Singapore readies an arsenal of Keynesian stimuli to face the world trade downturn
By Jon Fernquest
Let's say that your country is a tiny island
(amounting to 682.7 square kilometers or 3.5 times the size of
Washington D.C compared to 511,770 square kilometers for Thailand) .Let's say this tiny island relies almost entirely on foreign trade with the outside world to keep the economy of the island running smoothly (an export-dependent economy).
Let's say that the foreign trade that sustains this island comes to a grinding halt, orders dry up, and the economy starts to shrink (at a seaonally adjusted annualised rate of 16.9% in the fourth quarter of the year).
This tiny island (Singapore) has been very thrifty and saved a lot of money during many successful years of foreign trade.
The tiny island has at least $230 billion dollars saved up in its two sovereign wealth funds: Government of Singapore Investment Corp (GIC) and Temasek Holdings.
How can these savings for a rainy day (reserves) be used to soften the blow?
an arsenal - a
large number of tools, resources, and methods available to solve a
problem (original meaning: a large collection of weapons and military
equipment)
Keynesian stimuli, fiscal stimuli - increases in government spending and tax cuts to help get the economy moving again
sustains - continue,
comes to a grinding halt - stop suddenly
shrink - grow smaller
thrifty - has the habit of saving money and not wasting things
sovereign wealth funds - a large state run investment fund (See Wikipedia)
Government of Singapore Investment Corp (GIC) - a sovereign wealth established by the Singapore government in 1981 to deal with foreign currency reserves generated from exports (See Wikipedia)
Temasek Holdings - an investment company that is owned by the government of Singapore. With a international staff of more than 300 people, it manages a portfolio of about S$185 billion, or more than US$127 billion, focused primarily in Asia (See Wikipedia)
save for a rainy day - save money for bad times when you will really need the money
reserves - money kept for future use when it is needed
Keynesian stimuli, fiscal stimuli - increases in government spending and tax cuts to help get the economy moving again
sustains - continue,
comes to a grinding halt - stop suddenly
shrink - grow smaller
thrifty - has the habit of saving money and not wasting things
sovereign wealth funds - a large state run investment fund (See Wikipedia)
Government of Singapore Investment Corp (GIC) - a sovereign wealth established by the Singapore government in 1981 to deal with foreign currency reserves generated from exports (See Wikipedia)
Temasek Holdings - an investment company that is owned by the government of Singapore. With a international staff of more than 300 people, it manages a portfolio of about S$185 billion, or more than US$127 billion, focused primarily in Asia (See Wikipedia)
save for a rainy day - save money for bad times when you will really need the money
reserves - money kept for future use when it is needed
New public sector jobs will be created. Of the 18,000 new jobs planned, 7,500 will be in schools and 4,500 in healthcare. The government will also subsidize training to upgrade work skills.
Part of the contributions that employers have to make to the Central Provident Fund (CPF) for their employees will be reduced in order to encourage companies to retain employees (Read article).
Construction projects add value to the economy and put people to work at the same time. The government plans as much as S$20 billion in public works projects in 2009.
The maximum corporate tax rate has been cut to 17% compared to Hong Kong's 16.5% to help attract foreign investment (Read article).
Cash grants to companies for retaining local workers will amount to $4.5 billion Singapore dollars.
Cash as well as utility and tax rebates amounting to $2.6 billion will be distributed to Singaporeans, especially the poor and unemployed.
public sector - government
a provident fund - a fund paying benefits to company employees who are fund members after they retire from the company
Central Provident Fund (CPF) - compulsory comprehensive social security savings plan which aims to provide working Singaporeans with a sense of security and confidence in their old age started in 1955 (See Wikipedia)
retain employees - keep employees, continue to provide jobs and not layoff employees
public works - structures (such as highways or schools or bridges or docks) constructed at government expense for public use
cash grants, grants - money given for a special purpose (don't have to pay back like a loan)
rebates - giving money back after payment
utility - some basic service like electricity or water (usually provided by the government or a large monopoly)
a provident fund - a fund paying benefits to company employees who are fund members after they retire from the company
Central Provident Fund (CPF) - compulsory comprehensive social security savings plan which aims to provide working Singaporeans with a sense of security and confidence in their old age started in 1955 (See Wikipedia)
retain employees - keep employees, continue to provide jobs and not layoff employees
public works - structures (such as highways or schools or bridges or docks) constructed at government expense for public use
cash grants, grants - money given for a special purpose (don't have to pay back like a loan)
rebates - giving money back after payment
utility - some basic service like electricity or water (usually provided by the government or a large monopoly)
Impact on Singapore's poor
Low-income families living close to the margin have a particularly acute problem.Income inequality has been widening in Singapore over the last decade.
The Gini coefficient which measures inequality in an economy jumped from 0.446 in 1998 to 0.52 in 2005.
SMEs which typically have a more difficult time surviving through recessions account for 60% of the jobs in Singapore.
living close to the margin - low
income so any further reduction could make getting the basics for
day-to-day living (food, shelter, clothing, heating) very difficult or
impossible
particularly acute - problem happens suddently at one point in time (chronic - problem happens over a long period of time)
Gini coefficient - a measure of inequality in an economy (See Wikipedia and article on limitations of measure).
particularly acute - problem happens suddently at one point in time (chronic - problem happens over a long period of time)
Gini coefficient - a measure of inequality in an economy (See Wikipedia and article on limitations of measure).
Workfare Income Supplement (WIS) Special Payment
Many low-income families may be forced to accept lower wages or work less overtime in 2009 because of the economic downturn.
This means they will take home less pay.
This is where workfare comes into the picture providing supplementary payouts called "workfare" to encourage them to continue working.Workfare has existed in Singapore for only a few years (since 2006) but with the economic crisis it has been called into action.
Workfare payments will increase by 50 per cent this year.
workfare - payments to people.....Under workfare, recipients have to meet certain participation requirements to continue to receive their welfare benefits. These requirements are often a combination of activities that are intended to improve the recipient's job prospects (such as training, rehabilitation and work experience) and those designated as contributing to society (such as unpaid or low-paid work). (See Wikipedia)
(Source #1: BBC, 22-01-09, link)(Source #2: Bloomberg, 22-01-09, link)
(Source #3: Straits Times, list of jobs initiatives, link)
(Source #4: Straits Times, Budget 2009, link)
