Published Date: 09 July 2010

Opening Address by Mr Ong Chong TeeDeputy Managing Director, Monetary Authority of Singapore,at the OCBC Global Treasury Economic and Business Forum 2010


Mr David Conner, CEO of OCBC
Distinguished guests, ladies and gentlemen

It is my great pleasure to be with you this morning. 

2   The last OCBC Global Treasury Economic and Business Forum was organised in late 2008, when the world economy went through its most challenging period since the Great Depression.  The late US President Ronald Reagan once pronounced that “Government's view of the economy could be summed up in a few short phrases. If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidise it."  So indeed, we have gone from a long period of seemingly irrational market exuberance and huge wealth creation, to a global credit crunch and banking system liquidity collapse; resulting in calls for tighter and more regulations.  The ensuing collateral damage on the real economy saw the unprecedented scale of stimulus actions taken by governments and central banks around the world. 

3   Since then, the sharply improved state of global trade flows and pickup in demand have led to a strong recovery across many Asian economies compared to the more developed economies in the west; or what some have described as a “biploar” state of global growth. 

4   Today, MAS will be releasing the Singapore Asset Management Industry Survey (43.6 KB) for the year ending Dec 2009.  Not surprisingly perhaps, consistent with the recovery of market sentiments in the latter half of last year, assets managed by the Singapore asset management industry reached a new high by the end of 2009.  As at end of last year, total assets managed by Singapore-based asset managers that participated in the survey grew by 40% to reach S$1.2 trillion (approximately US$861 billion), compared to S$864 billion (approximately US$601 billion) as at end-2008.  This latest AUM size has exceeded the pre-crisis peak in 2007.  The Asia Pacific region continued to be key investment markets for Singapore-based asset managers, accounting for 61% of the total AUM in 2009.  This represented an increase of 9 percentage points from the 2008 survey, underscoring the growing interest in Asia markets. 

5   Many analysts had supported the optimism for the region’s growth prospects.  Asia’s economic resilience through this recent crisis period stood in stark contrast to the more developed economies.  This was the first time that Asia has led a global recovery.  In Q2 2009, most Asian economies exited the recession when US and Europe were still in contraction.  In fact, the large economies in Asia such as China, India and Indonesia, continued to expand throughout the crisis.  As at Q1 this year, the region’s combined GDP had risen more than 11% above its previous peak, while that of G3 economies remained 2% below their pre-crisis level.  Going forward, Asia is expected to continue to outperform the global economy.  The IMF now expects Asia to grow by 7.5% in 2010, with China potentially growing by some 10.5%.   By comparison, the world economy is expected to rise by 4.6%1.

6   Ironically, Asia’s current resilience is partly the result of the Asian financial crisis more than ten years ago, which had paved the way for the strengthening of regional balance sheets that allowed Asia to weather the global financial crisis much better.  Asian governments had more flexibility to deploy fiscal reserves to moderate the tight financing conditions for households and firms, as well as provide countercyclical support for economic activity.  In 2009, Asian governments rolled out a sizeable package of stimulus measures amounting to an estimated 2¾ percent of GDP.  On the monetary policy front, Asian central banks also responded swiftly by decisively cutting interest rates and in Singapore’s case, we adjusted to a more accommodative exchange rate policy stance from Oct 2008 and Apr 2009, before restoring to the pre-crisis policy stance in April this year.

7   Looking ahead, the region’s economic prospects look promising.  The continuing recovery in Asia is underpinned by firm domestic and intra-regional demand, reflecting the region’s good fundamentals and capacity to rebalance its growth model.  Going forward, Asia’s high growth trajectory should be supported by its deepening cross-border production networks, large stock of savings, and other structural factors, such as rapid rates of urbanization.

8   While China’s growth plays a big part in creating this buzz, other Asian economies including here in South-east Asia are also adding to the attraction of this timezone with their better fundamentals and good financial market performances. 

