By ANG LEA LEA AND POK SOY YOONG

THE world economy is under siege. No economy seems able to escape the wrath of the global economic storms. What started off as a localised sub-prime crisis snowballed into a financial crisis, then a credit crisis, a consumer spending crisis, and now a global economic crisis.

Just a few months ago, Germany was certain it was not affected by the chain of events enveloping the US and the rest of Europe. However, it was the first developed country in Europe to go into recession. It cited faltering orders and declining export of its capital goods as the main reasons.

Being far away from the epicentre of the financial and economic crises offers no assurance of safety. If anything, our economy is far more open and export dependent than Germany's. Clearly, we are entering into a period of financial and economic consequence.

Fear has taken its grip across continents. It is the cornerstone of the fight or flight syndrome. Except that this time round, it is more of the en masse flight globally. This is where it unleashes its raw power, adding on to the woes of unintended consequences.

Lenders do not lend as freely as they used to. Investors prefer to put their money in 'safe' assets. With declining orders for goods and services, businesses are rapidly reducing their cash burn rate. So, they save costs. They cut costs. They hunker down, waiting for the storm to blow over.

Businesses and individuals are responding to the developing crisis in different ways. For some, their responses aim at survival. For others their responses are to hunker down, or differentially invest while waiting for the storm to blow over.

Whatever their response, the common denominator is the mantra that cash is king. The Government has already stepped in to reduce the risk aversion of financial institutions. With only 20 per cent risk exposure, the hope is that this will drive the lending institutions to more readily start lending again. Time will tell if this carrot does its job.

Looking at happenings elsewhere, the question is what role can tax cut and fiscal measures help to boost demand, avert more business failures and reduce unemployment?

We do not pretend to have the answers. Quite clearly, no one seems to have any clear or workable solutions. The web of interacting complexities that shroud the developing recession in an economically integrated world defies even a reasonable comprehension. We therefore offer our limited views, and from our perspective as tax professionals, on what might be worth exploring.

It seems to us that the distinction this time round is between a fiscal package that stimulates consumption and one that aims at sustainability and survival over the next 18 to 24 months. Most things we consume come from a point of origin outside of Singapore. Tax cut and fiscal measures aimed at stimulating consumption are unlikely to give the desired economic impact.

Because of the credit squeeze and the precipitous fall in demand, the key words that surface again and again in our conversations with our clients are 'survival' and 'cash flows'.

We therefore make our suggestions in the context of averting more business failures and reducing unemployment. In the very short term, two things will likely count. One is cash flow. The other is hope and confidence. Cash flow creates hope. Hope sustains confidence. These three are intertwined to improve, we believe, sustainability and survivability.