Ang Lay Pheng, head of research at investment bank Goldman Sachs, is clearly right when she says that relative to its neighbours Singapore has the most robust economy in Southeast Asia". But increasingly, she adds, "the risks facing the city_state are on the downside because the impact of events in Indonesia and Malaysia is substantial".

The Singapore economy has been tossed around on the waves of doubt and at times near despair which has infected the region since its debt deflation crisis hit in the middle of last year.

At the beginning of this year it seemed that the markets in Singapore and across the region were stabilising. In the past few weeks, though, a new wave of uncertainty has crashed over the area. Now bankers and analysts like David Toh, the electronics specialist at ING Barings, are describing that unsustained recovery as "a dead cat bounce" and wondering whether the renewed downturn in markets and currencies in recent weeks signals a deepening of the disaster which they had hoped in January was being resolved.

Kin Lee, market strategist for Singapore for Jardine Fleming echoes the Goldman Sachs view that Singapore is performing relatively better than its neighbours. But he adds that it is not a question of if, but when the region's financial crisis impacts the city state.

Last year real economic growth for Singapore was 6.9%. At the beginning of this year the government was still forecasting growth at close to this level in 1998. But the past months has seen economists slashing their forecasts, the government to real growth of 2-4.5%, and Jardine Fleming, which had been on the pessimistic side of the consensus to 1% this year and only 3% in 1999. Informally even the government is now conceding that such projections may no longer be pessimistic at all.

The rationale behind these reassessments is in part economic. It is true that Singapore's banks have adequate capital ratios and have not been so exposed through foreign lending as other regional banks. Moreover the government already began in May 1996 to rein in an over-exuberant property market, so avoiding the more extreme collapses seen elsewhere in the region.

But Singapore is an entrepot with no natural resourc-es. The slump in trade across the region is biting into its prosperity. Ang says the bank has estimated that transshipment trade from Indonesia alone accounts for 12% of trading volume (there are no official figures). Beyond this she points out that the retailing sector, especially the high-value end of the market catering for, among others, rich Indonesian and Mal-aysian tourists is also suffering badly.

The decision of Japanese banks to pull back from the regional loan market and reduce investment has intensified both liquidity pressures in the financial sector and further weakened demand in the traded goods sector.

Moreover, Singapore's manufacturing sector is heavily dependent on exports of electronic equipment, such as disc drives. This is also suffering from the sharp slowdown (and falling prices) of computer-related equipment in the US, not to mention intensifying price competition from its neighbours. A broadly based macroeconomic revival is therefore some way off.

How far off is a question which financial experts in the region are unable to assess. For signs of a new crisis of confidence in the region have driven the Singapore stock market Straits Times index down from around 1600 on to around 1400 (after touching 1200 in January) and the Singapore dollar back up from 1.6 to the US dollar to 1.64 in the past few weeks. This time concerns focus in large part around one near neighbour, Indonesia, and the distant but powerful regional hegemon, Japan.

The news from Indonesia is frightening. The IMF programme may be in place - just - and the banks agreeing to refinancing packages. But with widespread rioting, looting and loss of life, the future of Indonesia following the departure of 76-year-old President Suharto is the subject of acute debate. If he does not, Singapore bankers are asking sotto voce if the military dictatorship will end in anarchy, civil war and a flood of immigrants to neighbouring countries. Unlike the 1966 military coup that brought Suharto to power, a government collapse now will occur against the background of a regional debt crisis and since Indonesia's growth to become a major regional economy.

The increasing nervousness with which the Group of Seven industrial countries are pressing Japan to do more to pull its economy out of the debt deflation trap into which it has fallen also sends shudders through the region. Singapore can see untold damage could result from a deepening of the Japanese crisis, including a further fall in the yen on the foreign exchanges which could also trigger Chinese concerns about an overvalued currency. It may be avoided but it is too early to be confident of this outcome.

Even nine months ago experts at the World Bank and the IMF in Washington were anticipating that the Asian financial crisis might, with luck, be resolved in a year or so. Now even the optimists are thinking three years if we are lucky and a lot longer if things go badly wrong in Indonesia or Japan. Confidence has been deeply shaken, which is why many investment banks such as Schroders have cut back their activities in the region significantly. Prudent portfolio investors are probably wise to follow their lead at least until some of the political uncertainties are resolved. As the renowned US banker JP Morgan said, "tops and bottoms are made for fools". Stewart Fleming"