By Malminderjit Singh
As the ASEAN countries gather for their annual summit this week in Vietnam, the regional grouping will once again come under the watchful eyes of the international community. The main thrust of the meetings will be to inch closer towards realizing the ASEAN Community with the economic pillar coming under frequent criticism for the apparent lack of progress in economic integration.
The ASEAN Economic Community, which is due to be fully implemented by 2015 in accordance with the ASEAN Economic Blueprint, has a clearly defined set of measures that member countries must implement in order to achieve integration. However, critics have attacked the process as lacking tangible progress and substantial liberalization measures. A majority of the criticism stems from comparisons made with the European Union example of economic integration. Some of this criticism is valid as the ASEAN process does have areas it could improve on. However, to evaluate its perceived success from a European perspective does little justification and requires a re-think.
Firstly, it must be pointed out that ASEAN economic integration looks to move in the direction of the EU and not become another EU. There is difference in this articulation as the latter implies a direct replication while the former, explains that there would be adaptation of EU measures in the ASEAN context, reflective of the current ASEAN approach. Hence,this distinction is necessary as it already weakens the case for a direct comparison between both groupings.
In addition, the European Community, is the product of amalgamation of the European Coal and Steel Community, the European Economic Community and the European Atomic Energy Community to increase cooperation among member countries, particularly France and Germany, which had fought wars with one another and is thus built upon supranationalism to achieve these objectives. ASEAN, on the other hand, was formed as a solution to maintain territorial integrity and sovereignty and is therefore based upon a system of non-interference and international consensus among member countries. This makes economic integration a little more challenging within ASEAN as non-interference in domestic policies makes coordination among member countries even more important.
If the EU is not an appropriate benchmark, then how should ASEAN economic integration be evaluated? The ASEAN already has developed an ASEAN Scorecard which is designed to be a tracking mechanism for member countries to monitor the overall and individual country progress of measures implemented. Progress on most of these measures have been on track, but there are areas where more could be done. The main areas where more emphasis needs to be accorded include improving connectivity, through more enhanced and efficient transport links, establishing whole-of-government approaches within each ASEAN country so that there is greater domestic policy coordination and a more policy coordination among member countries as well as with dialogue partners.
Tuesday, April 6, 2010
Sunday, April 4, 2010
Buoyed by growth, India to cut deficit
Indirect taxes to contribute much of revenue increase in Budget 2010
By MALMINDERJIT SINGH
INDIA’S economy has weathered the global recession well and may grow at a 10 per cent pace in the “not-too-distant future”, but the country also needs to review public spending and improve its fiscal position.
This message was delivered by Indian Finance Minister Pranab Mukherjee during his Budget speech in Parliament yesterday. India’s Budget 2010 places greater emphasis on achieving higher growth instead of curbing inflation, and works towards fiscal consolidation.
In his statement, Mr Mukherjee said that India is on track to grow 7.2 per cent in the fiscal year ending next month. He expects Asia’s third-largest economy to grow 8.5 per cent next fiscal year, before hitting 9 per cent growth in 2011-12.
“The economy is in a better position than a year ago. We have to quickly revert to a higher GDP growth path of 9 per cent and cross double-digit growth,” he said.
The fiscal deficit (a reflection of government borrowings) is estimated to touch 6.8 per cent in 2009-10, but Mr Mukherjee expects it to shrink to 5.5 per cent of GDP for the coming fiscal year, before falling to 4.1 per cent of GDP by 2013. However, Indian bond yields reached a one-week high of 7.89 per cent yesterday as the finance minister announced that the government plans to increase market borrowing by 1.3 per cent in his US$239 billion Budget.
Nevertheless, analysts lauded the government’s efforts to achieve fiscal consolidation. PK Basu, managing director and chief economist at Daiwa Capital Markets Singapore, told BT Weekend that the Budget included credible steps to boost revenue and said that this may lead to an even lower fiscal deficit than projected.
Much of the revenue increase comes from a greater focus on indirect taxes, including plans to raise across-the-board excise duty in non-oil goods from 8 to 10 per cent and hike the Minimum Alternative Tax (MAT) on corporate profit from 15 per cent to 18 per cent.
Besides this, the Budget also restored the 5 per cent duty on crude oil and 7.5 per cent duty on gasoline and diesel, which sparked off a noisy walkout by opposition party members from the proceedings in Parliament. Fearing a political backlash, a decision on the Kirit Parikh committee recommendations – which include price deregulation of petrol and diesel, and a steep decrease in the subsidy of cooking gas and kerosene – was postponed to a later date.
Politically correct
According to Amitendu Palit, visiting research fellow at the Institute of South Asian Studies in Singapore, this was a “politically correct” decision, as was the announcement to restructure personal income tax by increasing the upper limit, of those who pay only 10 and 20 per cent income tax, to stimulate greater spending.
“By widening the tax slabs, the government has increased the disposable income of the middle class and therefore created a feel-good factor,” explained Dr Palit.
Mr Mukherjee also announced that the government would sell its stake in 60 state firms and would expect to raise US$8.6 billion by doing so.
The Budget also included plans to offer more licences for opening new banks, and this news propelled the shares of Indian banks as the Sensex rose more than 350 points. The State Bank of India climbed 3.2 per cent while rivals ICICI Bank and HDFC Bank rose 2.4 per cent and one per cent respectively.
