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  Chairman's Statement

Following 8.4% growth in 2004, the Singapore economy grew by a robust 6.4% in 2005 and 6.8% (SAAR) in the first quarter of 2006. Strong external demand, especially in the IT and financial sectors, supported this performance. The global economy expanded at a strong pace in 2005, with growth broadening to all major economic regions around the world. In particular, the US economy proved resilient against a backdrop of rising interest rates and oil prices, as well as events like hurricane Katrina. Business confidence rose in Europe, boosted by increased private investments. Japan’s economy continued its resurgence, with growth reaching a record high in the fourth quarter of 2005.

Looking ahead, the Singapore economy is expected to grow by 5-7% in 2006. Leading economic indicators suggest that the global economy is likely to maintain its resilience. Coupled with continued strength of the global IT sector, Singapore’s economic momentum should be sustainable for the rest of 2006. Against this backdrop, MAS reaffirmed its monetary policy stance of a modest and gradual appreciation of the Singapore dollar in April 2006.

Global financial markets were resilient in the face of potentially destabilising events in 2005, including hurricane disasters in the US and the terrorist bombings in London. The transition to more flexible exchange rate regimes in China and Malaysia last year and the more recent exit from quantitative targeting regime by the Bank of Japan also went smoothly.

The outlook for Singapore’s financial services industry is promising. It expanded at a robust rate of 6.5%. Corporate debt issuance has been active, with total outstanding debt registering a significant increase of 11.5% in 2005. We have also done well in asset management with assets under management reaching S$720 billion at the end of 2005, a 26% increase from 2004. Given the increasing wealth in Asia and the attractiveness of Asian markets, there is further growth potential in this area. We also expect good growth in the alternative investments sector, such as in hedge funds, real estate and infrastructure investments and commodity derivatives.

To strengthen Singapore’s status as an international financial centre through its ability to offer a wide and complete range of financial services, MAS stepped up its efforts on the development of Islamic financial services. We have so far seen encouraging results. MAS has also stepped up our involvement in the standard-setting work of the Islamic Financial Services Board as part of our commitment to contribute to the development of Islamic finance.

On the supervisory front, we continued the implementation of a risk-focused and comprehensive supervisory framework that began with the introduction of a harmonised risk assessment framework in 2004. To enhance the quality and consistency of our supervisory assessments, we initiated a quality assurance framework for risk-based supervision of financial institutions.

MAS continued to enhance corporate governance requirements for locally-incorporated banks, financial holding companies, significant direct life insurers, and the Singapore Exchange. This reflects MAS’ ongoing commitment to promote in Singapore’s financial sector sound corporate governance standards aligned with global best practices.

A deposit insurance scheme was introduced to protect the core savings of Singapore depositors and strengthen protection for small depositors. Deposit insurance will set out explicitly the scope of protection given to depositors in the event of a bank failure, and dispel any misperception that there is an implicit government guarantee of deposits.

As part of ongoing efforts to ensure high market conduct standards among financial institutions, MAS embarked on a pilot mystery shopping survey. Financial advisers from the banking, insurance, and securities sectors were assessed on their compliance with regulatory requirements and also on the adequacy of their financial advisory process.

To ensure high standards of professionalism and business conduct in the trust services industry, trust companies have been brought under MAS’ regulatory framework. This is to facilitate the unified regulatory oversight of trust services, private banking, and wealth management activities, which are often complementary. A sound and comprehensive framework for the regulation of the trust services industry can also facilitate the establishment of Singapore as a preferred location for trust business.

On the international front, Singapore will host the 2006 Annual Meetings of the Boards of Governors of the International Monetary Fund and the World Bank Group in September. MAS has been preparing for this major international financial event for many months now. At this coming Annual Meetings, we hope to see consensus among policy makers and the international financial community on measures to sustain economic growth, reduce poverty, and enhance the global financial architecture. We also hope that global investors will get to see first hand the tremendous potential in Southeast Asia, amidst robust growth in this dynamic region.

Looking ahead, MAS will strive to reinforce Singapore’s position as a leading financial centre and as an attractive hub for financial sector activities. We will also maintain our high standards of regulation and supervision, while ensuring that we remain responsive to market developments.

I wish to take this opportunity to express my sincere thanks to Dr Philip Pillai and Mr Chan Seng Onn for their contributions to MAS and to the financial sector. Dr Pillai and Mr Chan stepped down from the MAS Board in December last year. I would like to welcome Mr Lim Hng Kiang, Mr Chao Hick Tin and
Mr Lucien Wong to the Board.

Goh Chok Tong