Journey into

uncharted territory
How well has Singapore prepared for the possible future paths
that lie ahead for the global economy?
TEXT _ JASON WEE

S
INGAPORE HAS DONE WELL in
navigating through myriad storms
over the last five decades, emerging
stronger each time. There is little doubt
that Singapore will survive the turmoil
that is now upon us. However, whether
Singapore will again emerge stronger de-
pends on how well the country has pre-
pared for the possible future paths that lie
ahead for the global economy.
At one end of the spectrum is the
possibility that this is just another cyclical
downturn, with recovery back to status
quo around the corner. At the other end,
however, is the possibility that we are
seeing the beginning of a tectonic shift,
which will challenge previously held no-
tions of value and ultimately result in a
repositioning of the global powers.
In the former scenario, Singapore will
almost certainly rebound quickly, in syn-
chrony with the global macro environ-
ment. If the latter scenario pans out, how-
ever, the outcome is less certain. In recent
months, the odds of this worst-case situ-
ation crystallising have been rising, and
Singapore needs to be ready should this
nightmare scenario come about.
I will briefly recapitulate Singapore’s
path to its present status, assess its cur-

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rent strengths, outline challenges and
other macro-economic risks, and discuss
possible policy initiatives that might help
buffer against the fallout should the night-
mare come about.
SINGAPORE: PAST TO PRESENT
Singapore’s policy in the early 1960s fo-
cused on creating employment via import
substitution, and reducing dependency
on entrepot trade as the newly elected
People’s Action Party paved the way for
a post-communist era in Singapore. Then
came the turmoil of the mid-1960s to the
early 1970s, where Singapore first joined
and then had to leave the Federation of
Malaysia, had a serious confrontation
with Indonesia, and saw the departure
of the British military which was then
contributing around 20 per cent to Sin-
gapore’s GDP.
It is hard to exaggerate the challenges
that this fledgling economy had to face at
this critical juncture. The departure from
Malaysia derailed Singapore’s import-
substitution plan, since scale economies
would be difficult to achieve without the
vast hinterland that Malaysia offered.
The confrontation with Indonesia, a sig-
nificantly larger country, threatened se-
curity and its position as a major trading
post for the region. Finally, the departure
of the British forces meant the loss of
some 40,000 jobs and the urgent need
to replace the departing military with a
credible domestic army, while surround-
ed geographically by less-than-friendly
neighbours on all fronts.
Somehow, these challenges were
surmounted as the government pursued
an export-oriented strategy and man-
aged to attract foreign investors into the
manufacturing and finance sectors. Dur-
ing this time, various agencies were set
up, including the National Trades Union
Congress and the National Wage Council
(both set up in 1972), which helped to
anchor the tripartite employer-employee-
government arrangement that has kept
labour disruptions at bay to this very day.
Various companies were also nationalised
at this point where private capital and ex-
pertise were deemed inadequate to take
critical industries into the global arena,
eg, Singapore Airlines, Neptune Orient
Lines, and the Development Bank of Sin-
gapore.
Since 1980, Singapore has pursued
growth by targeting first the higher val-
ue-added manufacturing and then the
policy_MAY_pg50-57.indd 3
value-added services sector. Augment-
ing this was a continuing focus on labour
productivity via basic education, man-
power training and retraining; supportive
investment policies through a mixture of
tax incentives and fiscal subsidies; and
expanding the global reach of companies
via encouraging domestic companies to
regionalise and internationalise, and set-
ting up free trade arrangements with all
major economic groups and countries
around the world.
During this period, Singapore’s
GDP per capita grew from US$4,859 to
US$37,597 at a compounded rate of 7.7
per cent per annum, moving at a similar
pace to Hong Kong, the other highly suc-
cessful Asian city, but far outstripping
neighbours Malaysia and Indonesia (see
Figure 1).
There were three blips along this blis-
tering 28-year growth path, namely in
1985, 1998 and 2001. In each instance,
the government led the way via a com-
bination of measures including wage cuts
(sometimes through a lowering of the
statutory pension fund contribution rate),
monetary and fiscal measures to regain
Clearly, the average
Singaporean has moved
well past the basic needs
on Maslow’s hierarchy
and the government’s
challenge has become
one of catering to
aspirational desires.
