Why Singapore’s not Norway
In early February this year, when Iceland’s economy crumbled (along with its government) Singapore’s State Minister was quick to cite Iceland as a clear example of why Singapore would be suicidal to listen to the Wall Street Journal’s advice on changing its growth model:
A RECENT :Wall Street Journal Asia: editorial suggested Singapore’s recession was caused by excessive Government regulation, industrial policy and hoarding of citizens’ money in the Central Provident Fund scheme.
Countering this yesterday, Minister of State (Defence) :Koo Tsai Kee said: “If Singapore had followed :WSJA’s: prescriptions, Singapore could well have become ‘Iceland on the Straits’.”
“The fact is, those countries which did the opposite from Singapore — that is, condoned financial oversight, encouraged profligate consumption and practised ‘pay-as-you-go’ pension plans — suffered even more.”
Unlike Iceland, which went bankrupt, the Government does not need to go to the International Monetary Fund or other country for funds, thanks to its reserves, he noted. Banks here are sound, and the Republic’s sovereign credit rating unaffected, which is important as it influences investors’ decisions.
Prof Koo also defended Singapore’s bets on certain rocky sectors. For instance, acknowledging a temporary setback in financial services and tourism, he said: “Once the Integrated Resorts are up and running, tourism will come back with a vengeance.”
Now Wayang Party notes of how Norway’s sovereign wealth fund puts Singapore’s two SWFs to shame. NYT article cited may be read here. Like Norway, Singapore is quick to rein in unnecessary spending during boom times, effectively keeping in check government consumption. This behaviour is indeed laudable as can be witnessed in the NYT article but I would suggest that this is due more to an ideological commitment to neo-mercantilism than any foresight on their part.
Indeed, as noted earlier, why didn’t Temasek and GIC take advantage of the market as Norway’s and China’s SWFs did during the stock market downturn? Was it because of their larger-than-disclosed losses? We won’t know. But on another point, we do know that unlike Singapore, Norway has more social welfare programmes (yes the type Koo railed against in the article above):
With a quirky contrariness as deeply etched in the national character as the fjords carved into its rugged landscape, Norway has thrived by going its own way. When others splurged, it saved. When others sought to limit the role of government, Norway strengthened its cradle-to-grave welfare state.
But that day is far off. For now, the air is clear, work is plentiful and the government’s helping hand is omnipresent — even for those on the margins.
Just around the corner from Norway’s central bank, for instance, Paul Bruum takes a needle full of amphetamines and jabs it into his muscular arm. His scabs and sores betray many years as a heroin addict. He says that the $1,500 he gets from the government each month is enough to keep him well-fed and supplied with drugs.
Mr. Bruum, 32, says he has never had a job, and he admits he is no position to find one. “I don’t blame anyone,” he said. “The Norwegian government has provided for me the best they can.”
I am aware that unlike Singapore, Norway is an oil exporting country and their GDP grew modestly under 3% last year because the price of oil soared in the middle of the year. However, their SWF lost 23% last year compared to Temasek’s 31%. GIC’s losses were not disclosed. Clearly Norway’s SWF’s performance is irrelevant of the price of crude oil.
One would expect Norway’s economy to have taken a severe hit due to their ways of “profligate spending” and generous pension plans. But of course, in reality, the ideological bias of Singapore’s leaders have blinded themselves to those obvious facts. Where hither pragmatism?