Learning from two crises

March 4, 2009
THINK-TANK

By Tommy Koh



IN 1997 and 1998, East Asia suffered a serious financial crisis that wiped out decades of progress. Unemployment and poverty increased substantially in countries such as Indonesia and the Philippines. The political leaders of Thailand, Indonesia, and South Korea lost their mandates and were replaced.

Although Thailand is an ally of the United States, it is not as important an ally as Mexico, which received a bailout from Washington to prevent a surge in immigration. To the disappointment of the Thai government and people, the US declined to come to its rescue. This may be one of the reasons why Thailand has drawn closer to China and has downgraded its relationship with the US.

The International Monetary Fund (IMF) worked closely with the US Treasury in the rescue of Indonesia, Thailand, and South Korea. The IMF prescribed bitter medicine: distressed financial institutions would be allowed to fail in order to avoid a 'moral hazard'. The idea that allowing banks to fail would pose a systemic risk was brushed aside. In the case of Indonesia, the IMF prescription went beyond the financial crisis. It forced then-Indonesian President Suharto to accept a humiliating wholesale reform of the country's political economy. Many Asian leaders suspected that the IMF-US agenda in Indonesia actually included regime change.

The US, supported by Europe, lectured Asia during the 1997-1998 financial crisis. Asian governments were told to avoid becoming overleveraged, to strengthen regulations, to increase transparency, to reduce the role of the state in their economies and to pursue responsible monetary and fiscal policies.

When speculators mounted an attack on the Hong Kong dollar in an attempt to break its peg to the US dollar, the Hong Kong government decided to intervene. The thought leaders of capitalism in America, such as the late Milton Friedman, condemned Hong Kong. But many Asian leaders and thinkers applauded.

Some of my American and European friends were unsympathetic during the Asian financial crisis. A few even gloated over Asia's misfortunes, displaying some of the West's worst prejudices towards Asia. Some went so far as to pronounce 'Asian values' dead. Nobel laureate Paul Krugman declared that the East Asian miracle was a mirage. He famously compared Singapore Airlines with Aeroflot.

A decade later, fortunes have been reversed. Asians have watched the Western financial crisis - including the collapse of Lehman Brothers and staggering government bailouts in the financial sector - with disbelief. The crisis in America spread rapidly to Europe, where governments had to nationalise or inject capital into banks to prevent bankruptcies. Two European countries, Iceland and Hungary, have sought the help of the IMF.

Unlike their Western counterparts a decade ago, no Asian leader or thinker has gloated over the misfortunes of America and Europe. Instead, Asians, led by the Chinese and Japanese, have tried to be helpful where possible and where our help is welcomed. We realise that we live in the same global village, and when the mansions of the two wealthiest families are on fire, the prosperity and security of all are threatened.

So, what lessons can be learnt from these two crises?

# First, be humble and refrain from lecturing. It is always easier to dispense advice than to follow one's own advice. I would respectfully point out that the US did not practise what it preached. It is overleveraged at all levels. Its regulatory structure is weak. Its financial products, especially the securitised products, lack transparency. It has not pursued responsible and prudent macroeconomic policies.

# Second, practise the virtue of thrift and follow the simple rule that one should live within one's means. Thrift has largely disappeared in America. Households save only 2 per cent of their income; the average American household has nine credit cards and a debt of US$17,000 (S$26,000); the US government owes the world more than US$10 trillion. America has become the world's largest debtor nation.

# Third, we must find the courage to confront our problems rather than point the finger at scapegoats. Instead of facing up to America's problems of low savings and overconsumption, some US leaders are blaming others. For example, Federal Reserve chairman Ben Bernanke has attributed the current financial crisis to 'global imbalances' and the 'excessive savings' of Asia. Strangely, we Asians get blamed when we have too much debt as well as when we have too much savings.