FIGURE 1: GDP per capita
(1980 - 2008)
(US$)
40,000
Singapore
Hong Kong SAR
35,000
Malaysia
30,000 Indonesia
Philippines
25,000
20,000
15,000
10,000
5,000
’80 ’84 ’88 ’92
Source: IMF (Oct 2008), Singapore Department Of Statistics
[ POLICY ]
overall competitiveness, and continuous-
ly refocusing industry towards promising
growth areas. The result is that a country
devoid of all natural resources and de-
pending primarily on entrepot trade and
basic manufacturing is now a bustling city
hosting the regional headquarters, R&D
laboratories and key support centres of
top names in the fields of technology, fi-
nance, pharmaceuticals and petrochemi-
cals.
It is now 2009, and Singaporeans
count among the most affluent in the
world, with a purchasing power parity-
adjusted GDP per capita of $51,649 (in-
ternational dollars), just behind oil- and
gas-rich countries of Norway and Qatar,
and financial haven Luxembourg. Even
after adjusting for the recent stock market
correction, I believe Singapore is a coun-
try of household millionaires, with house-
hold wealth averaging around S$780,000
per resident household, augmented by
government assets of around S$260,000
per resident household, ie, a total of just
above S$1 million per household. While
this is down some 20 per cent from the
all-time high of S$1.3 million in 2007, it
remains substantial. Clearly, the average
Singaporean has moved well past the ba-
sic needs on Maslow’s hierarchy and the
government’s challenge has become one
of catering to aspirational desires.
Alas, the average household is but
a statistical concept. At the risk of over-
simplifying, we can broadly classify Sin-
gapore into two distinct groups: the elite
and the masses. The elite are the multi-
millionaires and high achievers who, to-
gether, push Singapore’s ranking on most
financial and economic ratings to the top
in the world.
As an indication, for the year to
March 2008, 156,660 residents (9.4 per
cent of resident labour force) in the top
income brackets contributed $2.9 billion
or almost 90 per cent of the country’s to-
tal income tax from residents!
While this statistic might exaggerate
the income disparity due to the highly
progressive income tax system, it does
highlight how important this small group
is towards sustaining Singapore’s current
fiscal model. For a better understanding
of the income dispersion, the five-yearly
household expenditure surveys are prob-
ably a better indicator. The last survey in
2003 showed that the top 20 per cent
’96 ’00 ’04 ’08 of households earned some 53 per cent
of total income, up from 36 per cent in
MAY 2009 _ PULSES _ 51
37
24/04/2009 6:53:28 PM
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FIGURE 2: GDP per capita (2008) FIGURE 3: Total wealth of Singapore – resident
PPP-adjusted Nominal households and government
Country Rank International $ Rank US$
Period ending 2007 Estimated March ’09
Qatar 1 86,670 2 106,460
Luxembourg 2 81,730 1 118,045 Total household wealth (S$bn) 0.95 0.85
Norway 3 55,199 3 102,525 - Per resident household (S$m) 0.90 0.78
Singapore 4 51,649 22 41,291
Government net assets (S$bn) 1
0.41 0.28
Brunei 5 50,596 21 43,752
United States 6 47,025 17 47,025 - Per resident household (S$m) 0.39 0.26
Hong Kong* * 44,413 * 31,849 Total wealth (S$bn) 1.35 1.13
United Kingdom 19 36,571 20 45,681
- Per resident household (S$m) 1.29 1.04
Japan 22 34,501 24 37,940
Malaysia 60 14,225 66 7,866 Notes:
1. Government net assets for FY2007 are as at March 2008
Note: * HK is shown for comparison purposes only as it is not strictly speaking, a
separate country Source: Singapore Department of Statistics, Government Releases, UW estimates*
Source: IMF (* UW stands for Universe Within Pte Ltd, the writer’s company)

1993, affirming that income disparity is
indeed rising (see Figure 4).
However, if we extrapolate the survey
data further by subtracting expenditure
from income to estimate household sav-
ings, we see that the lowest 20 per cent
has been experiencing a worsening defi-
cit, while the top 20 per cent has seen
their savings more than double over the
last 10 years. Using the 2003 data as a
proxy suggests that the top 20 per cent
contributes to some 80 per cent of total
household savings. This is, not surprising-
ly, similar to the observation of Vilfredo
Pareto, a European economist who, in
1906, observed that 20 per cent of the
population held owned 80 per cent of the
property (wealth) in Italy – a principle
which has since been generalised to the
80-20 rule, or Pareto principle, for a vari-
ety of uses.
