S.E. Asia: key economies face uphill climb. But there are signs worst is past for Indonesia, Malaysia, Singapore

The key economies of Southeast Asia face another hard year of budget austerity, limited economic growth, and high unemployment - despite a few signs of a modest turnaround. The governments of Singapore, Indonesia, and Malaysia face some tough challenges in reaching their 1987 economic targets. Indonesia is still struggling to find alternatives to its current heavy dependence on crude oil and gas, now that world prices are so low. Malaysia, too, is having a hard time compensating for a slump in prices of all its key primary export commodities, such as tin, rubber, and palm oil.

Their economic difficulties inevitably spill over into neighboring Singapore, which has thrived on its location as an entrep^ot port and a regional financial center. Now it has to find itself a new niche in the world economy.

This time last year, Singapore Prime Minister Lee Kuan Yew was reporting the island republic's first year of negative economic growth [a slipping economy]. Prospects looked grim. Unemployment was rising, and many international companies were moving out because of high operating costs. Marking the new year this time, Mr. Lee was able to report slightly brighter prospects: The economy grew 1.9 percent last year, and the prediction for this year is 3 to 4 percent growth - though still short of the long-term target of 4 to 6 percent that the government considers essential to maintaining stability.

The forecast for the region as a whole is continued low commodity prices and, therefore, slow growth. Sectors of the Singapore economy linked to the region in any way will not perform well, Lee said.

The government took ruthless action from the start of last year to stop the decline. To encourage foreign firms, taxes and employers' contributions to the Central Provident Fund (CPF) were slashed and wages held down. Unions went along, accepting a freeze or even wage cuts for firms in trouble.

``If we had not had wage restraint and the CPF cut, I don't think we would have got 1.9 percent [growth]. We would have been lucky to get away with zero,'' says Trade Minister Lee Hsien Loong.

Manufacturing productivity last year rose 6 percent, and unemployment fell from 6.5 to 4.5 percent, indicating that the government was on the right track. But Lee Hsieng Loong, son of Prime Minister Lee, said he was very worried about what he called ``premature euphoria.''

The government's main concern is that workers will view the improved economic performance as justification for resuming demands for large wage increases. Last year, Lee Hsien Loong says, the overall wage increase was around 1.5 percent, and this level must prevail through '87.

According to Prime Minister Lee, the test in 1987 for the younger generation of Singapore leaders and workers ``is whether they can put long-term interests ahead of short-term gains and, by demonstrating wage-restraint discipline, win the confidence of investors.''

Belt-tightening is also in order for Indonesia, where the drastic drop in crude oil and gas prices over the past year have slashed billions of dollars off the government's projected export earnings.

Presenting an extremely austere draft budget, President Suharto said there had been a 47 percent drop in oil-based foreign exchange last year - and for the next fiscal year, beginning in April, revenue from oil and gas was likely to decline 29 percent. Until now, gas and oil have accounted for 60 to 70 percent of national income.

The President's budget in rupiah terms was slightly up from last year. But last September's rupiah devaluation means a decline in dollar terms from $18.9 billion to $13.8 billion.

Mr. Suharto has proposed an almost 8 percent cut in defense spending and a freeze for the second year running on pay increases for the military and the civil service. Allocations for industrial development are down 51 percent, and funds for the transmigration program (resettling people from overcrowded Java to less populous islands) has been cut 60 percent.

Because of shortage of funds, development priorities have been focused on four sectors - communications and tourism, agriculture, mining and energy, and education - to create jobs, generate revenue, conserve foreign exchange, and increase exports. Taxes are likely to be increased, but no details have been revealed so far.

Meanwhile, in Malaysia, economic analysts see signs that the country's much battered economy can do better this year. They feel the worst is over and that modest growth may be possible in 1987 with a gradual recovery of world commodity prices.

Last year's gross domestic product grew only 0.5 percent, against a government-projected 0.6 percent. The depressed business environment was aggravated by a wave of corporate failures, massive retrenchment, and commercial frauds, including the collapse of the deposit-taking cooperative movement that threatened the life savings of millions of small investors.

With the government taking quick steps to improve the investment environment, helped by the central bank's providing greater liquidity, economists say business confidence is slowly returning.