While many expected the Budget to introduce measures to arrest the concerns of rising inflation, Dr Palit told BT that the Budget’s direct intervention scope was limited as much of the inflation is due to supply-side problems. “The measures to strengthen food supply and management have been planned effectively to curb rising food prices, but this needs to be maintained over a period of time,” he cautioned.
Dr Palit said the Budget could have taken a harder line on some aspects. “The measures on disciplining expenditure have not been implemented to the extent expected, and in terms of taxation the government should have introduced the Goods and Services Tax this time. However, there were measures to boost foreign investment, such as a simplified method of calculating the foreign equity component of companies, and the proposal to establish a Coal Regulatory Authority, which should encourage more entrepreneurs in the coal sector,” he pointed out.
Mr Mukherjee announced the govt would sell its stake in 60 state firms and expects to raise US$8.6b by doing so.
Indirect taxes to contribute much of revenue increase in Budget 2010
By MALMINDERJIT SINGH
INDIA’S economy has weathered the global recession well and may grow at a 10 per cent pace in the “not-too-distant future”, but the country also needs to review public spending and improve its fiscal position.
This message was delivered by Indian Finance Minister Pranab Mukherjee during his Budget speech in Parliament yesterday. India’s Budget 2010 places greater emphasis on achieving higher growth instead of curbing inflation, and works towards fiscal consolidation.
In his statement, Mr Mukherjee said that India is on track to grow 7.2 per cent in the fiscal year ending next month. He expects Asia’s third-largest economy to grow 8.5 per cent next fiscal year, before hitting 9 per cent growth in 2011-12.
“The economy is in a better position than a year ago. We have to quickly revert to a higher GDP growth path of 9 per cent and cross double-digit growth,” he said.
The fiscal deficit (a reflection of government borrowings) is estimated to touch 6.8 per cent in 2009-10, but Mr Mukherjee expects it to shrink to 5.5 per cent of GDP for the coming fiscal year, before falling to 4.1 per cent of GDP by 2013. However, Indian bond yields reached a one-week high of 7.89 per cent yesterday as the finance minister announced that the government plans to increase market borrowing by 1.3 per cent in his US$239 billion Budget.
Nevertheless, analysts lauded the government’s efforts to achieve fiscal consolidation. PK Basu, managing director and chief economist at Daiwa Capital Markets Singapore, told BT Weekend that the Budget included credible steps to boost revenue and said that this may lead to an even lower fiscal deficit than projected.
Much of the revenue increase comes from a greater focus on indirect taxes, including plans to raise across-the-board excise duty in non-oil goods from 8 to 10 per cent and hike the Minimum Alternative Tax (MAT) on corporate profit from 15 per cent to 18 per cent.
Besides this, the Budget also restored the 5 per cent duty on crude oil and 7.5 per cent duty on gasoline and diesel, which sparked off a noisy walkout by opposition party members from the proceedings in Parliament. Fearing a political backlash, a decision on the Kirit Parikh committee recommendations – which include price deregulation of petrol and diesel, and a steep decrease in the subsidy of cooking gas and kerosene – was postponed to a later date.
Politically correct
According to Amitendu Palit, visiting research fellow at the Institute of South Asian Studies in Singapore, this was a “politically correct” decision, as was the announcement to restructure personal income tax by increasing the upper limit, of those who pay only 10 and 20 per cent income tax, to stimulate greater spending.
“By widening the tax slabs, the government has increased the disposable income of the middle class and therefore created a feel-good factor,” explained Dr Palit.
Mr Mukherjee also announced that the government would sell its stake in 60 state firms and would expect to raise US$8.6 billion by doing so.
The Budget also included plans to offer more licences for opening new banks, and this news propelled the shares of Indian banks as the Sensex rose more than 350 points. The State Bank of India climbed 3.2 per cent while rivals ICICI Bank and HDFC Bank rose 2.4 per cent and one per cent respectively.
While many expected the Budget to introduce measures to arrest the concerns of rising inflation, Dr Palit told BT that the Budget’s direct intervention scope was limited as much of the inflation is due to supply-side problems. “The measures to strengthen food supply and management have been planned effectively to curb rising food prices, but this needs to be maintained over a period of time,” he cautioned.
Dr Palit said the Budget could have taken a harder line on some aspects. “The measures on disciplining expenditure have not been implemented to the extent expected, and in terms of taxation the government should have introduced the Goods and Services Tax this time. However, there were measures to boost foreign investment, such as a simplified method of calculating the foreign equity component of companies, and the proposal to establish a Coal Regulatory Authority, which should encourage more entrepreneurs in the coal sector,” he pointed out.
Mr Mukherjee announced the govt would sell its stake in 60 state firms and expects to raise US$8.6b by doing so.
New opportunities for S’pore businesses in India
Sectors cited include food processing, education and urban solutions
By MALMINDERJIT SINGH
“SINGAPORE’S FDI inflows into India should get higher priority,” said Indian High Commissioner to Singapore T C A Raghavan in his address at a seminar on the Indian budget here yesterday.
Dr Raghavan’s comment was echoed throughout the seminar as speakers highlighted how measures introduced in the Indian budget, announced on Friday, open up opportunities for Singapore companies to invest in India.