Using our dual group model, the data
suggests that while the elite in Singapore
have continued to thrive, the lowest ech-
elon has seen a decline in their income
and a widening of their income-expendi-
ture deficit. Those who wish to investigate
this idea on a more macro scale might be
interested to read the various books by
Nobel Prize winner Joseph Stiglitz, who
has outlined why some groups can actu-
ally be worse off even during periods of
global prosperity.
In the case of Singapore, we believe
that this issue is not lost on the govern-
ment and some efforts have been made in
directing subsidies to this lower-income
bracket. Still, the data suggests that the
gap has not been fully offset. The 2008
survey has just been completed and, soon
enough, we shall be able to assess the
direction of this disparity in the last five
years.
Using this dual-group model, a con-
ceptual framework for the governing of
Singapore could be outlined as follows:
• For the masses, the government plays
the role of caretaker, making sure that
basic needs are met, and opportunities to
upgrade into a better life remain open. In
return, the masses help to maintain the
continuity of the current government
through their votes.
• For the elite, the government ensures
that Singapore’s overall environment re-
mains attractive relative to other global
cities in terms of a complex potpourri of
metrics, including pay, safety, pollution
levels and opportunities. In return, the
elite continue to pay their dues in terms
of taxes and maintain the country’s over-
all competitiveness by leading the vari-
ous private and public institutions in an
increasingly challenging global arena.
• To ensure that there remain harmony
and a sense of fairness between these two
groups, the government must ensure that
the opportunity to upgrade oneself into
a better life remains, eg, via scholarships
and other education subsidies.
This dual nature of the government’s
role is what most foreign critics miss, and
why Singapore, while rated highly on
most financial and economic rankings,
loses out on various individual freedom
rankings and their ilk. Like for like, the
masses in Singapore have a better life
than most other countries in the world,
with household ownership at over 90 per
cent and low sub-5 per cent unemploy-
ment rates over the last 10 years. This
keeps the social compact intact.
As for the elite, most do not care much
that Singapore has just one very dominant
ruling party as long as it keeps governing
the country well since most really don’t
have the slightest interest in entering
politics anyway. As for constraining rules,
the reality is that with the ease of interna-
tional travel that Singapore provides, and
information accessibility via the Internet,
they present no great issue to those who
do seek greater freedoms. To paraphrase
a senior lawyer’s words, “as long as you
stay clear of politics, drugs and racial/reli-
gious issues”, you should be fine.
CHALLENGES AHEAD
With this dual-nature concept of Singa-
pore in mind, we can now proceed to
examine the challenges ahead. First, we
discuss the domestic challenges, then the
regional issues, before proceeding to ex-
amine risks of a global import.
On the domestic front, we expect that
GDP will decline by anywhere between
5 and 12 per cent for 2009. The best case
scenario is arrived at by simply assum-
ing that 2009’s quarterly GDP averages
at just 3 per cent below estimated Q4
2008 levels, compared to the 4.8 per cent
quarter-on-quarter decline that Q4 2008
itself registered.
The worst case is arrived at by assum-
ing that each of Singapore’s industries
individually repeats its worst periods in
the last three recessions of 1985, 1998
and 2001 (see Figure 6). In this case, the
overall GDP should bottom out around
Q3 2009 followed by a modest rebound,
bringing GDP levels back to 2008’s high
only in 2012.
The four sectors of manufacturing,
wholesale/retail trade, transport/storage
and financial services – which might suf-
fer double-digit declines in 2009 taken
together – provide some 1.3 million jobs
or 46 per cent of all jobs in Singapore.
Major labour force dislocation, that is,

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 [ POLICY ]

significant unemployment, is thus the rested to some extent, the jury is still out
near-term risk facing Singapore (and FIGURE 4: Average household on whether enough has been done to pre-
most economies) on the domestic front. income by income bracket vent the current deterioration in global
The chart of employment expectations in GDP from lingering for years.
Year 1993 2003 Change
the manufacturing and services sectors 2003/1993
In the optimistic scenario, one would
puts this risk across most succinctly, with (S$ per month) (%) hope that these measures manage to sta-
the latest Q1 2009 figures nose-diving. bilise confidence and resuscitate flagging
All households 3,458 4,867 41
There is every possibility that without consumption, followed by recovery in
Lowest 20% 887 795 -10 bank lending, improvements in capacity
the recent wage cost offset and other in-
centives announced in the recent Budget, 2nd quintile 1,645 2,059 25 utilisation as inventories get drawn down,
double-digit unemployment rates would 3rd quintile 2,487 3,379 36 allowing companies to start replenishing
be around the corner. As it is, one can 4th quintile 3,799 5,309 40 stocks, followed later by recovery in in-
only hope that enough companies are Top 20% 5,055 12,792 153
vestments as utilisation levels reach ca-
willing to hold out for a better 2010 be- pacity.
