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Economic stability is the ultimate goal for any country. Many factors are paramount in achieving stable economies. The Asian countries have seen a remarkable growth in their economies. Macroeconomic stability has been the driving factor to this growth. Empirical literature indicates that macroeconomic instability can be a major constraint to any development process. For any growth in the economy, macroeconomic stability is assured. The view that it has been one of the key factors fuelling this growth holds true. The Asian countries have registered economic growth from the early 1960’s and in the late 1990’s.
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The Asian Tigers also referred to as the Asian Dragons is used in reference to the developed nations of Singapore, Taiwan, South Korea, and Hong Kong. The advent of the Tigers has been amazing. It has had a breathtaking effect onto the world’s economy as these Asian countries have experienced tremendous growth of their own economies. They have become fully industrialized nations stemming from agriculturally-based societies. The growth of their economies has resulted from many factors; significant structural changes have greatly contributed to it. The growth of the economy has attracted attention globally, and many countries are learning from this.
This paper seeks to explore in particular the economy of Singapore, and what the government has done or is doing to maintain macroeconomic stability.
Singapore’s history is masked in the mists of time. It is well described by a Chinese account as an island at the end of a peninsula; the city was later named “Temasek” meaning a sea town.
This island was in a strategic location though being small in size; Later, the city earned a new name. This happened after the prince of Palembang, during a hunting trip, came across an animal he had never seen before. To him, this was a good sign, and he named the city “The Lion City” or “Singapura”. The city’s strategic position made it a trading point for sea vessels; it was a meeting point of various sea routes.
The modern Singapore was founded in the 19th Century. It was during this time that Singapore was growing economically and trade was a key business. The Great Britain had also seen the importance of erecting a call port in the region. The British traders needed to obviate any advances made by the Dutch citizens; therefore, they needed a venue that was strategically placed to base their merchant fleets of the empire.
Singapore’s gigantic potential made it a trading station, and its free trade policy attracted traders from the Asian continent. This also went as far as the United States and the Middle East. Singapore was later made the centre of government in 1832. It provided settlement straits of Singapore, Penang, and Malacca. Singapore’s importance as a trading hub increased immensely following the opening of the Suez Canal in 1869. Trade ties between the East and the West became prime; Therefore, Singapore’s prosperity attracted many investors globally.
The continual growth of Singapore came to a mere halt at the advent of World War II, which was later followed by the attack of Japanese. For a period of five years, Singapore was occupied: first, by Japanese, and then, by the British Military Administration. It then became a crown colony in 1946. Today, a lot is learnt from the rich historical heritage of Singapore. It is one of the Asian countries that over the years have registered a high level of economic growth. The macroeconomic stability has made it possible for Singapore to remain afloat even when continents like Africa and Latin America are suffering from the whims of low economic growth and underdevelopment.
There is a close correlation between economic growth and macroeconomic stability. Empirical literature postulates that economic growth cannot be realized in the absence of macroeconomic stability. Macroeconomic stability well explains the continual economic growth among the Asian countries, particularly, Singapore. Between the early 1960’s and late 1990’s, there has been a sustained economic growth in Asia. Macroeconomic stability prevails.
Sustaining growth of the economy is not easy; it requires commitment and accountability. Singapore’s prosperity has not been realised in a fortnight. It has taken years for the government to develop policies and regulations that has seen the sustained growth. Singapore integration with the international markets is wide and deep. Globally, it is one of the most open economies.
Singapore has met challenges and limitations hampering its economic growth trend; nevertheless, its government has responded swiftly to these constraints. The government has development macroeconomic strategies to help its economy stand amidst the financial crisis that locked the country. Long-term investment is the secret behind Singapore’s prosperity, and this has been possible following its sound macroeconomic policies that aim at maintaining a conducive environment for growth.
From year 2000 to 2010, Singapore’s growth domestic product nearly doubled. It rose from an estimated $163 billion to an estimated $304 billion. Real GDP also rose at a compounded growth rate of 12% per annum. Rates of unemployment and inflation were less than 2% and 3% respectively.
Singapore’s monetary policy helps promote long-term economic development. It has a healthy fiscal position; consequently, it has attained a good name across Asian countries for its high credit rating. It concentrates on its ultimate goal of building enough confidence in its domestic currency and ensuring continued price stability. Singapore’s monetary policy is centred on the exchange rate because its open economy and small size make the exchange rates one of the most useful gear in sustaining price stability. Economic policies are not rigid; they are liable to adapt to changing priorities. Making Singapore a world-class financial centre has been the ultimate goal, while liberalization of domestic banking and insurance industries to wider participation of foreigners is worth noting.
