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Singapore FINANCE
The country's rapid development was closely linked to
the
government's efficient financial management. Conservative
fiscal
and monetary policies generated high savings, which, along
with
high levels of foreign investment, allowed growth without
the
accumulation of external debt. In 1988 Singapore had
foreign
reserves worth about S$33 billion, which, per capita, put
it
ahead of Switzerland, Saudi Arabia, and Taiwan. That same
year, the
domestic savings rate rose to one of the highest in the
world (42
percent), as gross national savings, comprising public and
private
savings, totaled S$20.9 billion, 19 percent higher than in
1987. By
the mid-1980s, however, domestic demand had been so
stunted that it
became increasingly difficult to find productive areas for
investment. In the recession year of 1986, for the first
time,
gross national savings exceeded gross capital formation.
This was
in spite of a 15 percent cut in the employers'
contribution to the
Central Provident Fund. As a result, already depressed
domestic
demand was depressed even further, falling by 1 percent in
1986
after a decline of 3 percent the previous year.
Singapore's foreign reserves were, in fact, the
country's
domestic savings held overseas. Since the source of the
domestic
savings was in large measure the compulsory savings held
by the
Central Provident Fund, Singapore had a huge domestic
liability.
The fund claims, standing in 1988 at S$32 billion, almost
equalled
Singapore's foreign reserves. But since they were fully
funded and
denominated in Singapore dollars, the country was relieved
of the
problems of showing either a budget deficit or an external
debt.
Indeed, for many years, the government had pointed out
that its
foreign reserves, managed by the Government of Singapore
Investment
Corporation, were larger than that of wealthier, more
populous
countries. The reserves issue became politicized after
1987 when
Lee Kuan Yew proposed a change in the country's government
to an
executive presidency in which the president (presumably
Lee
himself) would have veto power over Parliament's use of
the
reserves. In 1986 the government-sponsored Report of the
Economic
Committee admitted that "over saving" was a problem. Not
until
1988, however, were some tentative steps taken to invest
the
surpluses directly in productive resources. This process
included
a one-time transfer to government revenue of S$1.5 billion
from the
accumulated reserves of four statutory boards.
The country's public sector financial system was
structurally
complex and difficult to follow owing to different
accounting
practices. Funds essentially were derived from three
sources: tax
revenue (directly on income, property, and inheritance;
indirectly
as excise duties, motor vehicle taxes; stamp duties, and
other
taxes), nontax revenue (regulatory charges, sales of goods
and
services, and interest and dividends); and public sector
borrowing
(see
fig. 6). The statutory boards had separate budgets,
although
they played a major role in infrastructure creation.
Government
companies also were not included in public finance
reporting.
After 1975 the government consistently had substantial
current
as well as overall surpluses. From 1983 to 1985, total
government
expenditure averaged 59.8 percent of current revenue. In
fact, the
overall surplus exceeded even the net contributions to the
Central
Provident Fund. The seven major statutory boards also had
consistent current surpluses. Economic theoretician and
member of
Parliament Augustine Tan suggested that Singapore's public
spending
and public savings were much too large. According to Tan,
the
government tended to err on the side of financial surplus,
despite
frequent forecasts of deficit, because the government
consistently
underestimated tax revenues and overestimated
expenditures. These
surpluses then put upward pressure on the exchange rate
and eroded
manufacturers' competitiveness.
Data as of December 1989
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