Source: Singapore Department of Statistics
fore taking more drastic action on head- Should this scenario pan out, we
count. would be seeing a bottoming out of the
On the regional front, Singapore has global economy sometime in late 2009
always had intermittent difficulties. The FIGURE 5: Average household with recovery only slowly becoming more
causes of these difficulties have been income less household expenditure palpable in 2010. The world will then
wide-ranging, from territorial disputes by income bracket slowly revert back to status quo with the
(eg, Pedra Branca), to water resource developed world returning to very mod-
agreements and being blamed for export- Year 1993 2003 Change est growth from late 2010 onwards, and
2003/1993
ing inflation (eg, by parts of Malaysia). (S$ per month) (%)
the emerging powerhouses of China and
For now, domestic politics in Malaysia India resuming high single-digit growth
(and in Indonesia) has taken the lime- All households 796 1,623 104 rates at around the same time. Inflation-
light. In addition, Singapore’s economy is Lowest 20% -227 -464 104 ary risks would remain mild for some
likely to suffer more than its neighbours 2nd quintile 40 -41 na years yet, since there would remain sig-
given its significantly higher exposure to 3rd quintile 277 582 110 nificant slack in capacity utilisation levels
global trade and finance, smaller domes- 4th quintile 841 1,405 67
for most industries. Under this scenario,
tic consumption base and lack of natural the significant short-term fiscal boosts
Top 20% 3,044 6,632 118
resources. Hence, we foresee no problems enacted in the latest Singapore Budget
here for now. Top 20% as and current strategic positioning of Sin-
% of all
Still, when things settle they will households 77% 82%
gapore’s assets should allow the country
re-emerge. The cause, I believe, is more to return to a modest growth trajectory
Source: IMF
envy than fear, as Singapore’s affluence by 2010.
has far outstripped that of its neighbours Unfortunately, there is a darker pos-
(see Figure 1). For now, differences have sibility on the horizon. The premise here
been dealt with via diplomacy (includ- FIGURE 6: Worst-case GDP is that the days of the consumption-led
ing resorting to the International Court growth outlook for Singapore growth model in the US and other devel-
of Justice for a recent dispute), continu- oped economies are over, and that mar-
Year 2009 2010
ing development of mutually beneficial (%) (%) kets are now demanding more responsible
economic ties, and the maintenance of a Total -12.3 4.5
fiscal management at both the individual
viable defence force as an effective deter- and government level. The problem signs
Manufacturing -21.9 8.4
rent. have actually been around for some time,
Construction -3.2 -23.9 but it is only now, when the US has actu-
We believe there is another way that
Singapore can develop even stronger ties Utilities 3.1 7.6 ally started printing money in an attempt
with the region, and indeed, the world, Wholesale/Retail -15.3 7.2 to reflate the economy, that the death
which can insulate it against risks of less- Transport/Storage -14.2 -4.1 knell is finally sounding. Consider the fol-
than-neighbourly behaviour. I will dis- Hotels -5.0 5.4 lowing:
cuss this in the next section on potential Info/Communications -4.6 0 • The latest estimate from the Congres-
action plans. sional Budget Office of the US suggests
Financial services -12.5 6.2
On the global front, consensus opin- that debt held by the public is poised to
Business services -5.0 4.7
ion is that the current downturn has been rise from 41 per cent of GDP in 2008 to
caused initially by the collapse of the col- Source: UW estimates 57 per cent in 2009 and 82 per cent by
lateralised debt obligations (CDO) mar- 2019. Rising spending on Social Security,
ket, which snowballed into a full-scale dramatic monetary easing, fiscal stimulus Medicare and Medicaid driven by an age-
credit crisis, followed soon after by the through deficit budgets, and direct mar- ing population will continue to push this
aftershocks which continue to depress ket intervention via government bailouts. deficit beyond 100 per cent by 2040, a
real consumption demand to this day. The While the economic free-fall experienced level that is clearly unsustainable.
response around the world has been a in the second half of 2008 has been ar- • The US can continue these deficits as

MAY 2009 _ PULSES _ 53

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 [ POLICY ]
FIGURE 7: Quarterly employment forecast by sector
(%)
30
20
10
0 -1.0
-10
-20
-30
2004 2005 2006
Source: Department of Statistics, Ministry of Trade and Industry, Economic Development Board
long as there remains foreign investor ap-
petite for its domestic assets. However,
by 2007, foreigners already owned some
US$20.1 trillion in US assets. Netting
this off against US ownership of foreign
assets, the deficit is already at a historical
high of US$2.4 trillion.