# Fourth, it is to be hoped that this crisis has diminished the attractiveness of Wall Street's style of capitalism. Unfortunately, that 'greed is good' culture has infected some Asian countries. Excessive pay for senior management, for example, has become fashionable in certain parts of Asia. This is not consistent with our communitarian values or our emphasis on team work and equity.

# Fifth, the latest crisis has reinforced the fact that global economic and financial power is slowly and ineluctably moving east. This makes forums such as the G-7 and G-8 moribund. Without the presence of China and India, these forums do not reflect the realities of our contemporary world.

# Sixth, we must stand united against protectionism. The big lesson from the Great Depression is that protectionism is not the cure. It will lead to trade wars and economic disaster.

The writer is chairman of the Institute of Policy Studies. Think-Tank is a weekly column rotated among eight leading figures in Singapore's tertiary and research institutions. An earlier version of this essay appeared in What Matters, a publication of McKinsey and Company.

Not all Chinese back 'patriotic buyer'

March 4, 2009
AUCTION OF QING RELICS

Art collectors, netizens say protest bid sullies China's reputation

By Sim Chi Yin

'Rogue'. 'Conman'. 'Fool'. 'Clown'. 'Traitor'.

A day after claiming to be the mystery buyer of two controversial Qing dynasty relics - but declaring that being a patriot, he will not pay up - Chinese art dealer Cai Mingchao, 44, found himself attacked with such brickbats in Chinese cyberspace and from fellow art collectors.

Before slipping away from reporters at a bizarre press conference on Monday, Mr Cai said he had made a protest bid at last week's Paris auction and will not make good his record-setting &yen31.4 million (S$61.4 million) offer for the rat and rabbit fountainheads looted by Western soldiers from the Old Summer Palace (Yuanmingyuan) almost 150 years ago.

In effect, he sabotaged the auction that Beijing and Chinese lawyers had failed to halt with official protests and an eleventh-hour legal challenge.

While many Chinese applauded Mr Cai for his audacious intervention, others slammed him for sullying China's reputation and showing the Chinese to be untrustworthy.

Art industry players said he had ruined not just his own credibility as a dealer but rattled the international art market with an unprecedented bid-as-political-protest move.

In an online poll on the semi-official China News Service website, about 22 per cent of 21,900 respondents said they disapproved of his action.

Going into the auction, Mr Cai, a known antiques collector from the southern city of Xiamen, might have felt he was riding on a wave of patriotic calls for the looted sculptures to be brought home.

Now caught on the wrong foot, he issued a statement defending his 'extraordinary measure in an extraordinary situation', to save the pair of relics from being auctioned off.

'I had the opportunity and have the ability,' Mr Cai said in a statement put out by the non-governmental China Fund for Recovering Cultural Artefacts Lost Overseas yesterday afternoon.

Back-pedalling from its earlier out-and-out patriotic stance, the group said Mr Cai would not pay up simply because the strict controls Beijing imposed on Christie's in retaliation for the sale would now mean the artefacts may not be approved by Customs. 'If those two items he had bid for cannot be imported, he, naturally, will not pay for them,' it said.

The group, which said Mr Cai has been their 'adviser' since December 2007, added: 'If we hadn't participated in the auction...the Yuanmingyuan rat and rabbit heads could have forever been lost from our sight.'

'This is not the first time a looted item has been auctioned, but we hope this will be the last,' said the group, which had in recent years worked with a state-backed company and Macau gambling king Stanley Ho to recover a few Yuanmingyuan fountainheads in a set of 12.

A Hong Kong-based Christie's spokesman said the company would not verify if Mr Cai was indeed the winning bidder or 'comment or speculate on the next steps that we might take'.

But under French auction rules, and those of Christie's, a successful bidder has seven days to pay for an item. If he does not pay up, the original owner can put it up for auction again. If the item then sells for less, the first bidder could be liable under French law to make up the difference.

With China's relics fetching ever-higher prices in auctions in recent years, the State Administration of Cultural Heritage had told Chinese collectors to break from their past practice and not use cash to bring home relics this time.