Development and supervision of its financial sector has taken a consultative and open approach. Implementation of initiatives has been done to enable fund managers access easily domestic funds, developing the debt market and overhauling corporate governance. Such initiatives coupled with Singapore’s macroeconomic and political stability, strategic location, and their skilled and competent labour force has led to the rapid growth and development of Singapore. A World Bank report attributes Singapore’s high rate of economic growth to its effective and efficient policies.
Singapore’s focus on macroprudential policies has the sole aim of promoting sustainable asset prices. In Singapore, the price of assets is important in four ways.
Firstly, it is worth noting that financial stability is dependent on asset prices. Financial institutions may be vulnerable and their losses increase when there is a change in asset prices. Secondly, inflation of asset prices creates a lot of uncertainty, and it discourages productive investment and eventually affects economic growth. Thirdly, the price of assets correlates with consumer prices. With an increase in asset price, accommodations and rentals are also affected, and this is directly transferred to the consumer price index. Fourthly, financial prudence is undermined by the purchase of assets through excessive borrowing with an expectation of making future capital gains. Therefore, the Singapore government has a lot to do about leveraging, and establishing the effects of increasing asset prices is paramount. This may be creating a negative spill over effects on the Singapore economy. Reduction in asset prices is not also the solution; it may lead to instability in the economy. The MAS and the Singapore government have acted proactively in moderating asset prices.
Since October last year, an announcement was made by the Government of Singapore of a blanket assurance on all bank deposits, companies dealing with finance and all merchants banks licensed by MAS. This extends to all overseas banks that are under the legal entity of Singapore, and this measure was taken to avoid bank’s deposit erosion. Singapore’s banking system has always been sound and resilient; therefore, the move was precautionary.
Market flexibility has been a major factor enhancing economic growth in Singapore. The banking systems have maintained a high level of liquidity to ease pressure in Singapore’s dollar market. This has also been enhanced by monitoring functionality of markets through maintaining closer contacts with the financial institutions. Assurance to banks has also been made for continuing anticipation of the funding needs of the markets by the MAS.
Arrangements of cross-border collateralisation have also been made, which helped banks in Singapore tap on MAS. Banks are in a position to place securities and foreign currency cash in MAS account facilities. A memorandum of Understanding between the Dutch Central Bank and MAS has been made, and many banks are having arrangements to join the same.
Trade has been the norm in Singapore as it has made a great impact globally in terms of trade. In the year 2000, Singapore’s total trade was recorded at $373 billion. This marked a 21% increase from the previous year. Singapore is considered the fifteenth largest trading partner of the US. Total imports registered in 2000 amounted to $135 billion and the total exports amounted to $138 billion. Singapore’s main source of import was Malaysia while it is also its largest export market. Malaysia absorbs 18% of all Singapore’s exports; the United States follows closely behind.
Singapore has entered into many trade agreements. To the entirety of the Asian network, it has access to the free trade; import duty is also reduced. Singapore has continued to attract funds globally despite the country’s high cost of operating environment. Investments have also gone a notch high due to the corruption free government in place. In almost all sectors of the economy, multinational corporations are found operating.
From 1960 to present, Singapore government have made many achievements. It has been regarded as the hottest little economy in the world as its economic performance is very impressive. Singapore has been exceptional and unique. While other western countries may be recollecting from the economic crisis aftershocks, Goldman Sachs gives an estimation of Singapore’s GDP in 2010 as 16.5%. This was a significant upgrade from its previous rate of 12%.
Singapore government has managed to loosen its 40 year ban on gambling, restaurant complexes, casinos, and shopping; consequently, the opened casinos attracted a high number of visitors. More than 3 million visitors had visited within a period of two months, which was incredible!
Private banking has slowly taken root, and it has now become popular in Singapore, at the same time, posing a threat to the West European countries. With time, as Endlich puts it, Singapore will be the preferred place for private banking. McKinsey’s (2010), carried out a survey on private banking, and it indicated a drop of inflows in Switzerland and Luxembourg. This is contrasted to the increase in inflows in Singapore and Hong Kong by 7% in 2009. A study by Boston Consulting Group revealed that approximately 11.4% of households in Singapore are millionaires, and this is the largest registered number in any country globally.
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