• China, the single largest holder of US
debt at around US$740 billion (January
2009), or 24 per cent of all estimated for-
eign holdings, has just suggested the need
for a new reserve currency.
• Of the six other top foreign holders of
US government debt, the appetite for US
debt looks increasingly suspect. The UK
(which just failed to find enough buyers
for its latest bond auction) and the Carib-
bean banking centres have already been
trimming holdings, Russia is in concur-
rence with China on the call for an alter-
native reserve currency, Japan needs to
deal with its own domestic economy first,
and Brazil and the oil exporters will need
higher oil prices.
• The US has already started printing
money by using the Federal Reserve to
buy government debt. With just US$135
billion remaining in the US$700 billion
financial-sector bailout fund approved
by the US Congress, and much left to be
done, it appears that more printing lies
ahead.
The problem with the call for an alter-
native reserve currency is that China and
Russia alone do not, yet, have the politi-
cal muscle to push for its creation at the
International Monetary Fund (IMF). Even
if the United Nations panel of economists
led by Joseph Stiglitz, who have voiced
their concurrence, do come up with a vi-
able solution soon, it will still be years be-
54 _ PULSES _ MAY 2009
policy_MAY_pg50-57.indd 6
FIGURE 8: US-owned assets abroad vs foreign-owned
assets in the US
US-owned assets abroad, foreign-owned assets in US$ trillion
25
Services
20
15
Manufacturing 10
5
0 -3.0
2007 2008
fore this structure can be created due to
political wrangling and likely opposition
from current beneficiaries of the status
quo.
The quickest solution would be for
another currency to take the place of the
US dollar as the reserve currency, but the
European Union and Japan are in no po-
sition to proffer their own currencies giv-
en their own economic mess, and China
seems to favour a far more modest pace
of currency appreciation.
If the US does continue printing mon-
ey, and other major economies follow
suit, then the Chinese will probably have
to do likewise or risk seeing the renminbi
appreciate sharply or re-experience sig-
nificant domestic asset inflation. In this
nightmare scenario, the likely outcome
is that inflation will return with a ven-
geance well before consumption recovers,
due mostly to a capital flight away from
increasingly worthless paper currencies
and into hard assets and commodities.
This frightening scenario is actually the
base-case expectation of the gold bulls
and why gold coins have suddenly be-
come scarce.
Meanwhile, we have the related prob-
lem of creeping protectionism as govern-
ments around the world are pressured by
their constituents to cushion rising unem-
ployment levels. To those at risk of losing
their job, redirecting domestic demand
towards domestic enterprises is one sim-
ple solution, while the counter-argument
that trade protectionism ultimately leads
to greater structural dislocation due to tit-
for-tat responses by other countries is an
all-too-distant hypothesis.
On the issue of creeping protection-
(US$ trillion)
1.0
0.5
A – B (RHS) 0.0
-0.5
-1.5
Foreign-owned assets (B)
-2.0
-2.5
US-owned assets abroad (A)
’80 ’85 ’90 ’95 ’00 ’05
Source: US Treasury
ism, there is unfortunately little that Sin-
gapore can do except perhaps remain
vigilant and use diplomatic channels to
forestall or reverse specific instances. We
shall thus focus on the other major risk, ie,
that the policies of the developed world
will fail to resuscitate demand sufficiently
before inflation returns with a vengeance,
with the US economy ultimately capitu-
lating under the weight of its own debt
and countries around the world forced to
find an alternative reserve currency.
Thankfully, there is still time to adjust
since this nightmare scenario remains a
black swan event which many among the
intelligentsia, except for the gold bulls,
are hoping does not pan out. In the final
section, I discuss how Singapore is posi-
tioned against the challenges outlined
thus far, and suggest how to perhaps buf-
fer against these risks and increase the
island republic’s overall resilience in the
long run.
REPOSITIONING FOR
THE ROAD AHEAD
Let’s now review the balance sheet of Sin-
gapore’s households before moving on to
the government balance sheet and suggest
areas for further assessment. Thereafter, I
will look at other steps that might help im-
prove Singapore’s long-term resilience.