That body has distanced itself from Mr Cai's move. But at a regular press briefing yesterday, Chinese Foreign Ministry spokesman Qin Gang again called for the 'forcibly looted' fountainheads to be returned to China.

simcy@sph.com.sg

[One man can make a difference? There have been many such acts in history. Gandhi's act of civil disobedience. The Chinese man in front of the tank at Tiananmen. The Sea Shepherd (okay, not strictly one man) doggin the Japanese whaling ships and hurling rancid butter at them. But there is a difference between the first two, Gandhi & Tiananmen man, and the Sea Shepherd and Cai here. Gandhi & T-man simply did not cooperate. They put their liberty if not their lives on the line. The Sea Shepherd is an extreme example of assault on those who do not agree with them. It is beyond mere disobedience, and is terrorism or at least harassment in the name of ecology.

Cai is not as extreme as the Sea Shepherd, but his act in the name of patriotism, is unjustifiable. No lives were at risk. Not even animal life. At best he has delayed the sale, at the cost of integrity and credibility.]

Charting the course of misery

March 3, 2009

GLOBAL RECESSION

LAST week, United States Federal Reserve chairman Ben Bernanke predicted that 2010 'will be a year of recovery'. When will the misery end? Here are the guesses of three experts.


Risk of L-shaped near-depression

LAST year, some argued that the recession would be V-shaped - only about eight months long, like those in 1990 to 1991 and in 2001. Others like me argued that it would last at least three times as long and be three times as deep.

Today, as we enter the fifteenth month, it is obvious that we are in a U-shaped recession that has become global and will last at least until the end of the year - 24 months, the longest since the Great Depression.

Even if the US gross domestic product grows next year, it is likely to be no higher than 1 per cent. And at that rate, with the unemployment rate rising towards 10 per cent, the US will still be substantially in a recession.

Even if appropriate aggressive policy actions were undertaken, the growth rate would not rise closer to 2 per cent until 2011. So this recession may last 36 months. And things could get worse.

We now face a one in three chance that, if appropriate policies are not put in place, this ugly U-shaped recession may turn into a more virulent L-shaped near-depression or stag-deflation (a deadly combination of economic stagnation and price deflation) like the one Japan experienced in the 1990s after its real estate and equity bubbles burst.

Professor Nouriel Roubini, who teaches economics at New York University's Stern School of Business


Coordinated govt action needed

THE short answer is not soon. The recession is global: Exports, production and consumption are in high-speed descent. The headwinds are powerful because of excessive leverage, damaged balance sheets and the resulting tight credit.

Major financial institutions may be insolvent; their books are hard to assess. European banks have American-style problems with toxic assets and are also struggling because of their exposure to financial turmoil in eastern Europe. Eastern Europeans borrowed in euros and Swiss francs. Capital exodus and depreciating currencies have caused these debts to rise. And the shadow banking system through which a substantial amount of credit had been provided is no longer working.

Global growth is approaching zero, and all the advanced economies are likely to shrink this year. The prices of stocks and real estate continue to fall, and thus it will take more time for consumers and companies to pay off debt.

These factors have led to, first, reduced consumption and then declining investment and employment. This has lowered sales, profits, credit quality and, completing the loop, asset values. This interacting spiral is what makes this recession exceptional.

Governments and central banks are the only major sources of credit, liquidity and incremental demand - private capital and sovereign wealth funds, having experienced losses, are largely sidelined. If governments are quick and clear in their intentions and intervene in a coordinated way in both the real economy and the financial sector, we will probably have an unusually long and deep global recession through next year. If they don't, it is likely to be worse than that.

Professor Michael Spence, Nobel laureate in economics in 2001


Stop the bailouts

THE fundamental causes of this recession were mortgage defaults and the consequent insolvency of major financial firms. These insolvencies, and especially the fear of them, damaged normal credit mechanisms.

