"Matters are likely to get worse before they get better. We must prepareourselves for a gloomy scenario," he said in his National Day Rally speech.He said while Singapore should recover from the crisis ahead of itsneighbours, "we must accept the reality of slow growth and probably evenrecession, over the next two years."

Singapore has forecast growth of between 0.5 and 1.5 per cent this year, andGoh has said previously the possibility of a recession in 1999 was fairlyhigh.

Goh said that the country had the resources and resolve to withstand theexternal shocks but had to organise to weather the storm and use this timeto gain a head start for the race ahead.

"Steering through this storm to safety is Singapore's biggest challengesince I became prime minister eight years ago."

He said Singapore companies on the whole had not borrowed excessively andits banking system was sound. But the Singapore dollar had fallen againstthe US dollar, though less sharply than other regional currencies."Our economy is so interlinked with our neighbours that their problemsinevitably affect us," he said.

Goh compared the difference between the Asian crisis and Latin Americanfinancial crisis in 1994.

"Unlike the tequila hangover (in Latin America) which went away after oneyear, the tom-yam effect has remained," he said, referring to a spicy soupfavoured in Thailand, where the Asian economic crisis began.

Turning to relations with its neighbours, Goh dismissed as "absurdallegations" suggestions that Singapore wanted to see Malaysia, with whom ithas had several recent disputes, suffer.

"Our economy is closely intertwined with Malaysia's. If Malaysia gets intoserious trouble, Singapore will also be affected," he said, adding thatSingapore had tried to help by holding onto "several billion ringgit" in itsforeign reserves.

This was despite the Malaysian ringgit depreciating.

Goh also said Singapore was seeking to improve on its $5billion tradefinance proposal for Indonesia to help it restart a part of its economy.Indonesia has thus far not accepted the proposal because of variousconditions attached.

"We are taking advice from experienced international institutions like theWorld Bank or the Exim banks of the big exporting countries to learn how toimprove on our proposals without losing discipline and control," Goh said.He added Singapore would help Indonesia within the limits of its ability.On the local front, Goh said there was no need to depreciate the Singaporedollar to match the Thai baht, Malaysian ringgit or Korean won.

Instead, Singapore had to tackle business costs -- land, government charges,taxes and wages -- directly.

He said Singapore's land costs have to fall further for the republic to staycompetitive in the current economic crisis.

Goh also touched on being more competitive with a flexi-wage system,adjusting salaries and pension, and job training.

The need to for a "knowledge economy' was also important going forward, tofoster an environment where creativity and enterprise could flourish, hesaid.

"We need creative ideas not just to generate economic wealth, but also tosolve national problems, to transcend our constraints and sustain the nationwhere Singapore can thrive and fulfil themselves," he said.