World 'may face deepest recession in 30 years'

World 'may face deepest recession in 30 years'
22 April, 2008

But govts can lessen the pain by acting swiftly to stabilise markets: Tony Tan

By Bryan Lee, Economics Correspondent, THE STRAITS TIMES

ST PHOTO: LIM WUI LIANG

THE world could be facing its worst recession in three decades, but governments can lessen the effects of the downturn if they act decisively within the next three to four months.

The warning came from Dr Tony Tan, the deputy chairman of the Government of Singapore Investment Corporation (GIC), who urged policymakers to take strong action to stabilise investment markets and sentiment amid the extreme uncertainty surrounding the global economy.

'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 yesterday.

'The next few years may well be among the most challenging years for GIC since our establishment in 1981.'

As for the GIC's recent investments in global banks UBS and Citigroup, Dr Tan said these long-term investments will 'give us good returns when markets stabilise and economic conditions return to more normal levels'.

The world economy and its financial markets are in turmoil, triggered by a mortgage crisis in the United States that is still unfolding.

The crisis of confidence has led central banks, especially the US Federal Reserve, to intervene in unprecedented ways to avert a seizure in the world's banking system.

Dr Tan told about 500 staff at the GIC's first annual staff conference: 'The prospects for the US economy and possibly even the world economy are fraught with considerable downside risks.'

He warned that financial markets will be 'extremely nervous and volatile over the next one to two years'.

But the pain can be reduced and shortened if policymakers around the world act swiftly, he said. By doing so, 'investment markets and sentiments can turn around sharply'.

The alternative is that market forces would be left to themselves to stabilise the US housing sector, which would be a 'considerably more painful and long-drawn process'.

Dr Tan said the GIC has been alert to the prospect of the current problems since last year and moved its portfolio to a more conservative posture by selling some shares and holding on to the cash.

Such a move, said Dr Tan, had not been taken for 'quite some time'. And it provided liquidity for the GIC's subsequent investments into UBS and Citigroup.

The GIC has beefed up its management structure over the past nine months. After creating four senior posts in July last year, the GIC set up three group-level committees to oversee operations, investments and risks across its three main units.

The management committee is helmed by managing director Lim Siong Guan and looks into organisational, business and personnel issues.

The investment committee is charged with developing and implementing asset allocation policies and investment strategies. Led by chief investment officer Ng Kok Song, it also does regular reviews of the risk and performance of the GIC's various investments.

Finally, the risk committee provides oversight and guidance for the GIC's risk management policies and practices. It is led by chief risk officer Sung Cheng Chih.

Mr Ng's and Dr Sung's appointments were two of the new posts created last July. The other appointments were for GIC's asset management arm. GIC managing director Lee Ek Tieng was made chairman of the subsidiary and Mr Quah Wee Ghee, president.

'This management structure enables GIC to have groupwide oversight on our operations, investments and risks,' said Dr Tan.

But it also gives sufficient autonomy to the GIC's investment subsidiaries - asset management, real estate and special investments - so that they can respond in a timely fashion to changes in investment circumstances, he added.