Downturns and elections in Singapore

The next elections coming after a recession will break the trend in Singapore. Three of the past downturns struck just a year after a general election and one came in an election year.

Thank you, Paul, for pointing that out in your comment on my previous post.

There were elections in 1963, 1984, 1997 and 2001 — and the economy shrank in 1964, 1985, 1998 and 2001.

This is also the first time Singapore has suffered two bad years in a row, with the economy growing only 1.1 per cent in 2008 before shrinking 2.1 per cent in 2009.

All four previous downturns were preceded and followed by good years, according to Singapore Statistics records dating back to 1960.

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Tharman: We want private investment, not tax hike

Tharman_N509 Singapore Finance Minister Tharman Shanmugaratnam acknowledges Singapore has an unemployment problem. That is why Singapore doesn't want to raise income taxes — "certainly not corporate income taxes" — because "our key objective should be to see private investment grow, as the basis for long-term growth", he tells the International Monetary Fund's Finance and Development magazine.

He emerges as the odd man out among the Asians interviewed in one respect. He says growth will continue to depend on exports, which is true for Singapore, while others see the need to transform their economies. They are Ajith Cabraal, governor of the Central Bank of Sri Lanka; Shuli Hu, a leading Chinese journalist; Yung Chul Park from Seoul National University; and Raghuram Rajan, professor of finance at the University of Chicago and economic adviser to the Prime Minister of India. Read the interview here.

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Up, up and away, Singapore

Up, up and away, I was tempted to sing when the BBC World Service reported today that the Singapore economy was bouncing back, soaring more than 20 percent between April and June – up for the first time in a year.

But the economic downturn isn't over yet, warned the government. It merely expects the recession to be milder than feared.

That made this 1967 Fifth Dimension hit particularly apt. Just listen to the song.

Would you like to ride in my beautiful balloon
Would you like to ride in my beautiful balloon
We could float among the stars together, you and I
For we can fly we can fly
Up, up and away.

But then balloons burst, don't they?

Worse, this song was turned into an advertising jingle by TWA, an airline that's gone the way of the dodo.

Still, it's beautiful, like my beautiful Singapore.

Now back to the news.

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Devalue Singapore dollar? It’s going to hurt

Economists feel the Singapore dollar should be devalued, reports Reuters. Not because the currency is overvalued but because the economy is tanking.

That is what the Reuters report says: "The economy has been hit severely, more by collapsing external demand than an overvalued currency."

Currency devaluation usually means economic failure. It is necessary, nevertheless, says Reuters.

The Monetary Authority of Singapore (MAS) will have to "effectively devalue the currency if it wants to meaningfully achieve lower interest rates", says Reuters.

What's good for business could hurt consumers, though. Food and other necessities could  cost more since almost everything has to be imported. And there's no guarantee that lower interest rates will stimulate the economy in the current recession. It hasn't so far in America, Europe or Japan.

And devaluation doesn't really work for long, according to the Economist. Its Economics A-Z explains:

A sudden fall in the value of a currency against other currencies. Strictly, devaluation refers only to sharp falls in a currency within a fixed EXCHANGE RATE system. Also it usually refers to a deliberate act of GOVERNMENT policy, although in recent years reluctant devaluers have blamed financial SPECULATION. Most studies of devaluation suggest that its beneficial effects on COMPETITIVENESS are only temporary; over time they are eroded by higher PRICES.

However, Singapore has no choice, according to Reuters. The Singapore dollar has to fall from its current level of about 1.50 Singapore dollars to 1 US dollar. Reuters says:

Singapore's central bank announces its policy after a six-month hiatus next week, and barely anyone doubts that authorities will have to ease monetary settings to shore up an economy that is already in recession and toying with deflation.

Shifting the Singapore dollar's trade-weighted trading band down in one go, effectively a devaluation, would be the least ambiguous way of easing policy, said Emmanuel Ng, a strategist at OCBC Bank in Singapore.

That seems to be the consensus view, simply because other options could have some undesirable side-effects. The Monetary Authority of Singapore (MAS) could for instance allow the Singapore dollar to trade in a wider band, or gradually steer the centre of the band lower at a pre-determined pace so as to let the currency depreciate over time.

The former throws policy open to the whims of a market that could drive the currency up or down rather quickly, while the latter could push up market yields…

Singapore can fix its currency or its interest rates, not both at the same time.

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Singapore paper slow to report Singapore news

Singapore’s leading newspaper is slow to pick up even Singapore news! The Straits Times has published online news agency reports about how Asia may recover next year, India’s growth to slow 5%  and China to grow at 7% in 2009, based on the Asian Development Bank’s economic forecasts published today.

But it has not yet reported that the Singapore economy is expected to shrink more than Hong Kong, South Korea, Taiwan or any other Asian economy this year. That’s what the Asian Development Bank report shows. Has anyone at the Straits Times read the report? It’s available on the Asian Development Bank website.

The report says the high level of home ownership and the attendant financial liabilities limit Singaporeans’ spending power and that is one reason why Singapore hasn’t been able to increase domestic consumption to mitigate the recession.

Here are the bank’s GDP growth forecasts for 2009 and 2010 (percentage change from previous year):

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Home loans hinder Singapore recovery

Singapore’s economy is likely to shrink by five percent or more this year, more than any other economy in the region, according to the Asian Development Bank.

No other Asian economy – not even Hong Kong, South Korea or Taiwan — is expected to shrink so sharply. Most, in fact, are expected to continue to grow. (See chart at the end of this post. The report excludes Japan.)

And the reason Singapore is expected to fare so badly?

It’s not just because Singapore has gone into “high-value industries such as biomedical manufacturing which depend on demand from industrial countries at the heart of the crisis”.

Singapore’s problems are exacerbated by the property market, according to the bank, which released the Asian Development Outlook 2009 report today.

