Singapore Policies – a Difficult Balancing Act

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Abstract

The government has always been implementing their policies carefully to manage different economic issues in Singapore. The issues we are looking at are inflation, labour policies, currency and competitiveness. One policy affects another and it is challenging to balance all the various issues using policies which, may conflict the others, one way or another. Using the AD/AS diagram, we look at how demand and supply affects inflation. We would also look at the foreign labour policy and exchange rate policy and their relevance with our competitiveness with the market.

Content Page

1. Summary of article – Pg 1-2

2. Discussion of Inflation (Demand-Pull/ Cost-Push) – Pg 2-4

3. Inflation – Singapore’s case – Pg 4-5

4. Singapore’s Foreign Labour Policy – Pg 5

5. Firms’ Competiveness – Pg 5-6

6. Singapore’s Exchange Rate Policy – Pg 6 - 7

7. Limitations – Pg 7

8. Conclusion – Pg 7

9. References – Pg 8-9

Summary of Article:

The newspaper article mentions the conflicting interests faced when implementing economic policies. During the 18th Singapore Economic Roundtable, the majority agreed that policy-making in the future would be a difficult task but the arguments revolved around Singapore’ competitiveness being affected due to the increased cost of operations of businesses and a higher Singapore currency. They believe that the policies to encourage tighter labour market and curbing inflation is on opposing terms within a short duration of time. The results from the tightening of labour market are also not optimistic as our employment growth is considerably high compared to other countries who have small economy like us. As our employment growth is targeted at 2%, we still have much room to improve on. Singapore labour policy would need to be adjusted to support the economy. Despite so, our foreign labour policy is not well-received in terms of social aspects and even with the help of the foreign talents, our productivity growth is still weak compared to the labour force size we have.

The exchange rate tool is also being doubted as it is believed inflation in Singapore is caused by domestic factors. Managing interest rates and exchange rates are also ineffective against inflation of properties. A person from the business industry mentioned both pros & cons of the strong Singapore currency, one is that they are able to benefit from the low interest rates but yet being less competitive as a majority of his earnings are from overseas. Firms might choose to outsource to other lower-cost countries due to the increasing exchange rate and tight labour market or even possibility of closing down. Despite so, another commented that it is natural for some to close down so that they are not taking up resources that could be better used by other firms. He believes that policies should be assisting Singapore firms to deal with the competitiveness yet loosening of our fiscal policy is not expected. They should only be considered should our growth is much lower than expected.

From the article, many economic issues such as inflation, labour market, value of the Singapore’s currency and competitiveness were brought up. We believe when the economy is doing well, inflation issues arise and when the economy is bad, we face unemployment issues. Also, to have a strong currency might risk our competitiveness in the market. We will discuss the issues further in the essay.

Discussion on Inflation

Inflation is defined by “a constant rise in commonly accepted price indices on account of which broad spectrum of living cost has mounted up to the level where general public feel relatively poorer.” (Hussain and Malik, 2011) There are two scenarios in which it occurs. Namely, it can be caused by demand-pull inflation or cost push inflation.

Demand-pull inflation

Demand pull inflation is a situation...
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