The self-correcting nature of markets will ultimately prevail. We should not underestimate the power of monetary policy; with the sharp increase in America's money stock starting in September, monetary policy is now extraordinarily expansionary. I believe, though without great confidence, that the recession will end in the second half of this year.

The US government's policy is damaging the economy's prospects. It fails to provide the needed tax incentives for investment in factories and equipment - incentives that were central to efforts to revive the economy during the Kennedy-Johnson era and under Ronald Reagan. But government spending can't lead the way to sustained recovery, because its stimulating effect will be offset by anticipated higher taxes and the need to finance the deficit.

Heavy-handed federal intervention into the management of companies from banks to carmakers will also delay recovery. And misguided efforts to help distressed home owners by permitting courts to rewrite the terms of mortgages will cause banks to limit mortgage lending, which will prevent housing from contributing to the recovery.

The unrelenting anger across the country over bailouts of corporations and households that made unwise and even irresponsible financial decisions is influencing federal policy. Punitive measures, like forcing companies receiving federal dollars to cancel employee events, will increase uncertainty over where the government will strike next in its effort to deflect public outrage. Instead of more bailouts, we need a clear path to fundamental reform of the US financial system.

Mr William Poole, president and chief executive of the Federal Reserve Bank of St Louis from 1998 to 2008

THE NEW YORK TIMES SYNDICATE

Wall St hits 12-yr low

March 3, 2009

NEW YORK - WALL Street stocks dropped to fresh 12-year lows on Monday on heightened fears about the financial sector after a new bailout announced for insurance giant AIG and big troubles for Britain's HSBC.

The Dow Jones Industrial Average skidded 300.11 points (4.25 per cent) to 6,762.82 at the closing bell, its first close below 7,000 points since 1997.

The broad-market Standard & Poor's 500 index sank 34.28 points (4.66 per cent) to a preliminary close of 700.81, its lowest since late 1996.

The Nasdaq fell 54.99 points (3.99 per cent) to 1,322.85, capping a calamitous session for global markets.

The market extended losses after a dismal week in which the Dow fell to its lowest level since 1997 and the S&P dropped to its weakest since 1996.

Market action came after the US government unveiled a fresh aid plan of US$30 billion (S$46.6 billion) for AIG to stave off collapse of the ailing insurance company as it revealed massive new losses.

'The risk now is that a global adverse feedback loop is forming: As financial market problems persist, further declines in employment and corporate profits lead to loan defaults, which damage banks' bottom lines,' said Joseph Brusuelas at Economy.com.

'The decline in equity prices for banks makes it more difficult to attract private capital and causes financial institutions to become more risk-averse and reluctant to lend.' World markets were under pressure after British banking giant HSBC said it was seeking a huge capital injection to survive the global economic crisis.

HSBC revealed on Monday that it needs nearly US$18 billion of new capital to withstand the financial crisis and announced 6,100 job cuts after a profits collapse.

The bank reported a 70 per cent plunge in annual net profit last year and said it hoped to raise 12.5 billion pounds (S$28.4 billion) in a record British rights issue. -- AFP

KL's two U-turns

March 2, 2009

# Fri: Backtracks on decision to raise highway tolls

# Sat: Reverses move to let church papers use word 'Allah'

By Carolyn Hong

KUALA LUMPUR: - A day after the Malaysian government backtracked on the unpopular toll hike increase, it made another U-turn. It reversed a decision to allow church publications to use the word 'Allah'.

Home Minister Syed Hamid Albar attributed the original decision to lift the ban, contained in a government gazette dated Feb 16, to a 'mistake'.

'The government's stand on the ban has not changed,' he said last Saturday, but did not explain how the mistake was made. The government had earlier issued a gazette permitting Christian publications to use the word 'Allah' provided that the words 'For Christians' were printed clearly on the cover.

This came after months of wrangling between the church and government over this sensitive issue. There is strong Muslim sentiment against the use of the word 'Allah' to refer to the god of other faiths.