These measures include significant changes to the investment framework such as simplifying the foreign direct investment (FDI) regime, clearly defining the methodology for calculating indirect foreign investment in Indian companies, and the complete liberalisation of pricing and payment of technology transfer fee and trademark, brand name and royalty payments.
One of the speakers, Indraneel Choudhary, who is an executive director at PricewaterhouseCoopers (PwC) India, said: “In terms of the relaxation on the royalty and technical services, there are now no more caps for incomes earned by Singapore companies who have invested in or have technology or intellectual property in Singapore that they have now passed on to Indian companies and so this is a major move by the government to stimulate greater technology-based FDI, including from Singapore.”
Besides this, the Indian government also announced plans to sell its stakes in 60 state-owned firms to raise around US$8.6 billion.
The budget also included more licences being offered to private sector players in banking and allowing greater private sector investment in the retail and storage of agricultural products.
According to speakers at the seminar, all of these measures will help to create more opportunities for overseas companies, including those based in Singapore.
“More Singapore companies can get involved in food storage and processing and I also see increasing opportunities for local businesses in sectors such as education and urban solutions,” said Vijay Iyengar, chairman of the Singapore Indian Chamber of Commerce and Industry (SICCI).
Amitendu Palit, visiting research fellow at the Institute of South Asian Studies, pointed out that long-term sentiment for foreign investment growth into India is buoyant and this would help attract Singapore companies there.
“There has been positive growth in foreign direct investment and indirect investment into India in the first nine months of this financial year and this shows that investors around the world still find the Indian market very attractive. There are reasons and opportunities for Singapore companies to also do the same,” said Dr Palit.
Pramod Bhatia, executive director with PwC India, noted that Mauritius is the largest source of foreign direct investment into India at present, accounting for as much as 44 per cent of India’s total FDI inflows, while Singapore, which is ranked second, accounts for only 9 per cent. He attributed the distortion to more FDI flows coming via Mauritius.
Dr Palit added: “The Singapore-India trade story is more than the statistics show, especially since there is a lack of data in trade in services. Therefore, I would like to think that the economic relationship between both countries also needs to be evaluated qualitatively.”
The seminar was jointly organised by the SICCI, the Institute of South Asian Studies (ISAS), the Federation of Indian Chambers of Commerce and Industry (FICCI) and PwC.
Sectors cited include food processing, education and urban solutions
By MALMINDERJIT SINGH
“SINGAPORE’S FDI inflows into India should get higher priority,” said Indian High Commissioner to Singapore T C A Raghavan in his address at a seminar on the Indian budget here yesterday.
Dr Raghavan’s comment was echoed throughout the seminar as speakers highlighted how measures introduced in the Indian budget, announced on Friday, open up opportunities for Singapore companies to invest in India.
These measures include significant changes to the investment framework such as simplifying the foreign direct investment (FDI) regime, clearly defining the methodology for calculating indirect foreign investment in Indian companies, and the complete liberalisation of pricing and payment of technology transfer fee and trademark, brand name and royalty payments.
One of the speakers, Indraneel Choudhary, who is an executive director at PricewaterhouseCoopers (PwC) India, said: “In terms of the relaxation on the royalty and technical services, there are now no more caps for incomes earned by Singapore companies who have invested in or have technology or intellectual property in Singapore that they have now passed on to Indian companies and so this is a major move by the government to stimulate greater technology-based FDI, including from Singapore.”
Besides this, the Indian government also announced plans to sell its stakes in 60 state-owned firms to raise around US$8.6 billion.
The budget also included more licences being offered to private sector players in banking and allowing greater private sector investment in the retail and storage of agricultural products.
According to speakers at the seminar, all of these measures will help to create more opportunities for overseas companies, including those based in Singapore.
“More Singapore companies can get involved in food storage and processing and I also see increasing opportunities for local businesses in sectors such as education and urban solutions,” said Vijay Iyengar, chairman of the Singapore Indian Chamber of Commerce and Industry (SICCI).
Amitendu Palit, visiting research fellow at the Institute of South Asian Studies, pointed out that long-term sentiment for foreign investment growth into India is buoyant and this would help attract Singapore companies there.
“There has been positive growth in foreign direct investment and indirect investment into India in the first nine months of this financial year and this shows that investors around the world still find the Indian market very attractive. There are reasons and opportunities for Singapore companies to also do the same,” said Dr Palit.
Pramod Bhatia, executive director with PwC India, noted that Mauritius is the largest source of foreign direct investment into India at present, accounting for as much as 44 per cent of India’s total FDI inflows, while Singapore, which is ranked second, accounts for only 9 per cent. He attributed the distortion to more FDI flows coming via Mauritius.
Dr Palit added: “The Singapore-India trade story is more than the statistics show, especially since there is a lack of data in trade in services. Therefore, I would like to think that the economic relationship between both countries also needs to be evaluated qualitatively.”
The seminar was jointly organised by the SICCI, the Institute of South Asian Studies (ISAS), the Federation of Indian Chambers of Commerce and Industry (FICCI) and PwC.
