b1110
Challenges for the Singapore Economy
the January 2009 S$4.5 billion Jobs Credit Scheme which was
designed to keep Singaporeans in employment.
73
One way to think about this is that during a recessionary phase in
the business cycle there is a need to reduce the real effective exchange
rate to offset the fall in external demand. This can partially be done
by a central-bank induced depreciation of the nominal trade-
weighted Singapore dollar (TWS$) but this can be reinforced by a fall
in domestic costs. For a historical look at these issues, see Peebles and
Wilson (2005).
The difficulties for monetary policy are compounded by the fact
that the Singapore government appears to be very reluctant to use
fiscal policy automatically as a countercyclical tool in the same way as
in other countries, but rather prefers to apply fiscal measures in an
ad
hoc
and temporary fashion during downturns. This stems partly from
the very large import leakage from a dollar of government spending,
but also from a long-term commitment to budget surpluses to sup-
port a high savings rate, an ideological aversion to universal welfare
payments and the desire to focus fiscal policy on long-run goals,
including the attraction of export-oriented mobile foreign capital and
social goals, such as increasing the citizen birth rate and reducing
traffic congestion.
In the recent economic downturn both monetary and fiscal
policies were employed in Singapore to lighten the impact of the
global crisis on the domestic economy but the main emphasis was
undoubtedly placed on the fiscal response.
74
The FY2009 Budget
was brought forward to January and included a S$20.5
billion
Resilience Package (about 8% of GDP) to save jobs, enhance the
cash flow and the competitiveness of firms, support families, and
strengthen the economy’s long-term capabilities. A key feature of
the package was the S$4.5 billion Jobs Credit Scheme, which pro-
vided cash grants to employers to subsidise part of their local wage
bill. The government also extended S$5.8 billion in capital for a
144
C. H. Kwan and P. Wilson
73
The adjustment of the labour market during the crisis and the role of government
subsidized training schemes is the focus of Chapter 5.
74
See Chapter 9 for details on Singapore’s fiscal policy in relation to the crisis.
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