9   A key factor in investor confidence had been the quick response of Asian governments to the economic and market fallout. In Singapore, we have seen a spectacular rebound from the recent recession. Over the past four quarters, our GDP has, on average, increased at a double-digit pace on a quarter-on-quarter seasonally-adjusted annualised basis (q-o-q SAAR); and in 1Q of this year, GDP surged by around 39% q-o-q, or some 15.5% y-o-y.  It was not too long ago that the Government brought forward the FY2009 Budget to ensure timely help to households and businesses.  A $20.5 billion Resilience Package was introduced to save jobs, enhance the cash flow and competitiveness of firms, support families, and strengthen the economy’s long-term capabilities.  On the MAS’ end, we also implemented measures to ensure sufficient liquidity in Singapore’s financial market by enhancing central bank liquidity facilities and opening access to more counterparties with a wider range of collateral.  We believe these steps had helped to stabilise bank funding conditions, as well as improved the environment for issuers of SGD bonds.   Earlier this year, the Economic Strategy Committee laid out important recommendations to position Singapore for continued growth over the medium term.

10   Despite this strong economic upturn in Singapore and rest of Asia, the economy outlook for the region and the world are not without risks.  Four often cited concerns are around the sustainability of public finances in advanced economies; continued fragility and deleveraging of the global financial system; uncertainties over impact of financial regulation reforms; and timing of exits of policy stimulus.  In a globalised world, Asia can partly mitigate the slower pace of growth in the developed economies through increased intra-regional activities but Asia cannot be insulated from what happened in other parts of the world. 

11   The sovereign debt crisis in Europe is a stark reminder of continuing risks on the global horizon that could impact Asia’s growth as the global economy still suffers from pockets of weaknesses and vulnerabilities.  While there are emerging signs of growing final demand within Asia, the advanced economies remain key export destinations for the region.  Consequently, Asia will not be able to perform well on a sustained basis if growth in the advanced economies is constrained due to financial market turbulence and fiscal consolidation. 

12   Another risk factor is the potential for large and destabilizing capital flows into emerging markets such as to Asia.  The region will need to deepen and broaden domestic market capacities to harness the capital flowing coming in while at the same time manage the risks that these flows may present.  Since the second half of 2009, net capital flows into Asia have surged due to the weight of global liquidity, growing risk appetites and Asia’s strong fundamentals.  Private capital flows are now expected to almost double over the next year, with Asia potentially attracting the most capital2.  If these flows into Asia are not well-managed, they could add to asset-price pressures, fuel inflation more generally, and increase exchange-rate volatility.  The development of Asia’s financial systems still lag those in more developed markets in terms of liquid and investible assets, relative to their potential demand.

13   I am pleased to note that there are ongoing efforts undertaken by many Asian authorities to develop our respective domestic currency markets and also collectively, to collaborate on some of these development initiatives.  For instance, there are various capital market and bond market development initiatives under the Asean Finance, Asean+3 Finance and East-Asian central bank grouping or EMEAP processes.

14   Such market development efforts also go hand in hand with initiatives to enhance regional trade and financial market linkages.  Presently, intra-Asian trade is dominated by intermediate inputs of final goods bound for G3 markets.  As per capita income in Asia rises, autonomous demand for goods and services within Asia will also rise.  In order to raise the proportion of final goods in intra-regional trade, Asia will need to accelerate the pace of financial deepening and integration.

15   Such integration within Asia can greatly facilitate the deployment of funds from more surplus countries to lower income countries that are fast-growing with a positive demographic dividend. 

16   In addition to boosting trade, such cooperation also strengthens financial safety nets in the region. For example, the impetus for greater cooperation can be seen from the recent expansion of the reserves pool of the Chiang Mai Initiative, as well as the ASEAN+3 Macroeconomic Research Office that will be set up in Singapore to undertake regional surveillance.  Central banks are also expanding their network of bilateral FX swap facilities and considering cross-border collateral arrangements.

17   In conclusion, allow me to reiterate that the global financial marketplace is at a crossroad of important regulatory reforms. I believe the global economy is at a major inflexion point of a potential new world order stemming from rising Asian wealth, a growing Asian middle class of consumers and the emergence of Asian corporate giants.  As Larry Summers noted, “It says something about this new global economy that USA Today now reports every morning on the day’s events in Asian markets”.

18   Asia’s growth and development will be of increasing importance to global economic prospects.  The Asian economic story will be exciting and full of opportunities but not without risks.  I am sure this forum will see the other speakers and participants sharing interesting perspectives and viewpoints.

19   Once again, I would like to thank David Conner and his colleagues for inviting me here this morning. May I wish everyone a fruitful conference.

 1 IMF. “World Economic Outlook” July 2010
 2 IIF. “Capital Flows to Emerging Market Economies” 15 April 10