China eyes 8% growth; vows to fight inflation
China eyes 8% growth; vows to fight inflation
By MALMINDERJIT SINGH
In an annual report on the opening day of Chinese parliament yesterday, Premier Wen Jiabao announced an economic growth target of 8 per cent during a crucial year of recovery. In his televised “state of the nation” address, Mr Wen also reassured the legislature that the government’s other priorities for the year will be to combat inflation and risks in the banking sector so as to keep growth on track.
Contrary to his intent to curb rising prices, however, Mr Wen noted that China would still stick to loose monetary and fiscal policies since global growth remains weak. “This year the main targets we have set for economic and social development are increasing GDP by approximately 8 per cent . . . (and) holding the rise in consumer prices to around 3 per cent,” reported AFP.
Speaking to The Business Times on this contradiction, Liu Yunhua, from the Nanyang Technological University, explained: “Due to the complication of the Chinese economy, some sectors need to be expanded, and so credit should be more available to them, while other sectors such as the housing market need to be cooled as they are over-heated. So for these, the credit has to be tightened.”
Accordingly, the government would cut its increase in spending, by more than half, to 11.4 per cent, to address the ill-effects of the stimulus package implemented during the global crisis.
Despite this, there was higher government spending announced in education, health care, low-income housing and social security. In addition, the Associate Press reported that the increases were higher than that given to the military, which is projected to receive a 7.5 per cent budget boost, its lowest in two decades.
This shift in focus signals an intention by the government to achieve more inclusive growth and address the widening rich-poor divide.
“China needs to spend more money on education and housing. China’s budget on education is lower than the world average and therefore it is normal to spend more in this sector. For housing, increasing the supply of public housing will help cool the sector down and complement the tightening of credit here.
“Expenditure in these areas addresses the growing concern of social inequality, which affects the stability of the Chinese society and is an urgent issue that needs to be attended to,” said Assoc Prof Liu.
On the yuan, Mr Wen said that China would keep its value “basically stable” in 2010.
Zhao Hong, a visiting senior research fellow at the East Asian Institute in Singapore, defended this policy as he explained that a lower and stable yuan will be good for economic development as fluctuations will result in a loss of confidence.
Dr Zhao added that while an appreciation of the yuan will increase imports from the West, such a move will affect Chinese export firms and may result in job losses.
This latest announcement by Mr Wen on the yuan is another snub to China’s Western trading partners that have raised concerns about the currency being undervalued. Nevertheless, the main Chinese index responded well to Mr Wen’s address and the strong signal sent by the government on economic growth.
The Shanghai Composite Index ended at 3,031.065 points yesterday, up 0.25 per cent, after falling 2.4 per cent on Thursday in its biggest one-day fall in five weeks, according to Reuters.
By MALMINDERJIT SINGH
In an annual report on the opening day of Chinese parliament yesterday, Premier Wen Jiabao announced an economic growth target of 8 per cent during a crucial year of recovery. In his televised “state of the nation” address, Mr Wen also reassured the legislature that the government’s other priorities for the year will be to combat inflation and risks in the banking sector so as to keep growth on track.
Contrary to his intent to curb rising prices, however, Mr Wen noted that China would still stick to loose monetary and fiscal policies since global growth remains weak. “This year the main targets we have set for economic and social development are increasing GDP by approximately 8 per cent . . . (and) holding the rise in consumer prices to around 3 per cent,” reported AFP.
Speaking to The Business Times on this contradiction, Liu Yunhua, from the Nanyang Technological University, explained: “Due to the complication of the Chinese economy, some sectors need to be expanded, and so credit should be more available to them, while other sectors such as the housing market need to be cooled as they are over-heated. So for these, the credit has to be tightened.”
Accordingly, the government would cut its increase in spending, by more than half, to 11.4 per cent, to address the ill-effects of the stimulus package implemented during the global crisis.
Despite this, there was higher government spending announced in education, health care, low-income housing and social security. In addition, the Associate Press reported that the increases were higher than that given to the military, which is projected to receive a 7.5 per cent budget boost, its lowest in two decades.
This shift in focus signals an intention by the government to achieve more inclusive growth and address the widening rich-poor divide.
“China needs to spend more money on education and housing. China’s budget on education is lower than the world average and therefore it is normal to spend more in this sector. For housing, increasing the supply of public housing will help cool the sector down and complement the tightening of credit here.
“Expenditure in these areas addresses the growing concern of social inequality, which affects the stability of the Chinese society and is an urgent issue that needs to be attended to,” said Assoc Prof Liu.
On the yuan, Mr Wen said that China would keep its value “basically stable” in 2010.
Zhao Hong, a visiting senior research fellow at the East Asian Institute in Singapore, defended this policy as he explained that a lower and stable yuan will be good for economic development as fluctuations will result in a loss of confidence.
Dr Zhao added that while an appreciation of the yuan will increase imports from the West, such a move will affect Chinese export firms and may result in job losses.
This latest announcement by Mr Wen on the yuan is another snub to China’s Western trading partners that have raised concerns about the currency being undervalued. Nevertheless, the main Chinese index responded well to Mr Wen’s address and the strong signal sent by the government on economic growth.
The Shanghai Composite Index ended at 3,031.065 points yesterday, up 0.25 per cent, after falling 2.4 per cent on Thursday in its biggest one-day fall in five weeks, according to Reuters.
