.7 million to $2,615 million, an overall growth rate of 20.6 per cent. Banks have gradually moved into industrial financing though a large proportion of total loans and advances is still made to trade and commerce. The latest data available shows that by December 1971, out of a total of $2,615 million in loans and advances, 31.3 per cent was made to the commercial sector, while 31.4 per cent was made to the manufacturing sector. Another indicator of the growth of banking is reflected by the increasing share of demand deposits to the total money supply. On average, about 55 per cent of the total money supply, which is a significant ratio by international standards, was raised out of demand deposits. The fact that it forms slightly more than half of the total money supply shows that banking facilities are being increasingly made use of by the public. The Asian Dollar Market continued to attract foreign funds. There are now 19 banks authorised to deal in Asian Dollars as compared to 16 at the end of 1970. Total liabilities of the Asian Currency Units by the end of 1971 aggregated to nearly US$1 billion as compared to US$400 million at the end of the previous year - an increase of l� times. Interest rates on Asian Dollar deposits have fallen in sympathy with world interest rates and are now earning depositors 6.5 per cent for one-year deposits, 5 per cent to 6 per cent for three to six months and 4.75 per cent for one month. To stimulate its further expansion, the Government will encourage the development of an Asian Dollar Bond Market. Two bond issues have so far been made, one floated by the Private Investment Company for Asia (P.I.C.A.) for $10 million and the other by the Development Bank of Singapore (D.B.S.) for a similar sum. The first loan was underwritten by Singapore banks and constitutes an important development for Singapore. The D.B.S, loan was oversubscribed, two-thirds of it being allotted to principal institutions in Singapore, Hong Kong and Japan. It is intended to encourage further borrowings in the Asian Dollar Market by reputable financial institutions of good standing in Singapore, the ASEAN region and even other countries in Asia. Future Prospects Now future prospects: what is the ,outlook for 1972 and beyond? We have seen from our survey of the international economic setting and our analysis of the main economic indicators and their growth rates that the performance of the Singapore economy was affected last year and will depend again this year partly upon the turn of international events. It is, therefore, of some concern that in spite of what was thought at the time to be a valid settlement of international monetary problems, we should still have continuing uncertainty, with weakness in the U.S. Dollar and volatility in exchange markets in all the major financial centres. The ability of world trade to expand will be reduced if the domestic problems of high unemployment at the same time as inflation persist in many major economies; or if the dollar reflow is delayed and the balance of payments problem continues in the United States; or if the uncertainty and exchange restrictions arising from the currency crises and the possibility so soon after the realignment of December of yet another revaluation continues to affect even the strong economy of Japan; or if its slower growth rate, which only it could call a "recession", results in reduced imports of petroleum products from the Middle East (and Singapore as a refining centre) and of raw materials such as iron ore and other minerals from Australia. The success of the domestic policies of all these countries and, in particular, of the United States, in solving their problems and - stimulating growth would give a powerful uplift to other economies. It is to be hoped therefore that, notwithstanding gloomier predictions since then, the forecast by most U.S, economists during the beginning -of the year of a 5.5 to 6 per cent real growth to about $1,150 billion or twice as much as last year, with a price rise of some 3.1 -3.4 per cent only as measured by the G.N.P, deflator, and a reduction of unemployment to under 5.5 per cent, can be realised. Certainly the presently buoyant market in U.S. Stock Exchanges and the resumption of consumer spending are favourable signs of recovery in the U.S, economy. It is to be hoped also that the optimistic estimate of the Organisation for Economic Cooperation and Development (O.E.C.D.), which includes most developed countries including Japan, will be correct for a 5 per cent growth rate for 1972 as against 3 per cent for 1971. The international trade picture is, however, obscure. The G.A.T.T, prediction of world trade for 1972 contented itself on 15th February, 1972, with the statement that: `It is difficult to forecast developments in 1972 in terms of value with any confidence. It seems likely, however, that the rise in export prices expressed in U.S, dollars will be greater in 1972 than in 1971.' In volume terms, however, it was prepared to forecast a 5 per cent increase at best against the 8.5 per cent increase in 1970, and the 5 per cent increase in 1971. In the face of the general uncertainty and of the more restricted trade and economic growth rates in other countries, sustained growth for Singapore in 1972 may, as during the last year, lie largely with our manufacturing sector and its ability to export its products. Our hope is that our vulnerability to these adverse influences has been avoided, to some extent, by our selection and promotion, in accordance with our optimum investment policy, of multi-national manufacturing companies having a scope for progressive growth in technological content in their manufactures, and, consequently, a