Let’s first look at the balance sheet of
the top 20 per cent of Singapore’s resi-
dent households. I estimate that this elite
group has garnered some S$2.9 million
in net wealth and remains lightly geared
at around 15 per cent (S$500,000 loans
against $3.4 million in assets), even after
accounting for the steep fall in asset val-
ues in recent months.With cash of around
MAY 2009 _ PULSES _ 37
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 [ POLICY ]

FIGURE 9: Estimated average FIGURE 10: Asset and liability breakdown for Singapore government
Singapore household wealth Period ending March
breakdown for top 20% 2004 2005 2006 2007 2008 2009e
(S$ billion)
Per resident household S$m % of
total assets Assets 399 437 483 522 610 548
Net wealth 2.9 85 Cash 87 102 112 107 113
Total assets 3.4 100 Investments 313 335 371 414 497
Government stocks 78 74 76 77 76
Cash & deposits 0.9 26
Other investments - quoted 180 200 198 208 241
Shares & securities 0.4 10
Other investments - unquoted 53 58 95 127 177
Life insurance &
Deposits with investment agents 2 2 2 3 4
pension funds 0.8 24
Property 0.3 10 Liabilities 301 327 357 381 436 420
Deposit accounts 2 2 2 3 4 4
Total loans 0.5 15
Funds set aside for specific purpose 299 325 355 378 432 416
Source: Department of Statistics, Ministry of Trade
and Industry, UW estimates Consolidated fund 98 110 126 141 174 127
Estimated breakdown by manager
S$900,000, they seem well-buffered for Government stocks 78 74 76 77 76 76
the current downturn. Deposits held at MAS 86 101 115 111 117 123
The only suggestions for this group
Temasek shareholders' funds 65 71 91 114 144 144
would be to remain light-footed on their
Potential assets under GIC 171 191 202 220 273 205
securities holdings and stand ready to
shift heavily into inflation hedges (like Total assets 399 437 483 522 610 548
precious metals and commodities), should Temasek at market value 90 103 129 164 185 127
investors signal that they are no longer Total assets with Temasek at market value 425 469 522 572 651 531
willing to fund the US deficit, eg, a fail- Less outstanding government debt 200 200 200 206 244 255
ure at its bond auction, rising long-term Net assets at market value 225 269 322 365 407 275
government bond yields, and reductions
Source: Government reports, UW estimates for March ‘09
in Chinese holdings of US debt.
As for the rest of Singapore, the
average household wealth would be sell-off has resulted in net assets falling by Should our nightmare scenario tran-
S$200,000 with the bulk being illiquid just over 30 per cent from S$407 billion spire, however, I doubt there is much that
assets like property (about 70 per cent) in March 2008 to S$275 billion by March the MAS can do since, when all major
and pension funds (about 17 per cent). this year, returning to around March countries start printing, allowing the Sing
This means that a sustained downturn 2005 levels. This leaves the accumulated dollar to appreciate too sharply would
would exact a tremendous toll on the surplus at a still formidable S$127 bil- decimate many of Singapore’s businesses.
average person. Of course, it would be lion – equivalent to almost three years of Perhaps the only suggestion might be to
far more exacting on the weakest 20 per annual government expenditures (using reconsider its strategy on its gold hold-
cent of households given that they would FY09’s generous budget spending) or 67 ings, which has seen a steady decline
barely have any savings. per cent of GDP. from S$374 million in March 2003, to
This brings us to the government bal- A discussion of potential steps must S$228 million in March 2008.
ance sheet which becomes extremely im- first distinguish between the functions of Temasek and the GIC are the other
portant to the less wealthy in Singapore the three major institutions tasked with two important institutions managing Sin-
as it can augment future financial needs managing the country’s sovereign assets. gapore’s wealth. The difference between
via subsidies and other fiscal measures. First, there is the MAS, Singapore’s de the two is that Temasek is a more active
Using available data and recent publi- facto central bank, which is tasked with investment manager which began as the
cised disclosures of the performance of managing Singapore’s official foreign re- holding company for various businesses
the Government of Singapore Invest- serves and seeks to “promote sustained held by the Singapore government in
ment Corporation (GIC) and Temasek non-inflationary economic growth, and a 1974 and has since seen its initial portfo-
Holdings, I estimate that the government sound and progressive financial centre”. lio of S$350 million grow some 360-fold
is now overseeing around S$530 billion Singapore’s monetary policy focuses on to S$127 billion. The GIC, on the other
in total assets (after marking Temasek’s targeting the exchange rate on a trade- hand, began some seven years later in
assets to market values), with around weighted basis. This system has worked 1981, and is tasked with managing Singa-
S$123 billion lodged as deposits in the very well in the past as the MAS has pore’s foreign reserves. Thus this portfolio
Monetary Authority of Singapore (MAS), allowed the Sing dollar to appreciate to would be less aggressive than Temasek’s
S$127 billion in Temasek, and up to offset inflationary pressures and appears and skewed towards capital preservation.