Foreign worker levy hike: short pain, long gain
Foreign worker levy hike: short pain, long gain
By MALMINDERJIT SINGH
The increase serves as a good starting point for policy that can later be fine tuned
AS Members of Parliament (MPs) spent last week discussing Budget 2010 in Parliament, one topic stood out: the increase in foreign worker levies. While there was merit in most of the arguments posed, one key issue was raised that took the discussion into uncharted territory, and that is the impact of the foreign levy hike on the wages of Singaporeans.
The policy aim of the levy increase is to create a more level playing field between foreign workers and Singaporeans so that competition for jobs will be based more on skills and qualifications, rather than on wage costs.
In the process, some small and medium enterprises (SMEs) may be faced with increased costs in the near future if they choose to retain their foreign workers. But employers who switch to hiring more Singaporeans may also face higher costs while waiting for productivity gains to kick in. However, in the longer term, both companies and the economy will adjust to the slower intake of foreign workers and will come out ahead.
There are some who argue that the presence of large numbers of foreign workers has had a negative impact on the wages of Singaporeans, particularly those from the lower income bracket, as an increase in supply of unskilled labour keeps wages low for this segment of workers.
Associate Professor Hui Weng Tat from the Lee Kuan Yew School of Public Policy points out that depressed wages in Singapore is a real problem, highlighted by the fact that we have schemes such as the Workfare Income Supplement (WIS).
“The levy increase controls the inflow of foreign workers into Singapore as it narrows the wage gap and raises the attractiveness of Singaporeans,” says Prof Hui.
Since the depression of wages is a more chronic problem for lower income Singaporeans compared to the rest of the population, this trend, if not addressed, could potentially worsen income inequality here.
Budget 2010 should be commended for recognising these problems and implementing the levy hike as a progressive measure to address them – while at the same time pushing for improved productivity to help lower costs for employers.
Speaking to BT, MP for Ang Mo Kio GRC, Inderjit Singh, offered an alternative: “The levy increase will address the problem of depressed wages, but if we are to lower the cost burden on SMEs, then we can administer a minimum wage,” he suggests. He adds that the minimum wage can be subsidised by the government, via the mechanism of the WIS.
“The real solution is to improve productivity so that each worker can command a higher wage,” he says. “But until we get there, a minimum wage may be needed. This will help arrest the issues of low wages and wage inequality with little or no burden on companies for now.”
Adding to calls for a more comprehensive approach towards addressing this problem, Associate Professor Shandre Thangavelu from the National University of Singapore explains that since Singapore is a small and open economy, it will be useful to have a derivative of a minimum wage, with a flexible component to address unemployment fluctuations during economic downturns.
However, he adds that to solve the problem of depressed wages and wage inequality, a minimum wage alone would be inadequate. There should also be improvements in innovation and technology to substitute unskilled workers with more semi-skilled and skilled workers, he says.
The foreign worker levy increase serves as a good starting point for policy that can later be fine tuned. For companies, the hike may appear unnecessary and untimely. But from a public policy perspective, it can be seen as a measure that creates some short-term pain to achieve longer term gain.
If it is able to achieve its ultimate purpose – higher incomes for Singaporeans – companies will stand to benefit from a larger consumption pie. They will also gain from the productivity measures when they kick in due to a more optimal use of the factors of production.
As Prof Thangavelu sums up, “There is no doubt a trade-off here between long-term and mid-term growth. There will be an adjustment cost, and therefore the budget has given incentives to cope with this cost. However, it is better to make these changes now that we have just come out of a recession, rather than later.”
In other words, although the levy increase can cause some pain in the short run for some companies, it is a positive step towards long-term competitiveness for the economy as a whole.
In the longer term, both companies and the economy will adjust to the slower intake of foreign workers and will come out ahead.
By MALMINDERJIT SINGH
The increase serves as a good starting point for policy that can later be fine tuned
AS Members of Parliament (MPs) spent last week discussing Budget 2010 in Parliament, one topic stood out: the increase in foreign worker levies. While there was merit in most of the arguments posed, one key issue was raised that took the discussion into uncharted territory, and that is the impact of the foreign levy hike on the wages of Singaporeans.
The policy aim of the levy increase is to create a more level playing field between foreign workers and Singaporeans so that competition for jobs will be based more on skills and qualifications, rather than on wage costs.
In the process, some small and medium enterprises (SMEs) may be faced with increased costs in the near future if they choose to retain their foreign workers. But employers who switch to hiring more Singaporeans may also face higher costs while waiting for productivity gains to kick in. However, in the longer term, both companies and the economy will adjust to the slower intake of foreign workers and will come out ahead.
There are some who argue that the presence of large numbers of foreign workers has had a negative impact on the wages of Singaporeans, particularly those from the lower income bracket, as an increase in supply of unskilled labour keeps wages low for this segment of workers.
Associate Professor Hui Weng Tat from the Lee Kuan Yew School of Public Policy points out that depressed wages in Singapore is a real problem, highlighted by the fact that we have schemes such as the Workfare Income Supplement (WIS).
“The levy increase controls the inflow of foreign workers into Singapore as it narrows the wage gap and raises the attractiveness of Singaporeans,” says Prof Hui.
Since the depression of wages is a more chronic problem for lower income Singaporeans compared to the rest of the population, this trend, if not addressed, could potentially worsen income inequality here.
