The case of Singapore concerns one of fundamentally superior economic managsment. One of the most open trading nations in Asia, it was especially vulnerable to the collapse in inter-Asian regional trade which resulted from the Asian regional crisis. Well aware that competitive devaluations by its trading partners could result in a loss of competitiveness, the Singaporean authorities set about restoring that competitiveness through a series of microeconomic and budgetary measures, most notably including a 15 point cut in the employer contribution to the CPF, the national provident (pension) fund compulsory for domestic workers. Prior to the crisis, Singapore was already running a current account surplus of over 1 5 of the GDP so it had a substantial cushion to limit the damage to its currency. As a result of the downturn in domestic demand, that current account surplus almost reached 21 in 1998 and is expected it to be just over 17 in 1999. Outside of China, Singapore and Taiwan were the only countries which did not see their economies contract in 1998 in the emerging Asian region which we follow. Singapore saw growth of +0.3 and on current form this is likely to be followed by a growth of
6.0 in 1999 and 8.0 in 2000. How did this happen? The Singaporean authorities allowed greater flexibility in tracking the Singapore dollar against its basket of trading currencies, thereby implying a modest depreciation, but they explicitly did not allow a devaluation of the currency for the purpose of maintaining or expanding trade competitiveness. Thus, while the Singapore dollar was allowed to weaken slightly at the height of the crisis, from a high against the dollar in May 1995 of 1.3830 to a crisis low of 1.8 160, the crisis-related depreciation of the Singapore dollar from 1997 through the end of 1998 was around 25%, comparing favourably with devaluations of 40-50 for the Thai baht and the Philippine peso, with the Indonesian rupiah losing an astounding 80% of its value at one point. The Singapore dollar could not but be swept along to an extent by the crisis, but the important point was that investor confidence in the handling of the economic and financial fundamentals of the country remained assured. While Singapore did not take the road of devaluation, it also avoided the policy U-turn by IMP programme countries which are now looking at budget deficits of around 6 of GDP for 1999. The Singaporean authorities allowed a budget deficit of just -0.3 of the GDP in 1998, followed by an estimated -1.5% in 1999 which is likely to be flat in the year 2000. Strong long-term fundamentals, a prudent policy mix and a clear focus on maintaining the overall cost competitiveness of the economy, through allowing the market mechanism for re-pricing the domestic property market and through cutting the employer cost base through the CPF contribution reduction, were the foundations for the city state’s rock solid economic performance. Without any sense of false flattery whatsoever, the Singaporean economic and financial authorities are among the most impressive anywhere in terms of their skill in running the economy.
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