The Straits Times today has an informative article on the Singapore economy which, it says, could recover anytime between late next year and 2011.
Of course, everyone knows, Singapore is entirely dependent on the global economy. The government can only maintain law and order, woo foreign investors, grow the infrastructure and work with the government-linked companies it set up years ago. Singapore Airlines, SingTel, Neptune Orient Lines, DBS Bank, MediaCorp — none of the major government-linked companies are new.
And the Prime Minister has ruled out the kind of economic stimulus measures China and other major economies are taking. He said 60 cents goes out of the country every time a dollar is spent, so such measures won't work.
If he meant it was not cost-effective, what's a reasonable return on investment? Microsoft has a profit margin of 28.7 percent and Google 24.4 percent, according to Yahoo Finance. Singapore expects more for every dollar spent?
What's so different about Singapore?
Prime Minister Lee Hsien Loong and his Cabinet are a talented team who can take credit for the peace, stability and prosperity of Singapore. But maybe he should explain why economic stimulus measures such as other countries are taking won't work in Singapore.
Singapore has always had to import all it needs from food to water to even the sand used in construction, so 60 cents going out every time a dollar is spent is nothing new. Yet that has not prevented Singapore from becoming one of the richest states in Asia. PM Lee and his predecessors — his father, Minister Mentor Lee Kuan Yew, and Senior Minister Goh Chok Tong, who are still happily with us and here's to their health and happiness — can take full credit for their vision. So all the more reason for them to share their wisdom and explain why what can work in other countries won't work in Singapore.
Exports, imports
Imagine if other countries also decided to curb spending to stop money flowing abroad. Global trade would shrink and Singapore would be in dire straits.
The government talks of its commitment to free trade. Singapore couldn't prosper without free trade.
Singapore exports exceed imports. The latest figures, according to Statistics Singapore:
Exports: 39.1 billion Singapore dollars ($25.7 billion)
Imports: 38.5 billion Singapore dollars ($25.3 billion)
In a little reported development, Singapore in the third quarter showed a balance of payments deficit of 2.1 billion Singapore dollars ($1.37 billion), according to the Ministry of Trade and Industry. But the deficit was due to financial account transactions — banking and investment — not because of imports and exports.
The reason why bank deposits are now fully protected by the government till the end of 2010 is that money was flowing out of the country after the international banking crisis — and other countries were offering the same protection. Singapore fully guaranteed bank deposits in the middle of October only after arch-rival Hong Kong did so.
Singapore companies investing abroad
Money flows out of Singapore not only when money is spent in Singapore. Singapore's government-linked companies and the two sovereign wealth funds, Government of Singapore Investment Corporation and Temasek Holdings, have also been investing abroad.
Temasek controls six of Singapore's 10 biggest companies by market value, according to Bloomberg.
But as Temasek expands overseas, its Singapore assets make up less and less of its growing portfolio.
Investments in Singapore now make up a third of the portfolio from more than half four years ago, Temasek said, Bloomberg reported in August this year. OECD countries account for 23 percent, down from 32 percent in 2004, while investments in Asia make up 41 percent from 16 percent.
Singapore is just one part of Singapore Inc
The point is this: Singapore the city state is now part of a larger Singapore economy with Singapore companies earning revenue from businesses in India, China, America and other parts of the world. We see newspaper reports about how much SingTel earned from its stake in the India telco Bharti and Temasek's stake in Britain's Standard Chartered bank. The government has succeeded in growing an external wing. It deserves credit for it.
Singapore's government-linked companies — and certainly its sovereign wealth funds — don't depend on Singapore alone for their financial well-being. And there's the rub. Singapore's prosperity may come to depend less and less on Singapore.
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