S$205 billion in the GIC. to be allowing the reverse as inflationary Both institutions have performed cred-
This suggests that the recent market risks have abated, for now. ibly well over the last 20-odd years, and it

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 [ POLICY ]
Singapore can have an added role on the world map as an intermediation place
for religious and spiritual matters, a role which might actually supersede its
current role as a trade and financial intermediary.
would be unfair to be overly critical due
to their dismal showing last year. I thus
proffer the following as suggestions for
further consideration.
First, the assets managed by both
funds can be skewed towards areas which
might offset the risks inherent in Singa-
pore’s domestic economy. For starters,
Singapore lacks natural resources and
thus a more significant stake in energy
and agri/aqua-culture assets would be a
helpful balance. An additional benefit is
that it would more closely align with the
future consumption needs of Singapore’s
resident population.
Second, investments should skew to-
wards economies with prospects of long-
term productivity gains (eg, from demo-
graphics) and away from countries facing
structural fiscal problems (eg, the US).
Third, investments in cyclical industries
where Singapore’s domestic economy is
already heavily exposed to, like finance
and transport, can be curtailed.
Taken together, these suggestions
would probably have forestalled Singa-
pore’s recent acquisitions into Citibank,
UBS and Merrill Lynch. This investment
approach will also be less dependent on
56 _ PULSES _ MAY 2009
policy_MAY_pg50-57.indd 8
the need for defining value based on a
specific functional currency, thereby re-
ducing problems caused by turmoil on
this issue in our nightmare scenario. In
the longer term, these external assets
would provide a useful counter-cyclical
balance to Singapore’s inherently cyclical
domestic economy due to its exposure to
trade and finance.
In terms of the domestic economy,
Singapore has already implemented some
of the suggestions I made some six years
ago while in my capacity as research head
in my previous firm. This was in a 72-page
report entitled Wake-Up Call published
in March 2002, which suggested making
Sentosa an enclave for the super-wealthy
and made the case for allowing casinos,
among other things. There is, however,
one area of significant strength that Sin-
gapore has yet to take to its natural con-
clusion.
I believe that one of Singapore’s
least heralded miracles is the racial and
religious harmony that has existed for
the last two decades amid much turmoil
experienced by other countries in this
dimension. Singapore is thus eminently
qualified to foster an inter-religious and
The Interfaith Group – which
makes up of the main religions in
Singapore – presenting a cheque to
humanitarian group Mercy Relief
spiritual organisation that acts as a bridge
to the country-level organisations in India,
the Vatican, the US, etc. A successful im-
plementation of this strategy will see Sin-
gapore become the world’s pre-eminent
centre for religious and spiritual pursuits,
and a venue for continuing dialogue and
discussion in areas of religion and spiritu-
ality. Suffice it to say, these organisations
are rich, and rather than needing financial
incentives, Singapore might actually ben-
efit from a slice of their vast assets under
management.
More importantly, these bridges to
other countries around the world will
augment existing diplomatic channels
currently based largely on trade and com-
mercial considerations, possibly buffering
Singapore against un-neighbourly behav-
iour borne of envy. Singapore will also
have an added role on the world map as
an intermediation place for religious and
spiritual matters, a role which might actu-
ally supersede its current role as a trade
and financial intermediary. Best of all,
this is one role that other countries like
China will never be able to usurp for the
foreseeable future.