The high level of home ownership – more than 90 percent in Singapore – and the attendant financial liabilities have “suppressed disposable incomes and hence consumption,” says the bank.

Hong Kong consumes more than Singapore, it adds. About Hong Kong, it says:

GDP is forecast to fall by 2 percent in 2009. In 2010, growth is expected to resume at about 3 percent.

The bank says about Singapore:

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Recession? Yeo in full flow

Singapore’s Foreign Minister George Yeo gave an excellent speech three days ago at Cambridge University, which is celebrating its 800th anniversary.

What the IMF head Dominique Strauss-Kahn called the Great Recession, Yeo calls The Great Repricing.

That’s the title of his lecture on how the economic crisis will change the world, altering the global economy, job prospects as well as the political order and cultural values. He sees a multipolar world which will still need American leadership.

The Straits Times published an edited excerpt of the speech, but it should be read in full on the blog, Beyond Sg.

The Straits Times omitted the entire section on relations between China and India and the Indian government’s plan to revive the ancient Buddhist Nalanda university, destroyed by Afghan invaders 800 years ago. Yeo is involved in the project as part of a mentors’ group chaired by Nobel Prize winning Indian economist Amartya Sen. 

Yeo has a way with words and ideas. He ranges from Schumpeter to an 18th century Chinese emperor, Darwin to Huen Tsang in a clear, thoughtful speech about the need to adapt for the future.

There’s just one false step. He ends by saying:

Human civilisations learn from one another more than they realise, more than we realise… In the heyday of Third World solidarity in the 50s, the Indians had a saying ? "Hindi-Chini, bhai bhai” ? Indians and Chinese are brothers. In these confused times, we need to learn from one another on the basis of a deep respect for each other as human beings.

The slogan,”Hindi-Chini, bhai-bhai”, had a bitter aftermath. The two countries fought a border war in 1962. India lost and Prime Minister Jawaharlal Nehru, who popularized the slogan, never recovered from the ignominy. He died two years later. The dispute has not yet been settled.

Singapore slump: Wall Street Journal

Singapore’s busted, proclaims the Wall Street Journal. Foreign bankers and lawyers – now out of work — are returning home, dragging down property prices. A Singaporean broker is quoted as saying he has never seen anything like this in 35 years.

The party’s over but what a good time people had while it lasted.

The Journal says:

Half a million foreigners moved to Singapore between 2003 and 2008, many of them wealthy. The Boston Consulting Group found in a recent study that 10% of Singapore's residents have investible assets of $1 million or more, the densest concentration of millionaires in the world, and more than twice the ratio in the U.S.

Residential property prices rose 60% between 2005 and the middle of 2008. But now, says the Journal:

As prices crater, speculators are unable to get bank loans to cover what they owe, meaning a jump in distressed sales later is likely. Meanwhile, foreign investors who bought at the peak now face big losses if they have to sell, denting Singapore's reputation as one of the safest places in the world to park money.

Careful, now, don’t mess with Singapore’s reputation. Not for nothing is Singapore called a fine city. As the Journal surely knows after being fined in Singapore for “scandalizing the judiciary” with unwarranted remarks about the legal system.

But the Journal is merely repeating what the ministers are saying – that times are bad. This doesn’t look like a case of schadenfreude. Misery has company in this Great Recession: the pain is universal.

The Ascent of Money and Chiamerica

The Ascent of Money by Niall Ferguson

Niall_Ferguson The next time anyone blames Wall Street and the US Federal Reserve for the global economic downturn, throw the book at him. Not just any book but Niall Ferguson’s The Ascent of Money.

This excellent, immensely readable history of banking and finance published last year not only saw the crisis coming but was quick to pin the blame – not on America but on Chiamerica. Ferguson, an eminent British economic historian, describes how American consumers binged on cheap Chinese goods until the US economy went bust, dragging the rest of the world into a recession.

Here’s a televised part of the book dealing with Chiamerica.

Ferguson writes:

In effect, the People’s Republic of China has become banker to the United States of America.

At first sight, it may seem bizarre.Today the average American earns more than $34,000 a year… the average Chinese lives on less than $2,000. Why would the latter want to lend to the former?

The answer is that, until recently, the best way for China to employ its vast population was through exporting manufactures to the insatiably spendthrift US consumer.

To ensure that those exports were irresistibly cheap, China had to fight the tendency for the Chinese currency to strengthen against the dollar by buying literally billions of dollars on world markets…

From America’s point of view, meanwhile, the best way of keeping the good times rolling in recent years has been to import cheap Chinese goods. Moreover, by outsourcing manufacturing to China, US corporations have been able to reap the benefits of cheap labour too. And, crucially, by selling billions of dollars of bonds to the People’s Bank of China, the United States has been able to enjoy significantly lower rates of interest than would otherwise have been the case.

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Foreign workers’ exodus from Singapore

Thousands of foreign workers, including London School of Economics graduates with six-digit salaries and desperately poor Bangladeshi factory workers, are streaming home as the economy in Singapore suffers the worst of the recessions in Southeast Asia, reports the Washington Post.

Singapore is an epicentre of what analysts call a new flow of reverse migration away from hard-hit, globalized economies, including Dubai and Britain, that were once beacons for foreign labour. Economists from Credit Suisse predict an exodus of 200,000 foreigners — or one in every 15 workers here — by the end of 2010.

There were 1,057,700 foreigners working in Singapore as of December last year. Foreigners accounted for 36 percent of the working people in Singapore. The majority comprising 64 percent or 1.90 million of the workforce were locals, according to the Ministry of Manpower. Overall unemployment stood at 2.6 percent in December last year, but it was higher among locals at 3.7 percent. An estimated 69,700 residents were unemployed at the time.

The New York Times reports:

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