Singapore Inc Case

1. Briefly explain Singapore's economic performances in the last few decades (up to the time of the case in late 2002). Comments on economic growth, inflation, unemployment, government budget, international trades, direct capital flows and change in international reserves.

In the past few decades, Singapore has been working hard to stimulate economic growth to build Singapore as a hub for global business by using a variety of tax cuts and incentives.

Economic growth: Before the 1997 financial crisis, Singapore's GDP growth had been keeping a high rate of 8.7% in the 1990s till the 1997 financial crisis. GDP growth dropped dramatically to 0.8% in 1998, but soon recovered to 6.4% in 1999 and 9.9% in 2000. However, in 2001, GDP growth decreased even to -2.1%. From the economic policies, we can see that the large amount of capital input contributed most in Singapore's economic growth. With fewer restrictions and many tax incentives to attract foreign investment, many MNCs located their businesses in Singapore. As well, TFP contributed greatly to economic growth in 1990-1995. However, TFP was also the main reason which caused the negative GDP growth in 2001.

Inflation: In general, the inflation of Singapore maintained in a stable low level. Inflation was at 4.5% in 1980 and decreased constantly to -2% in 2001. Government played an important role in inflation controlling through international trading.

Unemployment: Unemployment was very high (14%) during the early years of independent (1959) and decreased to 3.4 in 2001. Compared to other countries in Asia, Singapore's unemployment rate was relatively low.

Government budget: Singapore Government budget had always been positive with S$3,922.9 million in 1991 and S$885.5 million in 2002. Except in 2001, it experienced budget deficit of SGD 2697.9 million, due to the global macroeconomic recession.

International trade: Except in 1998 and 2001 because of worldwide financial crisis, Singapore always kept a rapid growth in international trading.

Direct capital flows: Foreign investment in Singapore was a very important part to boost the economic growth. Total foreign direct investment increased significantly year by year from SGD 41,063 million in 1989 to more than SGD 180,000 million in 2000. Meanwhile, Singapore had been constantly increasing its overseas investment in the past few decades.

Change in international reserves: The government reserves had been increasing continuously increasing since 1970 from USD 184 million to USD 6,806 million, although there was a decline in 2001 due to global economics recession.

Q2. What have been the development goals of the government?

The Singapore government wants to established a developed country by establishing good international relationship to attract foreign investment and by seeking more organized and efficient way to be "First World Oasis in a Third World region". This is the long-term goal of the government. But, in different stage, government's short-term goals were different.

During early years of republic, the government aimed to establish a stable political environment and to gain international recognition with a seat in the UN, to settle down people by building large quantity of HDB, and to attract investment to labour-intensive industries, such as ship refitting and repair, metal engineering and electrical equipment and appliances.

During the period of industrialization and globalization, the government aimed to drive up the TFP by increasing labour productivity, to increase private savings, to stabilize the monetary policy and still to encourage foreign investment.

During the knowledge-based period, the government sticks to build a vibrant and diversified enterprise ecosystem to encourage innovation and entrepreneurship.

Q3. What development policies were employed to achieve the development goals?

From the side of domestic front, we list several aspects.

1. MAS regulated all elements of monetary, banking and financial aspects of Singapore. Government also granted MAS additional authority over the insurance and securities industries, objective is to maintain a low inflation rate

2. Singapore government invested in labour-intensive industries in 1970s. After which, the government kept a close watch on technology trends and invested in a lot of other high technology and high value-add industries such as high-end electronic device manufacturing, pharmacy etc.

3. On the political side, Singapore maintains the strictest controls to push through the reforms necessary to transform Singapore into an attractive site for foreign investment. The strict law enforcement created a peaceful environment with low crime rates. The government is also very transparent with clean political atmosphere.

4. Due to limited size of the market and availability of resources, Singapore government makes it mandatory its people to save money through the CPF program. This forms the social security net for all Singaporeans, as upon the retirement Singaporeans received the tax-exempt benefits on the basis of past contributions plus interest. Recently, the usage of CPF has been widened as it can be used for education, medical and home buying and renovation. It can also be used to invest unit trust and some other financial products

From the side of domestic front, we list several aspects

1. MAS keeps interest rates on a par with foreign rates and maintain a low inflation rate, with a managed float, MAS regulated the Singapore dollar against a trade-weighted basket of currencies.

2. In terms of trade, Singapore transformed from a net import to net export country. Government removed almost all tariffs and improved the ports capacity, government also set up the Trade Development Board to promote Singapore products around the world.

3. Regarding foreign direct investments, the government set up an efficient system and adequate infrastructure to provide a quick-start for companies to start operations here. The government also made use of tax incentives to attract more foreign companies to come to Singapore, and continually improve the skills base of Singaporean through education, example through the established Skill Development Fund.

4. Singapore also tries to maintain the good relationship with its neighbour countries. It joined the Association of Southeast Asian Nations (ASEAN) community to promote the regional free trade and stabilize the multi-lateral relationship with neighbourhood countries. The primary project of ASEAN was to provide the individual members with leverage in negotiating international trade issues for the region as a whole.