The gazette would be revoked, Datuk Seri Syed Hamid said. He was quoted in Mingguan Malaysian as saying that it was not his decision.

This is the second U-turn in as many days. Last Friday, the government backtracked on an unpopular toll hike after facing criticism among its own ranks, and even from Prime Minister Abdullah Badawi.

The flip-flopping is clearly due to the political pressure that the government is facing as it faces up to an endless string of by-elections as well as party polls in Umno, the dominant component of the ruling Barisan Nasional.

Three by-elections loom: The two in Perak and Kedah have been fixed for April 7, while a third in Sarawak has yet to be fixed.

Umno party polls will take place at the end of this month.

The government is clearly mindful that it can ill-afford unpopular toll hikes that would become election fodder for the opposition.

The timing of the toll hike was particularly unfortunate as it came just as the opposition Democratic Action Party (DAP) was pushing the government to take over the management of the North-South Expressway, the main highway running along the length of Malaysia's west coast.

The DAP had highlighted the one-sided toll concession agreements that benefited the private companies at the expense of motorists, and pointed out provisions which allow the government to take over the highways.

The government hurriedly rescinded the toll hike, and a day later, it had to do the same with the gazette on the use of 'Allah'.

The gazette had not gone down well with several influential Muslim groups and leaders.

Malaysian Islamic Dakwah Foundation chairman Mohd Nakhaie Ahmad said the move could anger Muslims not only in the country but also throughout the world.

Perak Mufti Harussani Zakaria said it would not differentiate the god of different faiths.

The Syariah Lawyers Association and Penang Islamic Council also objected to it.

'This is dangerous and can bring confusion among the Muslims,' Penang Islamic Council chief Shabudin Yahaya was quoted as saying by the Utusan Malaysia.

The government backtracked immediately on this sensitive issue that could also hurt it in the by-elections, as well as the Umno polls.

But at least one respected Muslim leader, Datuk Nik Aziz Nik Mat, who is also spiritual head of the opposition Parti Islam Se-Malaysia (PAS), said that non-Muslims should be allowed to use the word 'Allah'.

However, he said it was up to the federal government to decide whether to allow its use by non-Muslims.

The Herald, the Roman Catholic Church's main newspaper in the country, had filed a legal suit to challenge the ban on the use of the word 'Allah' by non-Muslims.

It has argued that the Arabic word is a common reference for God that predates Islam and has been used for centuries in the translation to Malay.

The Herald editor, Father Lawrence Andrew, yesterday was quoted by the French news agency, AFP, as saying that the publication would continue with the court case.

carolynh@sph.com.sg

[Flip flop. The weakened BN flip flops because any further loss of support would cause them even more seats. So they bend to public opinion without the political capital to bite the bullet. And it is an insult to say that Muslims will be confused. Are they so easily confused? Then again, with teapot/kettle cults one wonders if there is truth in that.]

Paracetamol: Pause to reflect

Feb 28, 2009
PAINKILLER, ASTHMA & CHILDREN

By Richard Beasley

PARACETAMOL is one of the world's most commonly used drugs. It is popularly sold as Panadol as well as other brands.

Paracetamol is the preferred medication for relieving fever and pain because of its safety profile. Ten years ago, it was hypothesised that its use may increase the risk of developing asthma.

It was suggested that a change from the use of aspirin to paracetamol among children in the US during the 1980s may have contributed to the increasing prevalence of childhood asthma noted during this period. Substitution of paracetamol for aspirin, researchers proposed, may have led to an enhanced allergic immune response, thereby increasing susceptibility to asthma and other allergic disorders.

Since then, a number of epidemiological studies have reported an association between asthma and exposure to paracetamol in the womb, childhood and adulthood. These studies led to the suggestion that the use of paracetamol may represent an important risk factor in the development of asthma.

The latest evidence to support this hypothesis comes from a large international epidemiological study of childhood asthma that was recently published in the medical journal The Lancet. This analysis, from the International Study of Asthma and Allergies in Childhood, involved more than 200,000 six- and seven- year-old children from 73 centres in 31 countries.

