THE withdrawal of bank deposit guarantees is a 'delicate exercise' and must be handled carefully, Prime Minister Lee Hsien Loong said yesterday.

The removal of the safeguards must be done in a 'coordinated way' so that they will not lead to vast amounts of deposits and assets 'sloshing around from country to country and destabilising the system', Mr Lee told a summit of Apec CEOs.

The guarantees were introduced by several countries in October last year, after global financial systems came under severe stress following the collapse of Lehman Brothers.

In Singapore, all bank deposits are guaranteed until Dec 31 next year. Once the blanket guarantee ends, the old rule that insures deposits up to $20,000 for each account kicks back in.

In July, the Monetary Authority of Singapore said insurance on each account could be raised from the existing level of $20,000, allowing more people to be insured.

Mr Lee was responding to a delegate who had asked about the best timing for governments to lift fiscal stimulus measures and pre-empt the emergence of speculative bubbles.

The Prime Minister said that there were two facets to the problem: fiscal stimuli, as well as the monetary and financial aspects.

Fiscal stimuli could easily be tailed off as economies started growing again, but if monetary stimuli are withdrawn too late, there is the attendant risk of a bubble emerging, he added.

In Asia, for example, some stock markets have risen, together with some upward movement in property markets.

Mr Lee stressed that Singapore had to implement a deposit guarantee in its financial system because some European countries had implemented them. This had led to Asian countries doing likewise.

Against such a backdrop, Singapore found itself having to make a quick decision.

He said: 'If we didn't act, we were going to have a problem in Singapore because, at the click of a mouse, several hundred million dollars can travel from Point A to Point B and some banking system will suddenly find itself under great stress.

'So we had to move, and other governments in Asia also had to move,' he added.

WILLIAM CHOONG

This article was first published in The Straits Times.