Budget 2010 should be commended for recognising these problems and implementing the levy hike as a progressive measure to address them – while at the same time pushing for improved productivity to help lower costs for employers.
Speaking to BT, MP for Ang Mo Kio GRC, Inderjit Singh, offered an alternative: “The levy increase will address the problem of depressed wages, but if we are to lower the cost burden on SMEs, then we can administer a minimum wage,” he suggests. He adds that the minimum wage can be subsidised by the government, via the mechanism of the WIS.
“The real solution is to improve productivity so that each worker can command a higher wage,” he says. “But until we get there, a minimum wage may be needed. This will help arrest the issues of low wages and wage inequality with little or no burden on companies for now.”
Adding to calls for a more comprehensive approach towards addressing this problem, Associate Professor Shandre Thangavelu from the National University of Singapore explains that since Singapore is a small and open economy, it will be useful to have a derivative of a minimum wage, with a flexible component to address unemployment fluctuations during economic downturns.
However, he adds that to solve the problem of depressed wages and wage inequality, a minimum wage alone would be inadequate. There should also be improvements in innovation and technology to substitute unskilled workers with more semi-skilled and skilled workers, he says.
The foreign worker levy increase serves as a good starting point for policy that can later be fine tuned. For companies, the hike may appear unnecessary and untimely. But from a public policy perspective, it can be seen as a measure that creates some short-term pain to achieve longer term gain.
If it is able to achieve its ultimate purpose – higher incomes for Singaporeans – companies will stand to benefit from a larger consumption pie. They will also gain from the productivity measures when they kick in due to a more optimal use of the factors of production.
As Prof Thangavelu sums up, “There is no doubt a trade-off here between long-term and mid-term growth. There will be an adjustment cost, and therefore the budget has given incentives to cope with this cost. However, it is better to make these changes now that we have just come out of a recession, rather than later.”
In other words, although the levy increase can cause some pain in the short run for some companies, it is a positive step towards long-term competitiveness for the economy as a whole.
In the longer term, both companies and the economy will adjust to the slower intake of foreign workers and will come out ahead.
German chancellor supports European Monetary Fund idea
German chancellor supports European Monetary Fund idea
France appears to be surprised by the speed of the proposal: NYT
By MALMINDERJIT SINGH
GERMAN Chancellor Angela Merkel announced her backing on Monday for a European Monetary Fund (EMF) proposal to enhance inter-euro zone economic cooperation.
The idea for the EMF was mooted by German Finance Minister Wolfgang Schaeuble on Saturday as a rescue fund, such as the International Monetary Fund (IMF), to help member countries better deal with a future economic crisis.
Speaking to members of the foreign press association, Ms Merkel said that the euro zone’s “instruments are not sufficient” and it therefore “must be able to respond to the challenges of the moment”, reported Bloomberg. The European Commission, the executive agency of the European Union (EU), quickly endorsed the idea.
“The commission is ready to propose such a European instrument for assistance, which would require the support of all euro-area member states,” Amadeu Altafaj Tardio, a spokesman for the commission, told reporters in Brussels. “Things are moving very quickly.”
Finance ministers will discuss the plan at their regular meeting on Monday. Germany has usually resisted providing assistance to countries that get into fiscal trouble but German leaders have concluded that more cooperation is preferable to intervention by the IMF, reported The New York Times.
Yeo Lay Hwee, director of the EU Centre in Singapore and senior research fellow at the Singapore Institute of International Affairs, told BT: “This move to create an EMF makes one wonder about the role of the IMF and if it is still relevant in global financial governance. Clearly, the IMF reforms need to be taken more seriously.”
Dr Yeo, however, cautioned against speculation surrounding the EMF as it is still only an idea and no details are yet available as to its form and function. As Ms Merkel herself has indicated, the creation of an EMF may require treaty changes, which may be more difficult than imagined.
However, the EU’s Lisbon treaty, which came into force on Dec 1, does not allow for bailing out eurozone countries, but it does permit aid to EU members outside the currency area.
“I think the idea (of a European Monetary Fund) is a good one. Without changing the treaty, it cannot be done. . . If the European Union is to be capable of taking action, it will run into such questions. The EU treaty will not be the end of history,” she said.
According to The New York Times, although French officials appeared to be surprised by the speed of the proposal, they supported it in principle.
Greek Prime Minister George Papandreou also announced on Monday that his country will support the idea of the rescue fund, but pointed out that Greece did not require such assistance from the EU at present.
Speaking during his tour of the United States, which involves meetings with President Barack Obama and Secretary of State Hillary Clinton, Mr Papandreou said his recent discussions with Ms Merkel and French President Nicolas Sarkozy showed that “there is a will for creating some ad hoc mechanism” that would help the country borrow at reasonable costs.
Reuben Wong, assistant professor of political science at the National University of Singapore, told BT that the euro bloc will not allow Greece to fail.
“Should Greece fail, the political fallout will be too damaging for the euro area. President Sarkozy has already announced that France must support the rescue of Greece, which is a major European country and an economy that cannot be ignored,” Dr Wong said.
It is unlikely that the fund would be in place in time to help Greece through its debt crisis, but it could help tackle any similar crises that arose in other heavily indebted EU states, Reuters reported.
