MAS: Annual report 2006 / 2007
CONTENTS
HOME
 
ENTERPRISE: Our Role
BUILDING ON A ROBUST MACROECONOMIC ENVIRONMENT
DEVELOPMENTS IN THE SINGAPORE SECURITIES MARKET
FOSTERING A SOUND & REPUTABLE FINANCIAL CENTRE
RISK MANAGEMENT & INFRASTRUCTURE
GROWING SINGAPORE AS AN INTERNATIONALLY COMPETITIVE FINANCIAL CENTRE
CURRENCY
ORGANISATIONAL INITIATIVES
ENTERPRISE: Our Role
BUILDING ON A ROBUSTMACROECONOMIC ENVIRONMENT 14
The World Economy: A Fourth Consecutive Year Of Robust Global Growth 14
Box 1 - Economic and Financial Integration in East Asia 15
International Financial Markets: A Cautionary Note Against Abundant Liquidity 17
Strong Capital Inflows Make Asia Vulnerable To Shifting Risk Appetites 19
The Singapore Economy: Sustained and Broad-based Strength 20
Growth was Broad-based Across Key Sectors of the Economy 21
Labour Market Conditions Continued to Strengthen 21
Inflationary Pressu res Remain Largely Contained,  
  In Part Reflecting the Effects of Globalisation 21
Monetary Policy - An Anchor for Price Stability in A Strong Economy 23
Strengthening the Monetary Policy Formulation Process 23
Pushing the Frontier of Monetary Policy Research and Analysis 23
Box 2 - Enhancing Liquidity Management: The MAS Standing Facility 24
 
Box 1

ECONOMIC AND FINANCIAL INTEGRATION IN EAST ASIA
Economic integration in East Asia1 has deepened in recent years, in line with the increasing trade flows between countries in the region. Between 1990 and 2006, the share of intra-East Asian exports rose from 39.7% to nearly 50% of total exports (Chart 1). This has largely been driven by growth in exports to China, which has become the key end-node within the regional production network2 (Chart 2). Since 1990, the value of exports to China from the rest of Asia has increased around 14 times to US$426 billion.


Source: I MF, Direction of Trade Statistics, CEIC Database,
National Sources
Note: EU-15 comprises Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ir eland, Italy, Luxembourg, Netherlands, Portugal, Spain,
Sweden and UK

Financial Integration: A Mixed Picture
Financial integration in East Asia has lagged the recent advancement in trade integration. For example, according to Eichengreen and Park (2004), intra-regional cross-border bank claims amounted to 3.5% of regional GDP in Asia at the end of 2000, compared to 33.9% in Europe3.

Nonetheless, there has been some progress made in financial integration in East Asia. For example, between 2001 and 2005, the value of East Asian portfolio investments in regionally-issued debt securities nearly doubled to US$67 billion. East Asia’s demand for regional debt securities nearly matched that from the US and Europe in 2005 (Chart 3a). During the same period, intra-East Asian investment in equities nearly tripled to US$98 billion, although the US and Europe continued to be the major equity investors in the region (Chart 3b).

 
1 East Asia comprises China, Hong Kong SAR, Indonesia, Japan, Malaysia, the Philippines, Singapore, South Korea, Taiwan, and Thailand.
2 Kit, W. Z., Ong, J. W., Kwan K. (2005), “China’s Rise as a Manufacturing Powerhouse: Implications for Asia”, MAS Staff Paper No. 42.
3 Eichengreen, B, Park Y.C. (2004), “Why has there been less financial integration in Asia than in Europe?”, MAS Staff Paper No. 28.
 


 
Regional Initiatives to Promote Greater Integration
The case for deeper regional integration is compelling. Stronger financial integration allows regional savings to be deployed to meet regional investment needs. Financial market development can also contribute to greater financial stability in the region by providing better currency and maturity matches, and easing the over-reliance of corporate financing on banks.

East Asian governments have launched several initiatives to promote regional integration. In May 2006, MAS and the International Monetary Fund (IMF) jointly hosted the second high-level seminar on Asian financial integration. This seminar facilitated frank discussions among regional officials, the IMF and Asian Development Bank (ADB) on the obstacles to and potential gains from deeper integration.

A booklet on Asian financial and monetary integration will be released in H2 2007. It brings together analysis a nd insights from academics and high-level policymakers, including an introduction by Professor Andrew Rose, a lecture by Minister Tharman Shanmugaratnam, a paper by Professor Barry Eichengreen, and a piece based on discussions at the Program of Seminars during the 2006 IMF-World Bank meetings.