There are, of course, some risks that
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 [ POLICY ]

FIGURE 11: CPF withdrawals for investments FIGURE 12: Average per capita monthly income
vs MSCI Singapore Index (including rebates) vs expenditure
Quarterly net withdrawals from
MSCI Singapore Index CPF for investments (S$m)
Income including Expenditure (B) A–B
700 1,600 rebates (A)
(S$ per month) (S$ per month) (S$ per month)
1,400
600
1,200 Year 1998 2003 1998 2003 1998 2003
MSCI Singapore Index
500 1,000
Average 1,300 1,482 856 962 444 520
800
400 600 Lowest 20% 306 308 524 568 -218 -260
300 400
2nd quintile 610 660 626 712 -16 -52
200
200 0 3rd quintile 942 1,029 766 864 176 165
Withdrawals for investments
-200
100 4th quintile 1,425 1,597 959 1,129 466 468
-400
0 -600 Top 20% 3,216 3,816 1,404 1,537 1,812 2,279
2003 2004 2005 2006 2007 2008
Source: Singapore Department of Statistics Source: Singapore Household Survey 2003, UW analysis

need to be considered. First, there would
be the rules governing non-interference
with politics. Second, Singapore must
consider how to manage potential reper-
cussions should, say, the Dalai Lama wish
to visit this intermediation zone. Third,
there would be a need to ensure that
harmony is indeed preserved by a care-
ful balance of the various religious and
spiritual factions.
Fourth, it would be wise to create
physical proximity among the various
factions and, perhaps, shared resources
like libraries and meeting places to re-
inforce a collegial atmosphere. I believe
that the risks can be managed, and where
Singapore missed the opportunity to be-
come the world’s headquarters for inter-
national organisations like the UN and
IMF, becoming the global coordinating
centre for religion and spirituality might
be just as pivotal.
Coming back to individuals, we be-
lieve that Singaporeans need to become
more independent in the management of
their wealth. Certainly, the experiment of
allowing Singaporeans to invest in equi-
ties and unit trust products has been less
than successful. The chart above (Figure
11) reaffirms past studies which have sug-
gested that Singaporeans have done poor-
ly in their investment forays. Essentially,
the net investment outflow from Central
Provident Fund savings peaked at S$1.3
billion for Q1 2008, almost in synchrony
with the stock market, before dwindling
into net withdrawal territory in recent
quarters.
The response from the government
seems to be a curtailing of these invest-
ments by requiring a minimum balance
of S$20,000 in the Ordinary account and
S$30,000 in the Special account of Sin-
gaporeans’ CPF funds before they can
invest in products like shares and unit
trusts. This, of course, transfers the invest-
ment responsibility to the government’s
asset managers, namely the MAS and
GIC (more the latter), who will then have
to redeploy these savings.
However, I believe this is counter-
productive in the longer term. By insist-
ing on these hefty minimums, it makes it
Instead of just linking
pay to the average of
Singapore’s best-paid
individuals, one might
also set up a cap to this
pay (future leaders’)
based on a multiple of
the income of the
bottom-most 20 per cent.
much more difficult for the average Sin-
gaporean to build a retirement nest-egg,
since traditional life-cycle investment
models would suggest a far more signifi-
cant portion of investments (sometimes
up to 80 per cent) be geared towards
higher-risk, higher-return products like
stocks and shares while one is young –
not cash. By transferring the responsibil-
ity of managing this minimum sum to
the MAS and GIC, but not giving similar
equity-like returns, simply fosters con-
tinued dependency of the people on the
government.
Better, perhaps, is a more structured
way to ensure that individuals acquire
requisite knowledge before allowing
them to invest their pension in risky as-
sets. The government can simply require
that individuals wishing to invest in equi-
ties, bonds or other exotic products pass
a standard examination, with higher in-
vestment sums allocated to those passing
more advanced tests. Executed well, this
should bolster the investment education
field in Singapore while also allowing
those individuals wishing more autonomy
for their own pension funds an avenue to
achieve this.
Finally, there is the matter of the less
well-off in Singapore. This is the seg-
ment of the population that needs the
most assistance from the government.
Despite rebates which have targeted
the less well-off, the 2003 survey shows
that the income/expenditure deficit has
risen for the bottom-most 40 per cent
of Singapore households! (see Figure
12) Perhaps a rising income disparity
is unavoidable as we progress towards
ever higher levels of affluence, but the
government might consider ensuring
that future generations of leaders do not
forget about Singapore’s bottom-most
20 per cent by setting some quantitative
linkage to their pay package.
My suggestion is that instead of just
linking pay to the average of Singapore’s
best-paid individuals, one might also set
up a cap to this pay based on a multiple
of the income of this bottom-most 20 per
cent. This multiple can be set at some rea-
sonable level without being excessively
onerous, so that future leaders, in their
pursuit of ever-higher quantitative met-
rics, will never forget about the less well-
off in Singapore. P

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