The children's parents or guardians completed written questionnaires about current symptoms of asthma, rhinitis (hayfever) and eczema, as well as about several risk factors, including the use of paracetamol for fever in the child's first year of life and frequency of paracetamol use in the past 12 months.

This study found that paracetamol use for fevers in the first year of life was associated with a 46 percent increase in risks of developing asthma in six- and seven-year-old children. Paracetamol use both in the first year of life and in children aged six to seven years was also associated with an increased risk of symptoms of rhinitis and eczema. This suggests that the potential effect of paracetamol is not restricted to the airways and may affect a number of organ systems.

Identifying the potential mechanisms that might underlie this association now noted between paracetamol and asthma (and other allergic disorders) was not part of this study. But other researchers have proposed a number of plausible mechanisms, primarily related to paracetamol's negative effect on the body's ability to withstand oxidant stress and this may lead to an exaggerated allergic immune response.

The authors emphasised that a retrospective study of this design cannot establish causality due to the numerous potential biases that may confound the association. For example, it is known that viral respiratory tract infections in infancy such as respiratory syncytial virus (RSV) are associated with an increased risk of asthma in later childhood and that paracetamol use for such episodes could have caused confounding in the study.

The study has contributed to the debate as to whether it is beneficial to treat fever in children, an issue comprehensively reviewed in a recent World Health Organisation article. The review concludes that the available scientific evidence suggests that fever is a universal, ancient and usually beneficial response to infection, and that its suppression under most circumstances has few if any demonstrable benefits.

On the contrary, it suggests, suppressing fever may occasionally produce harmful effects. Thus the widespread use of drugs to reduce fever should not be encouraged. It recommends that in children their use should be restricted to situations of high fever, obvious discomfort or conditions known to be painful.

What is agreed is the need for randomised controlled trials of the long-term effects of repeated use of paracetamol in children. Only then will it be possible to develop evidence-based guidelines for recommending its use.

Pending the results of such research, paracetamol remains the preferred drug to relieve pain and fever in childhood. Current WHO guidelines recommend that it be reserved for children with a high fever (of 38.5 deg C or above).

Aspirin is not used in young children owing to the risk of Reye's syndrome, a rare but serious complication. So paracetamol still remains the preferred drug of choice to relieve pain or fever in children or adults with asthma, because aspirin (or other medications like it called non-steroidal anti-inflammatory drugs) may also provoke attacks of asthma in susceptible people with this condition too.


The writer is a respiratory physician at Wellington Hospital, director of the Medical Research Institute of New Zealand and a consultant to the World Health Organisation Global Initiative on Asthma.

Respond strategically, not tactically

Feb 28, 2009
FACING ECONOMIC ADVERSITY

By Ngiam Tong Dow

SINGAPORE is just 10 years away from its second centennial. In these nearly 200 years, it has faced economic adversity and emerged bruised but standing.

The first one was the Great Depression of the early 1930s. The Malayan economy, of which Singapore was then a part, was the world's leading natural rubber producer. Rubber prices collapsed. British rubber plantation owners found themselves stuck with excess labour.

The colonial government had established an immigration and emigration fund contributed by employers out of the wages of their tappers. When the depression struck, the fund was used to meet the cost of repatriating tappers back to India. Our current foreign work permit scheme likewise gives us the same flexibility in a business downturn.

The next challenge came when the prospect of a common market vanished with separation from Malaysia. Against all traditional economic logic, we removed all import tariffs, and freed up exchange controls. There was no way that we could construct a domestic market out of our minuscule size.

The wager paid off. By offering an honest administration and good governance, we were able to attract multinational manufacturing companies and international banks to establish their regional headquarters here. By the mid 1970s, there was full employment. As educational standards rose, skill intensive industries were attracted here.