But European Central Bank Executive Board member Juergen Stark fiercely criticised the idea, which he said would break European rules, penalise countries with solid finances and encourage wayward spending. Such a fund “would become very expensive, set the wrong incentives and burden (those) countries with more solid public finances”, he wrote in German newspaper Handelsblatt.
There were also concerns about the impact of the EMF on open trade.
“Although the structure of the EMF remains to be seen, we must ask if this will lead to more closed-bloc politics. While regional integration will be deepened, the EU must not stop engaging other regions,” said Dr Yeo.
Meanwhile, the European Commission said it was ready to propose a rescue fund for the 16 countries using the euro by the end of June, and would discuss it for the first time on Tuesday, but noted that it was too early to say whether the fund would be just a financial instrument or a new institutional body with its own staff and budget.
France appears to be surprised by the speed of the proposal: NYT
By MALMINDERJIT SINGH
GERMAN Chancellor Angela Merkel announced her backing on Monday for a European Monetary Fund (EMF) proposal to enhance inter-euro zone economic cooperation.
The idea for the EMF was mooted by German Finance Minister Wolfgang Schaeuble on Saturday as a rescue fund, such as the International Monetary Fund (IMF), to help member countries better deal with a future economic crisis.
Speaking to members of the foreign press association, Ms Merkel said that the euro zone’s “instruments are not sufficient” and it therefore “must be able to respond to the challenges of the moment”, reported Bloomberg. The European Commission, the executive agency of the European Union (EU), quickly endorsed the idea.
“The commission is ready to propose such a European instrument for assistance, which would require the support of all euro-area member states,” Amadeu Altafaj Tardio, a spokesman for the commission, told reporters in Brussels. “Things are moving very quickly.”
Finance ministers will discuss the plan at their regular meeting on Monday. Germany has usually resisted providing assistance to countries that get into fiscal trouble but German leaders have concluded that more cooperation is preferable to intervention by the IMF, reported The New York Times.
Yeo Lay Hwee, director of the EU Centre in Singapore and senior research fellow at the Singapore Institute of International Affairs, told BT: “This move to create an EMF makes one wonder about the role of the IMF and if it is still relevant in global financial governance. Clearly, the IMF reforms need to be taken more seriously.”
Dr Yeo, however, cautioned against speculation surrounding the EMF as it is still only an idea and no details are yet available as to its form and function. As Ms Merkel herself has indicated, the creation of an EMF may require treaty changes, which may be more difficult than imagined.
However, the EU’s Lisbon treaty, which came into force on Dec 1, does not allow for bailing out eurozone countries, but it does permit aid to EU members outside the currency area.
“I think the idea (of a European Monetary Fund) is a good one. Without changing the treaty, it cannot be done. . . If the European Union is to be capable of taking action, it will run into such questions. The EU treaty will not be the end of history,” she said.
According to The New York Times, although French officials appeared to be surprised by the speed of the proposal, they supported it in principle.
Greek Prime Minister George Papandreou also announced on Monday that his country will support the idea of the rescue fund, but pointed out that Greece did not require such assistance from the EU at present.
Speaking during his tour of the United States, which involves meetings with President Barack Obama and Secretary of State Hillary Clinton, Mr Papandreou said his recent discussions with Ms Merkel and French President Nicolas Sarkozy showed that “there is a will for creating some ad hoc mechanism” that would help the country borrow at reasonable costs.
Reuben Wong, assistant professor of political science at the National University of Singapore, told BT that the euro bloc will not allow Greece to fail.
“Should Greece fail, the political fallout will be too damaging for the euro area. President Sarkozy has already announced that France must support the rescue of Greece, which is a major European country and an economy that cannot be ignored,” Dr Wong said.
It is unlikely that the fund would be in place in time to help Greece through its debt crisis, but it could help tackle any similar crises that arose in other heavily indebted EU states, Reuters reported.
But European Central Bank Executive Board member Juergen Stark fiercely criticised the idea, which he said would break European rules, penalise countries with solid finances and encourage wayward spending. Such a fund “would become very expensive, set the wrong incentives and burden (those) countries with more solid public finances”, he wrote in German newspaper Handelsblatt.
There were also concerns about the impact of the EMF on open trade.
“Although the structure of the EMF remains to be seen, we must ask if this will lead to more closed-bloc politics. While regional integration will be deepened, the EU must not stop engaging other regions,” said Dr Yeo.
Meanwhile, the European Commission said it was ready to propose a rescue fund for the 16 countries using the euro by the end of June, and would discuss it for the first time on Tuesday, but noted that it was too early to say whether the fund would be just a financial instrument or a new institutional body with its own staff and budget.
Yuan may not follow China trade bounce
Yuan may not follow China trade bounce
Latest numbers may not present full picture, revaluation not likely soon
By MALMINDERJIT SINGH
[SINGAPORE] China’s better than expected trade results, released yesterday, prompted speculation that a revaluation of the currency may come soon but analysts have warned that this may not be the case.
Exports in February stood at US$94.52 billion, up 45.7 per cent, while imports rose 44.7 per cent to US$86.91 billion. The surge in exports saw China record a trade surplus of US$7.6 billion in February, compared with US$14.2 billion in January, reported Reuters. The statistics released exceeded economists’ predictions for US$8.0 billion surplus based on a 38.7 per cent rise in exports and a 39.7 per cent rise in imports from February last year.
