Singapore’s deputy prime minister believes that economic fundamentals in Asia makes for a great opportunity when balanced with prudent risk management.
Asia’s sound economic fundamentals provides a great opportunity for the region, although the current uncertain situation will require very careful navigation across the short- and medium-term for policymakers, fund managers, and companies, Singapore’s Deputy Prime Minister and Coordinating Minister for Economic Policies Heng Swee Keat said at a lunch keynote during the 2023 Nomura Investor Forum Asia.
There are three challenges that need to be taken into account in the medium term: the disrupted and possibly bifurcated supply chain, a US-China trade war that has morphed into a tech war, and the fragmentation of globalization. All three challenges point to the importance of developing resilience, a rethinking of supply chain and production strategies, and the importance of regional integration.
Abenomics’s three arrows
To take stock on what policies could be applied to Asia, Heng referenced Abenomics, which were the economic policies implemented by the Japanese government in 2012. Abenomics, introduced by then-Prime Minister Shinzo Abe, is based on three arrows: monetary policy, fiscal policy, and structural policy.
Monetary policy is exerted by central banks to control money supply and subsequently a nation’s currency. Recent interest rate hikes have successfully curtailed inflation. Beyond monetary stability, financial stability also matters to prevent systematically important banks from failing. Both monetary and financial stability are important as the foundation of the global economy.
The second arrow is fiscal policy, which is the use of government expenditure and taxation to influence a country’s economy.
“My own view is that taxation has its limits because people and businesses are a lot more mobile today,” Heng said.
Responsible fiscal policy is critical for a country’s wellbeing and for economic stability, Heng said. Throughout the COVID-19 crisis, Heng, who was the finance minister at the time, had to dip into S$40 billion of Singapore’s reserves to save businesses and jobs. Those schemes enabled the island nation to make a speedy recovery.
“Fiscal policy as a stabilizer, and monetary policy to avoid sharp cycles, are important aspects of our policy tool kit,” Heng said.
Confronting structural forces
Structural policy, Heng said, is the hardest arrow of Abenomics. There are four structural forces that Asia will need to confront:
The Asian opportunity
Many economists predict that Asia, and within it ASEAN, will remain very vibrant. The region, which has developed exponentially compared to just a decade ago, is filled to the brim with opportunities that can ultimately uplift the economy and livelihoods.
During the industrialization decades, Japan was leading the flock, allowing smaller economies to ride on more easily, similar to flying geese.
“I envisage a new formation to take place if ASEAN, India and the rest come together with other major economies like Japan, China, US or Europe,” Heng said. “Each will contribute and build on certain strengths that they already have, and collectively we will travel further.”
Though opportunities are prominent, risk and returns are two sides of the same coin and need to be managed together, Heng said.
“If we take risk management seriously while adopting a forward-looking view of preparing for the future, this might allow us to see a little better and play an important role in the capital allocation process,” Heng said.
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