Singapore, a tiny speck of island at the southern tip of Malaysia in the Indian Ocean seems to be yet another nondescript island. With a population of merely 47 lakhs, that is one third that of Delhi, it hardly brings in awe. But that is exactly where we tend to go awry in our impression. This small island belies all our conventions and wisdom when we think of things small. It is a giant if the parameters change from physical to economic and social considerations. And more so if we consider the rapid strides made by the country in a very small period of time. The country of Singapore got independence from British only in 1965.
This island nation is an agglomerate of 50 isles, well connected by an extensive network of roads. It has a population of 47 Lakhs comprising people mainly of Chinese descent followed by Malays and Indians. As expected from its demographic profile, the languages spoken here are Mandarin, Malay, Tamil and English (language of administration). This diversity brings to fore the cosmopolitan nature which remains one of the reasons for its rise as economic power. However not lagging far behind is the Political and the Social Infrastructure that the country has nurtured. At political spectrum, it follows the Westminster Model, a system derived from the parliamentary structure in the United Kingdom. In this multi party system, the People's Action Party has been the dominant force. On Social Front, ,just to gauge the efficacy of it's social programs, the country boosts of an impressive life expectancy rate of 79.9 years, a literacy rate of 95.4% and most importantly a tradition of upholding and promoting Democratic traditions, an integral component of any endeavor for sustainable and people driven growth. In fact to supplement this, it has laid utmost emphasis on educational sector. The country boosts of an impressive array of Technical Institutes collaborating with the industries and institutions considered to be the best in the business. As a corollary, people from the most diverse places throng to this place for pursuing their dreams. A non resident population of 10 lacs just highlights the point.
On the economic front, Singapore is a model to be emulated. A country of the population size one third of Delhi has a GDP of one fourth of that of India. It has one of the highest per capita incomes in the world at a staggering $47,000. With robust economic fundamentals, ably supported by the highly trained as well as motivated workforce, which can credit itself for being at the higher end of productivity, the country's economic parameters are an economist and social reformer's delight.
Coming to the micro parameters, the country clocked a GDP growth rate of 7.4 in 2007, and in future this is expected to hover around 5%, which is nonetheless impressive considering the fact that the world economy growth rate will come down from a current peak of 4.5% to a meagre 3%, on account of US and European economies plunging into a recession. Even at its current growth rate of 7.4, it has reigned in inflation at 1%, just goes on to show a robust manufacturing sector and enough liquidity in the market to cushion for capital investments. The country has a healthy budget balance of 0.3% (Exports - Imports) , that will keep to remain steady, pointing to a favorable trade balance, on account of robust manufacturing and lucrative educational sector. These conditions conducive for economic well being are ably supported by low commercial banking prime lending rates of 5.3 %.
These factors have lured investors in investing in the country. A bludgeoning forex exchange reserves to the tune of $210 billion, comparable to that of a giant like India, reinforce the confidence of investors in its economic fundamentals. At the same this foreign influx has led to very interesting implications for the world economy. With the US sub prime crisis, the financial institutions the world over have come under severe strain. With the number of loan defaulters increasing, meeting loans demands under crippled liquidity has become more and more challenging. In order to ward off the crisis, they are on prowl on new sources of funding such as Sovereign Wealth Fund (SWF), which are government owned, which on account of massive inflows is flush with funding prowess. In some recent instances, the Abu Dhabi Investment Authority (ADIA) of the United Arab Emirates has injected $7.5 Billion to get 4.9 stake in Citigroup, the Government of Singapore Investment Corp (GIC) said last week that it will inject 11 billion Swiss francs into UBS AG, Switzerland's largest bank. But this is where the catch lies. Politically and Strategically, this trend is not seen positively by the Western Governments, who suspect political considerations of the stakeholders can dictate the flow of money, putting at risk their economies. A similar situation popularly known as the "South East Asian Crisis", serves as a reminder of the vulnerabilities they are exposing themselves. But with overriding economic compulsions, it is widely seen in the western circles to opt for the Singapore SWF, for they offer a lot in compatible with Capitalist ethos. So here emerges a vicious circle where the flow of money os circulated generating lucrative returns. The point that I am trying to convey through this is the increasing role that is being played by the Singapore Government, without putting at unease their Western counterparts. It will go a long in strengthening the Singapore's economy, boding well for the posterity.However the area of concern emerging for the economy is the appreciation of Singapore $ to the American $. As, is being felt throughout the world, the appreciation of local currency with respect to US $ impacts growth adversely. Besides influencing trade balance with a major trading partner i.e US, foreign institutional investors also shy in investing in the country. Some countries counter this by intentionally depreciating the local currency with respect to the US $ such as China, just to make their exports competitive in the international markets at the cost of imports. But with oil prices at an all time high of $100, a judicious mix of economic prudence and political maneuvering is required. This is where the litmus test for the policy makers of Singapore will lie.