greater capacity for development of modern skills at all levels. Unlike simple manufacturing or assembly-type industry depending upon low cost labour, these industries are less likely to be displaced by sudden competition in their export markets from new manufacturers from other countries. In any case, by their nature, multi-national companies have diversified and established markets overseas and can operate also, when necessary, largely independently of foreign exchange requirements and variable currency rates, or are even able to take advantage of them. Perhaps partly for the reasons mentioned above, our leading growth sector, manufacturing, managed to grow by 30 per cent in 1971, a faster rate than in 1970, in spite of the rather more adverse international trading conditions in 1971, which according to the Survey of Business Opinions covering a sample of industrial establishments, curbed the growth of some manufacturers during the fourth quarter. In short, we shall do well to press on with the promotion and establishments of more, progressively higher, technology and export-oriented industries. However, the achievement of higher levels of sophistication in industry is correlated to a diligent and disciplined striving for higher productivity. This requires not only management efficiency as well as labour productivity, but also an equitable sharing of the fruits of greater efficiency and upgraded skills in an orderly manner. Among other matters, the determination of equitable shares will now be the concern of the National Wages Council which has been set up with tripartite representation from labour, employers and the Government. The Council's role will include assisting in the formulation of general guidelines on wages policy, recommending necessary adjustments in wage structure, with a view to developing a coherent wage system consistent with long-term economic and social development, and advising on desirable incentive systems for the promotion of operational efficiency and productivity in various enterprises. The promotion of higher technology and the work of the Council both fall within Singapore's long-term objective or strategy for the promotion of modernisation in all sectors of our economy and its transformation into an increasingly outward-looking cross-roads of international economic activities. Such a long-term objective would be assisted by a plan for long-term development. I have accordingly asked my Ministry to formulate such a plan for the l970s. In order that targets for the plan should be set which are sufficiently ambitious and yet perfectly capable of realisation, the plan would project a sustained rapid economic growth of 15 per cent per annum with a doubling of the per capita income by 1975, on a population growth checked by sensible small families. With full employment, a goal that seemed unattainable in the 1960s, labour will become an increasingly scarce resource, and the development plan will also seek to maximise the income derived by the use of labour through the expensive development of high skills and productivity. The development plan will be supported by a programme for public sector action, which will not be to a rigid framework but will be flexible enough to accommodate contingencies and unforeseen circumstances. Five basic elements or components to the plan have been identified for special attention and for implementation in the public sector programme. These are manpower, science and technology, infrastructure, taxation and promotion. With regard to manpower, the intention will be to build up a large pool of professional and technical personnel through upgrading of local talents and skills, and selective immigration. Our industrial training policies will be geared towards producing the necessary skills, while our immigration policies will be more liberal in selected categories of skilled workers. We shall presently be setting up an Industrial Training Board to co-ordinate and rationalise all industrial training. Industrial training would be both institution based and industry-based. The institution-based industrial training will seek to improve technical teaching in primary and secondary schools, vocational and technical institutions as well as to provide technical teacher-training. The industry-based training programme will include apprenticeship schemes, off-the job industrial training, overseas training schemes and joint industry / Government training. The Technical Education Department will be finalising arrangements for the apprenticeship schemes to be implemented in co-operation with the longer established firms in Singapore. With regard to overseas training schemes, some are sponsored by international companies with operations in Singapore. 412 trainees have already completed their training and returned to Singapore. Today, there are 316 such trainees, mostly in Germany and Japan. It is expected that, in the course of this year, the companies will send a further 400 abroad. Apart from these, which are sponsored by the manufacturers, we have also emplaced 53 trainees in precision engineering and other metal trades in apprentice programmes in Europe, while the Economic Development Board has received firm offers for a further 206 to be sent this year. For training at home, under the joint industry/Government training programmes, the first centre will be located at the Jurong Vocational Institute and is expected to have its first intake of 50 trainees in a few months' time, with the intake increasing to 100 a year from the third year. Arrangements with three other international companies for similar joint industry/Government training centres are also expected to be concluded within the next three months.