Tourism had been an important sector of Singapore's economy for more than a decade, averaging 16 percent of total foreign exchange earnings and 6 percent of GDP between 1980 and 1985. Tourist arrivals had dropped sharply in 1983, however, the first decline in over twenty years. The decrease resulted both from the regional and world economic downturn at that time and from travel restrictions instituted by neighboring countries to preserve their own foreign exchange. Observers noted also that Singapore was losing its "oriental mystique and charm." In its effort to build a modern city, it had torn down old buildings and curtailed traditional street activities, aspects considered by tourists to be part of Singapore's attraction. In 1984 the government established a Tourism Task Force to recommend ways to attract more visitors, and the following year the budget of the Singapore Tourist Promotion Board was increased by 60 percent. Steps were taken to preserve areas of special architectural, historical, or cultural interest. Sentosa Island, off the southern coast, was developed as a resort and recreation center, complete with museums, parks, golf courses, lagoons, beaches, trails, and gardens, all connected by monorail. Singapore also began billing itself as the "hub of Southeast Asia" and marketing sidetrips to destinations in neighboring countries. As with other economic activities, tourism was viewed as a high value-added industry. Although increasing the absolute number of visitor arrivals was the main target, a further aim was to attract the high-spending, business visitors attending conventions and trade exhibitions, which Singapore hosted in large numbers.

Tourist arrivals recovered quickly from the 1983 downturn, reaching 3 million in 1985. In 1987 tourist arrivals reached 3.7 million, a 15 percent increase over the previous year. In 1988 arrivals rose another 14 percent to nearly 4.2 million. Singapore's top tourist-generating markets in 1987 were ASEAN (29 percent), Japan (15 percent), Australia (9 percent), India (7 percent), the United States (6 percent), and Britain (5 percent). Although a building boom had caused a glut of hotel rooms in the mid-1980s, by early 1989 occupancy was running at about 80 percent.

Data as of December 1989