Bloomberg News

Singapore Plans ‘Judicious’ Dollar Management as Growth Slows

October 11, 2011

Oct. 12 (Bloomberg) -- Singapore said its economy will probably expand at a slower pace in the next few years and the central bank will continue “judicious management” of its currency to curb inflation and support growth.

The island’s expansion will be affected by a “more uncertain” global economy and the government will increase spending in the next five years, Finance Minister Tharman Shanmugaratnam, who is also deputy prime minister and chairman of the Monetary Authority of Singapore, said in a statement yesterday. The government issued the statement to elaborate on plans presented by President Tony Tan in parliament on Oct 10.

“The headwinds from slower global growth will mean slower growth in Singapore in the next few years,” Shanmugaratnam said. “In this environment of heightened risk and volatility, MAS will continue to provide the basis for economic and financial stability in Singapore.”

Europe’s debt crisis and a faltering U.S. recovery have hurt demand for Asian goods, raising the threat to regional growth and prompting some central banks to start cutting interest rates or refrain from increasing borrowing costs. Singapore’s central bank will remain “vigilant” against a resurgence in inflationary pressures and price gains are expected to moderate toward the end of 2011, Shanmugaratnam said.

Singapore’s monetary authority uses the exchange rate rather than borrowing costs to conduct monetary policy and manage inflation, adjusting the pace of appreciation or depreciation against an undisclosed trade-weighted basket of currencies by changing the slope, width and center of the band.

‘Anchor of Stability’

“A stable Singapore dollar is an anchor of stability for our small, open economy,” Shanmugaratnam said. “Continued judicious management of the effective exchange rate of the Singapore dollar against a trade-weighted basket of currencies will help dampen inflationary pressures while supporting economic growth.”

Singapore remains vulnerable to fluctuations in overseas orders for manufactured goods even as the government boosts financial services and tourism, making it the most volatile Asian economy, according to Credit Suisse Group AG. The island, located at the southern end of the 600-mile (965-kilometer) Malacca Strait, has the world’s second-busiest container port.

Singapore plans to “significantly enhance” its transport networks, and improve education, health-care and housing services, Shanmugaratnam said. The policies will increase government expenditure as a percentage of gross domestic product in the next five years, he said.

Election Effect

Prime Minister Lee Hsien Loong has vowed to be more responsive to public criticism after support for his party fell to a record low of 60 percent in the May general election as citizens expressed discontent over rising costs and competition with foreigners for jobs and housing. He has unveiled measures to widen the social safety net for elderly and lower-income Singaporeans as well as tighten curbs on foreign workers.

“We must maintain a sound and sustainable fiscal system,” Shanmugaratnam said. “We have put in place a resilient revenue structure to enable us to meet these higher spending needs.”

Europe’s sovereign-debt woes and the threat of a U.S. recession have roiled global stock markets, erasing almost $10 trillion from equities last quarter.

Sovereign Wealth Management

Government of Singapore Investment Corp. and Temasek Holdings Pte, the island’s state investment companies, spent more than $25 billion buying stakes in U.S. and European banks in the past four years as the collapse of the subprime mortgage market led to more than $2 trillion in losses and writedowns worldwide.

“In a more volatile and challenging investment environment, we must hold to a framework that enables GIC and Temasek to focus on the long term and pursue investment strategies that generate sustainable portfolio returns,” the finance minister said.

The central bank will boost surveillance and conduct regular stress tests on its financial sector, the government said yesterday. There are also plans to introduce new liquidity standards and improve the risk-based capital framework for insurance companies, it said, without elaborating.

Singapore’s three banks are ranked among the world’s six strongest banks, based on criteria such as Tier 1 capital ratio, non-performing assets and a comparison of costs against revenue, Bloomberg Markets magazine reported in its June issue. Oversea- Chinese Banking Corp. topped the global list, with DBS Group Holdings Ltd. at No. 5 and United Overseas Bank Ltd. at sixth.

--Editors: Lars Klemming, Jacob Lloyd-Smith.

To contact the reporter on this story: Shamim Adam in Singapore at

To contact the editor responsible for this story: Stephanie Phang at

The Good Business Issue
blog comments powered by Disqus