Even though Singapore is no longer an emerging market nation, I consider its bubble economy to be part of the overall emerging markets bubble that I have been warning about due to its strategic role and location in Southeast Asia, which is also known as ASEAN (Association of Southeast Asian Nations). My recent reports on Malaysia, Thailand,the Philippines, and Indonesia show that the entire region is caught up in a massive bubble, and Singapore is benefiting from this bubble by acting as ASEAN’s financial center. – (http://www.forbes.com/sites/jessecolombo/2014/01/13/why-singapores-economy-is-heading-for-an-iceland-style-meltdown)
This piece and its sequel have been well publicized, and the central bank (MAS) has critiqued the first piece (It would wouldn’t it?)
Readers may recall that Donald Low is a scholar who has liberal viewers despite being the Associate Dean (Executive Education and Research) at the Lee Kuan Yew School of Public Policy. He served fifteen years in the Singapore government and I’ve been told he was one of the fathers of Workfare (a scheme I support though I think it’s too mean). He critiqued the article on Facebook as regards S’pore. I’ve paragraphed his comments to make it easier on the eye:
Donald Low’s FC
There’s a Forbes article on an impending crash in Singapore circulating widely on FB. I won’t dignify it by posting it but here are my thoughts about it: I read the article a while ago and wasn’t at all convinced with his line of argument. It’s just far too sweeping.
Above all, if you look at the usual triggers of financial crises, they are mostly non-existent in Singapore. We don’t have a large current account deficit – on the contrary, we have a huge current account surplus. We don’t have a large fiscal deficit – we run structural budget surpluses. And we don’t have an highly leveraged/indebted household or corporate sector.
On his point about a housing bubble in Singapore fueled by low interest rates, he is partially correct. But to claim that we are on the verge of financial collapse on account of that is utter nonsense. Our leverage ratios are still healthy and I suspect a large part of the run-up in housing prices in recent years is inadequate supply – a problem which has now been largely corrected. Will we see house prices fall this year? Yes, quite possibly. My guess is 10% but even if house prices were to fall 20%, I don’t think it will impact the health of our banks or even our households. There will be households that have negative equity, but as long as they have the cash flow to service their mortgages, it will not precipitate a financial crash.
But there is one argument from the article that is worth highlighting and which I mostly agree with. And that is booms which are led by real estate development and the financial sector are mostly illusory. They create the impression of economic dynamism without creating any real productive capacity in the economy (think back to Bangkok, KL and Jakarta just before the Asian crisis). They also distort and re-direct resources away from productive activities. Real estate and finance are inherently distributive, not creative, activities – they move money and wealth around, but they don’t produce any productive capacity and technological capabilities for the economy.
So when I argue that the Singapore government should look not just at the quantity of growth, but also the quality of growth, I have in mind not just equity and distributional considerations, but also the composition of growth. Is the growth coming from manufacturing and high value-added services, or is it dominated by real estate and finance? If it’s the latter, we have a structural problem.
Finally, I would also highlight that what this article reveals is the failure of government efforts to attract high net worth individuals to Singapore, to make Singapore a wealth management hub for the rich, and to bring in more billionaires even if they increase inequality. I think the costs to the economy and society of such efforts far outweigh their benefits.
What productive capacity do property speculators and HNWIs who park their monies in Singapore help to create? So yes, we get a tiny wealth management industry that employs a few thousand people and manages several billion dollars. We can easily do without these ‘benefits’. Meanwhile, their costs in terms of raising property prices, the competition they create for positional goods, and their ostentatious lifestyles undermine our egalitarian norms and values. They also reduce the trust and mutual regard citizens have for one another, undermining their willingness to contribute to more redistribution. All in, I would say that the efforts to attract rich foreigners to Singapore are incredibly misguided.
Cynical Investor
[Source]: Thoughts of a Cynical Investor (http://atans1.wordpress.com).