LAST Saturday's article, 'Respond strategically, not tactically' by Mr Ngiam Tong Dow, argued for a strategic Central Provident Fund (CPF) cut to deal with the economic downturn in Singapore, instead of a tactical Jobs Credit programme.

Mr Ngiam is one of Singapore's economic pioneers, and is well-regarded. But I have to respectfully disagree with his argument that a CPF cut is appropriate to counter the present recession.

As he himself argued, the 1985 recession was triggered by reduced competitiveness due to high wage costs outpacing labour productivity. So a CPF cut then was the right response.

Today's problems are due more to a rapid and steep decline in global demand than Singapore losing economic competitiveness. Yes, businesses have to review their costs to conserve resources in these lean times. The latest Budget initiatives will help, including the Jobs Credit scheme, and Singapore has more resources to deploy if conditions worsen.

But a CPF cut now would be the wrong medicine to fix this severe downturn. It would not improve demand, and would reduce workers' long-term retirement savings.

Given a rapidly ageing population, CPF should not be used as a convenient macroeconomic adjustment tool. There needs to be more, rather than less, assurance on the stability of such funds over time.

The present focus on retraining workers, providing relief for business costs and accelerating infrastructure spending will provide some help till economic conditions improve.

A strategic re-orientation and shift towards Asian rather than Western markets may also be needed, as the United States and European countries are likely to remain in recession for quite a while.

If further off-Budget measures are needed, a reduction in goods and services tax should be considered before cutting workers' retirement savings.

In this economic environment, a CPF cut would indeed be tactical and inappropriate.

Greg Seow

This article was first published in The Straits Times.