Jun Ma, chief China economist at Deutsche Bank in Hong Kong, told Reuters that the data cemented his view that exports in 2010 could surge 30 per cent, dwarfing Beijing’s forecast of an 8 per cent rise. “Obviously, it will translate into stronger pressure for exchange rate reform and it will also add inflationary pressure to the domestic economy, because when exports recover, prices tend to go up. It will reinforce the argument for further policy tightening,” Mr Ma said.
Ren Xianfang, an economist at IHS Global Insight in Beijing, told AFP that this development “will give China’s government more confidence to start revaluing the yuan”.
However, the General Administration of Customs explained that since February 2010 had fewer working days due to the Chinese New Year holiday, it combined data from January and February to provide a more accurate reflection of the actual trade conditions. Using this methodology, exports surged 31.4 per cent to US$204 billion in the first two months over the same period last year and imports stood at US$182.3 billion, up 63.6 per cent, reported Xinhua.
This prompted some economists to advise caution from being too optimistic about the data released.
Also, as Lu Zhengwei, chief economist at Industrial Bank in Shanghai, told Reuters, the low base of comparison with early 2009, when demand was depressed by the global credit crisis, flattered yesterday’s figures. Adjusting the totals for changes in the number of working days and holidays, exports fell from the previous month for the second month in a row – by 2.2 per cent – suggesting that the recovery in global demand was not as vigorous as imagined.
“I think the sequential figures will cool down expectations of near-term yuan appreciation before trade fully recovers,” said Mr Lu.
As China’s two largest trading partners, the European Union and the United States, continue to face high unemployment rates and domestic economic uncertainty, it may be some time before China’s trade increases to levels that may force policy-makers to consider revaluing the yuan.
“Although China’s exports have regained momentum since the beginning of this year, it would take two or three years for exports to return to the level of 2008, as global recovery is still haunted by uncertainties,” Chinese Commerce Minister Chen Deming said on Saturday.
The data did not have a deep impact on market reaction except on commodity-linked currencies as China’s economic growth supports its large appetite for commodity imports. The Australian dollar rose as far as US$0.9171, its highest since Jan 20, according to Reuters data, while the New Zealand dollar rose 0.6 per cent to a three-week high of US$0.7076.
Latest numbers may not present full picture, revaluation not likely soon
By MALMINDERJIT SINGH
[SINGAPORE] China’s better than expected trade results, released yesterday, prompted speculation that a revaluation of the currency may come soon but analysts have warned that this may not be the case.
Exports in February stood at US$94.52 billion, up 45.7 per cent, while imports rose 44.7 per cent to US$86.91 billion. The surge in exports saw China record a trade surplus of US$7.6 billion in February, compared with US$14.2 billion in January, reported Reuters. The statistics released exceeded economists’ predictions for US$8.0 billion surplus based on a 38.7 per cent rise in exports and a 39.7 per cent rise in imports from February last year.
Jun Ma, chief China economist at Deutsche Bank in Hong Kong, told Reuters that the data cemented his view that exports in 2010 could surge 30 per cent, dwarfing Beijing’s forecast of an 8 per cent rise. “Obviously, it will translate into stronger pressure for exchange rate reform and it will also add inflationary pressure to the domestic economy, because when exports recover, prices tend to go up. It will reinforce the argument for further policy tightening,” Mr Ma said.
Ren Xianfang, an economist at IHS Global Insight in Beijing, told AFP that this development “will give China’s government more confidence to start revaluing the yuan”.
However, the General Administration of Customs explained that since February 2010 had fewer working days due to the Chinese New Year holiday, it combined data from January and February to provide a more accurate reflection of the actual trade conditions. Using this methodology, exports surged 31.4 per cent to US$204 billion in the first two months over the same period last year and imports stood at US$182.3 billion, up 63.6 per cent, reported Xinhua.
This prompted some economists to advise caution from being too optimistic about the data released.
Also, as Lu Zhengwei, chief economist at Industrial Bank in Shanghai, told Reuters, the low base of comparison with early 2009, when demand was depressed by the global credit crisis, flattered yesterday’s figures. Adjusting the totals for changes in the number of working days and holidays, exports fell from the previous month for the second month in a row – by 2.2 per cent – suggesting that the recovery in global demand was not as vigorous as imagined.
“I think the sequential figures will cool down expectations of near-term yuan appreciation before trade fully recovers,” said Mr Lu.
As China’s two largest trading partners, the European Union and the United States, continue to face high unemployment rates and domestic economic uncertainty, it may be some time before China’s trade increases to levels that may force policy-makers to consider revaluing the yuan.
“Although China’s exports have regained momentum since the beginning of this year, it would take two or three years for exports to return to the level of 2008, as global recovery is still haunted by uncertainties,” Chinese Commerce Minister Chen Deming said on Saturday.
The data did not have a deep impact on market reaction except on commodity-linked currencies as China’s economic growth supports its large appetite for commodity imports. The Australian dollar rose as far as US$0.9171, its highest since Jan 20, according to Reuters data, while the New Zealand dollar rose 0.6 per cent to a three-week high of US$0.7076.
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