Inflation will become 'very serious problem' for the world if measures are not taken: PM Lee

SINGAPORE: Inflation will become a very serious problem for the world if measures are not taken to address it, Prime Minister Lee Hsien Loong said in an interview with Nikkei Asia on Friday (May 20).

Highlighting the challenges of tackling inflation, Mr Lee said: “The difficulty is that now that inflation is quite high, you need quite drastic measures in order to bring it back down and to prevent inflationary expectations from taking root.

“It is very difficult to do that and have a soft landing. There is a considerable risk of your doing what you need to do but the result is provoking a recession.”

He added: “It's happened repeatedly in the 60s, 70s, 80s, 90s. So that is a risk which we have to anticipate and watch out for. But ... you have to take that risk because if you do not act against inflation, that will become a very serious problem for the world.”

Inflation in many countries has soared to multi-year highs, driven by a rebound in economic activity and further supply chain disruptions.

In the United Kingdom, for instance, figures released on Wednesday showed that prices rose at their fastest rate in 40 years. Annual inflation jumped to 9 per cent in April, up from 7 per cent in March.

Japan's core consumer prices posted their biggest jump in seven years in April, while Singapore’s core inflation rose to a 10-year high of 2.9 per cent year-on-year in March on higher food and services prices.

Mr Lee noted that the global economy has recovered from COVID-19 faster than expected, helped by stimulus measures.

“However, the stimulus measures continue to be applied very generously, I think for political reasons, even as the economy was already visibly recovering, in the US certainly, and also in Europe. And therefore, (this) has contributed to a spike in inflation even before Ukraine,” he said, noting that the war has made it worse as it has disrupted energy and food supplies.

“A year ago, the central banks were quite relaxed about the prospects of inflation being kept under control. In fact, they worried about deflation and they wanted to bring it up to a certain level, 2 per cent, and then on average, and so forth,” the Prime Minister added.

"But I think they were too complacent, even then. Now it's quite clear that they have to change their stance and I believe that they are doing so."

SINGAPORE TO JOIN US-LED INDO-PACIFIC PACT

During the interview, Mr Lee also said that Singapore intends to join the new US-led Indo-Pacific Economic Framework (IPEF). The framework aims to set regional standards for cooperation, and includes the Association of Southeast Asian Nations (ASEAN) member states. 

Although the specific details of the framework have yet to be negotiated, Mr Lee said it was a "forward-looking agenda" and that Singapore encouraged it.

"It is ... a valuable sign that the Biden administration understands the importance of economic diplomacy in Asia and so we should support them and hang in," he added.

When asked about many countries in Asia relying on too much trade with China, Mr Lee said that a balance must be maintained even as nations continue to grow their links with the rest of the world.  

"China is now a bigger party in the world, and therefore proportionately you would expect more of your trade to go with China – I think that's a normal situation.

"If you say China is a big party, but I don't want to trade with them, well, it will not only be very costly, but I think you're setting up for more friction and less chances of maintaining the peace," he added. 

IMPACT OF RUSSIA’S INVASION OF UKRAINE

When asked about Russia’s invasion of Ukraine and its impact on China’s actions in the Asia Pacific region, including the South China Sea and the Taiwan Straits, Mr Lee said the conflict weakens the global order.

“And that worries a lot of countries in this region,” he added.

“Therefore, the countries will now be making their own assessments of their defence posture and spending and strategy, and also the path forward for the region collectively - how to move forward and avoid the missteps which led to war in Ukraine, in Europe.

“That's a question which needs to be examined not by us, not just by small countries, but also by the big countries. Because when you end up in a conflict, it's very seldom only one side which has caused the problem.”

As for China’s actions in the South China Sea, Mr Lee said: “I don't think that their impact is considerable, because in the South China Sea, there is a process going on to discuss a Code of Conduct between ASEAN and China, and the claimant states are all involved.”

Although it will be a difficult negotiation, Mr Lee said the countries understand this and generally do not want clashes to take place in the South China Sea.

As for Taiwan, Mr Lee said it is a “very complex issue on its own”.

“I am sure the Chinese are studying carefully the lessons of the war in Ukraine. I'm sure on the other side of the Straits, Taiwan is also studying carefully the lessons,” he said, adding that he hopes China and Taiwan will draw conclusions which will help them to manage the issue “wisely”.

Mr Lee noted that while a conflict may be easy to start, it is very difficult to tell how it will end.

“You have to assess not just what happens in the direct conflict but the broader consequences internationally, how other countries will react, how it affects your standing internationally and also the price of the war and bloodshed,” he said.

“The only thing worse than a battle won is a battle lost. So even if you win the war, whoever declares that they have won the war in Ukraine, he would have paid a very heavy price.

“And I hope that in the Taiwan Straits, these lessons will be thought about we will be able to manage it in a peaceful way."

SINGAPORE AIMS TO STRENGTHEN AIR LINKS WITH JAPAN

Mr Lee was also asked about the cooperation between Singapore and Japan and the areas where there is room for improvement.

He pointed to civil aviation, saying Singapore would like to strengthen air links with Japan, especially flights to Haneda.

“The demand is there. Japan is still now restricting travel, but very soon you will change your rules and I think we should prepare for that,” Mr Lee said.

He added that the Japan-Singapore Economic Partnership Agreement (JSEPA), which was established in 2002, needs to be updated again.

"Japan has not been able to do this because you have to, you were preoccupied negotiating the TPP and (the RCEP). But those are now settled. So I hope that it will now be possible for us to open this subject and discuss upgrading,” he said.

The digital economy is another area for cooperation, said Mr Lee, pointing to Singapore’s Smart Nation initiative and Japan’s Digital Garden City Nation Vision.

“We can learn from one another to develop smart cities and how to do digital governance, government. Every country in the world is trying to do this. Some like Estonia have gone very far. In Singapore we have several initiatives. Some further advanced than others but we continue to learn from one another,” he added.

The green economy is also a promising area, said Mr Lee, highlighting cooperation on alternative energy and developing sustainable economies.