How The PAP Government Handled The Global Financial Crisis

The global financial crisis of 2008 was the worst since the Great Depression. It was headlined by the collapse of Lehman Brothers, a sprawling global bank, that almost brought down the world's financial system.

Because Singapore is one of the most open economies on the planet, relying heavily on exports and financial markets, it was one of the first East Asian countries to officially enter into a recession by the third quarter of 2008.

The Singapore Government announced a massive $20.5 billion Resilience Package in Budget 2009. It represented 6% of GDP and on a per capita basis, it was the most aggressive stimulus plans on the planet.  

The Government aimed to keep employment levels as high as possible and to minimize business failures.

The Global Financial Crisis was the first time the government had to dip into the past reserves. 

To shore up confidence in Singapore's financial institutions in the midst of a deepening credit crisis that was world wide, the government announced in October 2008 that they would guarantee all bank deposits from October 2008 till the end of 2010.

The guarantee covered all Singapore dollar and foreign currency deposits of individuals and non-bank customers in banks, finance companies and merchant banks licensed by the Monetary Authority of Singapore (MAS).

The government backed this guarantee with $150 billion from our financial reserves.

This move by the government was not an actual draw on the reserves. The funds would be used only if a depository financial institution failed. Fortunately that did not happen.

Government sought President's approval to use past reserves in view of deepening crisis

Then in January 2009, because of a fast deteriorating global economic environment and facing the prospect of a deep and prolonged recession, the government sought the President's approval to take out S$4.9 billion from past reserves to fund two bold one-off measures to boost the economy, namely, the Jobs Credit scheme and the Special Risk-Sharing Initiative (SRI).

Jobs Credit Scheme and Special Risk-Sharing Initiative

The Jobs Credit scheme was designed to encourage employers to retain their workers by giving them a cash grant for every local employee on their payroll and the bulk of the S$4.5 billion went into this. 

The remainder was for the SRI, which was aimed at encouraging banks to lend to companies by bearing a larger share of the risks. 

These measures were aimed at preserving and enhancing business competitiveness and promoting job retention. As a result unemployment did not rise very high.

With the scheme, there was no need to cut the CPF contribution rates which meant there was no reduction in domestic demand or adverse effect on mortgage finance. 

August 2009: Worst is over

The Singapore economy weathered the financial storm better than feared and Prime Minister Lee Hsien Loong announced in August 2009 that 'the worst is over for the Singapore economy' and that 'the eye of the storm has passed'.

In November 2009, the Ministry of Trade and Industry declared the recession over.

Reserves put back

By 2011, the Government had put back into the reserves the amounts drawn down to fund the extraordinary measures taken during the economic crisis.

Good government and strong reserves make the difference

The Singapore Government was in a position to take aggressive actions because of our strong reserves. Our reserves are our one and only strategic resource in times of crisis.

That is why we need the ELECTED PRESIDENT to hold the second key to our reserves to ensure that they are not spent in a free-spending spree by a rogue government.

In addition, we need to scrutinize the person we elect as President before entrusting him with the second key.




Read more related posts here: http://papinreview.blogspot.sg/

Ref:  https://www.cscollege.gov.sg/Knowledge/Pages/The-Global-Financial-Crisis-and-Policy-Responses.aspx