Then, in 1985, after 20 years of success, a recession struck but it was one of our own making. The high wage policy introduced in the late 1970s to curb job hopping was way overdone. High wage costs and an overvalued currency snipped away at our international competitiveness.

The Government decided to reduce the employers' Central Provident Fund contribution rate from 25 per cent of basic wages to 10 per cent. That cut in CPF contributions was effectively a 15 per cent reduction in the wage bill for an employer.

Introduced in 1955 by the colonial administration as savings for old age, the CPF scheme initially set contributions at modest levels of only 3 per cent from both employer and employee. As our per capita GDP rose, the Government increased the CPF contribution rates to enable Singaporeans to buy their own low-cost HDB flats. Even today, public housing is financed largely through CPF savings.

In 1985, it was clear that a 25 per cent employer's rate of contribution was excessive. It had caused us to be overpriced in world markets. The 15 per cent cut in the employer's contribution rate that was instituted proved enough to restore our competitiveness. Within 18 months, the economy had recovered.

The lesson that can be drawn from the 1985 recession is that any response to an economic crisis should be a strategic one. By reducing the employers' CPF contribution rate to merely 10 per cent across the board, we ignited the dynamics to restructure and transform the whole economy. The move was not targeted at saving individual jobs or particular industries.

There were retrenchments, but the jobs that were lost were no longer internationally competitive with or without the CPF cuts. New businesses moved into Singapore. Today, our industrial structure is more competitive than it was in 1985. There is more knowledge content in our industries and services. They add more value so higher wages can be sustained.

By comparison, the present Jobs Credit scheme in the recently announced 'resilience package' is not a strategic response but merely a tactical one to prevent massive unemployment. By stipulating that an employer can draw on the jobs credit only if it keeps existing employees at their jobs, we risk freezing our industrial and business structures in a time warp.

[Comment: I fail to see the difference unless Mr Ngiam is seeking a permanent cut to the Emp'ers CPF contribution. ]

It is much better for employer CPF contribution rate to be reduced by 9 per cent, the very quantum specified in the jobs credit scheme. This would give employers more flexibility to restructure and transform their businesses.

Firms that cannot do so would naturally fall by the wayside. But this is better than giving uncompetitive enterprises a short reprieve through jobs credit.

[Mr Ngiam agrees that our industrial structure is more competitive than in 1985. From the other end, the reason for the Jobs credit instead of a CPF cut is that the issue isn't wage competitiveness, but a global meltdown that has affected demand and trade. The issue then is not the same as the 1985 recession. Morever, a CPF cut would affect most Singaporeans still paying their home loans. This would affect loan payments and could possibly trigger a decline in housing prices, and perhaps even increase the number of home loans defaults. So yes, perhaps a strategic response would often be better, but there is also a time for tactical brilliance. There are principles but in such a time it would seem principles have been thrown out the window when even pure capitalists concede that perhaps nationalising banks may be a good idea.  I don't agree that it is a matter of strategic or tactical response. It is a matter of appropriate response. Cleaving to principles of strategic priorities would be dogmatic. The Jobs Credit is pragmatic.]

Such a CPF cut should also apply to the public service and statutory boards so as to level the playing field for all employers. It is not healthy when young graduates rush to join the public rather than the private sector, unlike the recent past.

The impact of tactical policies is transitory. Using our reserves for a rainy day is another tactical, not strategic, response to the crisis. These reserves play a pivotal role in backing the currency. Being a small and vulnerable economy, the convertibility of the Singapore dollar is our lifeline. Thus the reserves should only be used in extremis such as wartime.

Let us adopt strategic policies, not tactical ones. Though they may be harder to execute, the returns will be better over the long run.


This is a condensed and edited version of a speech given by Mr Ngiam Tong Dow to visiting African policymakers on Feb 16, 2009 at the S. Rajaratnam School of International Studies of the Nanyang Technological University where he is Adjunct Professor. He served as Permanent Secretary in several ministries. He is also an SPH director.