Published Date: 28 November 2011

Speech by Prime Minister Lee Hsien Loong at the MAS 40th Anniversary Dinner, 28 Nov 2011, 7.40pm at Shangri-La Hotel


Tharman Shanmugaratnam
Chairman, MAS

Ravi Menon
Managing Director, MAS

Distinguished guests

Ladies and gentlemen

1   I am happy to join MAS and our distinguished central bank governors, regulators and CEOs to celebrate MAS’ 40th anniversary. This is a significant milestone for MAS.  
2   Central banks and regulators play important roles in modern economies. Their policies have profound impact on the economic and financial stability of their countries and, ultimately, the lives of their citizens. Throughout history, many countries have suffered when the central bank or financial regulator failed in their functions. For instance, hyperinflation, balance of payments crises and financial system crises can often be traced to monetary instability or weaknesses in financial regulation.  Conversely, central banks can improve the wellbeing of countries through sound monetary policies and effective regulation. I am glad that over the past four decades, MAS has fulfilled its mission well and contributed significantly to Singapore’s development.


3   First, MAS has ensured price stability. A low inflation environment supports long-term planning and economic growth, and preserves real incomes and wealth. Key to this is a strong Singapore Dollar, which MAS manages through its exchange rate-centred monetary policy. Over the last 40 years, excluding the oil crisis years of 1973-74, consumer price inflation in Singapore averaged about 2% per year, one of the lowest in the world. Although inflation has increased in recent years due to external factors such as the prices of energy and commodities, over the past 10 years the average inflation rate has only been about 1.6%.

4   Second, MAS has grown the real value of our official foreign reserves (OFR).   We are a small nation with few natural resources.  Our reserves, of which the OFR are an important part, provide us the means to ride out economic and financial storms.   The OFR in particular helps to maintain confidence in the Singapore Dollar in times of crisis, and defend the currency against speculative attacks. Under MAS’ prudent management, our OFR have grown from about US$1.4 billion (in 1971) to more than US$200 billion today (about 50x in real terms).

5   Third, MAS has ensured the safety and stability of our financial sector.  As a small economy that is plugged into the international system, Singapore has always been vulnerable to external events and contagion.  Yet despite the turmoil in the global economy these past few years, our financial system has not only remained stable, but has been viewed as a safe harbour in a turbulent sea. Credit must go to MAS for its sound regulation and rigorous supervision.
6   Fourth, MAS has developed Singapore as an international financial centre.  The financial sector is now 12% of Singapore’s GDP, more than double its contribution 40 years ago.   Singapore is one of the leading centres in Asia for foreign exchange and derivatives trading; asset management and private banking; and insurance and reinsurance. More than 150 foreign banks are located here, including several regional headquarters. This has created many good jobs for Singaporeans and contributed to our dynamism and prosperity.

7   Credit must go to MAS’ leaders and staff for their professionalism, hard work and commitment to Singapore. For example, former Chairman Dr Goh Keng Swee restructured MAS’ key functions and introduced important policies such as our exchange-rate-centred monetary policy. MAS has also had a succession of capable Managing Directors, including Mr Michael Wong who laid a firm foundation as MAS’ first Managing Director, and Mr J Y Pillay who oversaw organisational changes to strengthen MAS for the challenges of its time. All MAS officers have contributed to MAS’ success, and should be proud of what MAS has achieved.


8   MAS has not done this alone. It has worked closely with industry to develop the financial sector in a stable and sustainable manner. It has also forged good relations with its international counterparts, whose experiences and cooperation are valuable in our inter-connected world.

9   Above all, MAS has done well because of the larger Singapore system within which it operates.  Singapore’s strong political leadership and sound policy fundamentals provide a conducive environment for MAS to pursue its mission independently and effectively.

10   For many years, the government has maintained an unwavering commitment to fiscal prudence and macroeconomic stability. Given a sound fiscal policy, MAS could concentrate on keeping prices stable, free from the pressure to finance government deficits. Singapore’s flexible economic structure, particularly our flexible labour markets, enabled the economy to adjust more quickly to shocks. This reduced the burden on monetary policy to effect adjustments in the real economy and allowed MAS to focus on long-term price stability. 

11   Our legal system is underpinned by a firm adherence to the rule of law and an effective, incorrupt judiciary. This has fostered a regulatory environment that is transparent, predictable and consistent, and promoted trust among the industry and consumers. These are important attributes in the financial sector. MAS benefits from this wider context.

12   Finally, MAS has benefitted from Singapore’s openness to the world and Singaporeans’ willingness to work hard and upgrade themselves. On these foundations we have built a vibrant, dynamic and cosmopolitan economy that attracts a wide range of investments. In turn, this economy has facilitated the growth of the financial sector. 


13   Nevertheless, as our distinguished guests from the financial industry know too well, past performance is no guarantee of future success.  We cannot take the future for granted.  Our environment is changing and so must we.

14   This is a critical period for the global economy and financial system.  The effects of the 2008 crisis are still being felt. The underlying problems facing the global economy – indebtedness and imbalances – remain unresolved, in particular in Europe.  We are experiencing a fundamental reshaping of the economic and financial landscape. Singapore must adjust to this new environment.

15   Globally, the economic centre of gravity is shifting to Asia.  Although the advanced economies remain big markets and world leaders in technology and innovation, their economic growth will likely slow amidst fiscal consolidation and deleveraging.  Emerging economies, especially in Asia, are doing well although they are not immune from the troubles in the West. Asian financial markets will continue to deepen and grow in sophistication but volatility will increase as shocks are transmitted more quickly around the world.

16   Domestically, our economy and society are maturing. We need to keep moving up the value chain to thrive in this more competitive world. Productivity and innovation will be even more important drivers of growth as we run against the constraints of our small size.


17   These developments have deep implications for MAS. I highlight four challenges for MAS.

18   First, maintaining price stability amidst a more volatile global environment. Because of the economic and political uncertainties in the EU and US, and the worries over global deleveraging and rebalancing, financial markets and capital flows will continue to be volatile, and asset price inflation will remain a risk. At the same time, energy and commodities prices continue to fluctuate around elevated levels. MAS must address these issues to keep prices stable and maintain the pre-conditions for economic growth. 

19   Second, safeguarding the real value of our OFR in a more challenging and risky investment climate. In an environment of lower returns and higher risk, it is all the more important for MAS to preserve the real value of our OFR, to maintain confidence and deter speculation in the Singapore Dollar.

20   Third, ensuring the safety, soundness, and efficiency of the financial system in an increasingly interconnected world. It is neither realistic nor practicable for MAS to aim for zero failures in our financial system. But MAS’ regulatory and supervisory regime should be regularly updated and risk-stratified to mitigate downside risks, especially to the public. MAS must remain alert to new developments in the financial sector.  Regulation has to keep pace with new products and processes, and larger and more diverse institutions.  MAS must take a system-wide perspective, factor in the risks of contagion and prevent the build-up of systemic risks in asset markets or stresses in the banking system so as to preserve financial stability.

21   Fourth, strengthening our competitiveness as a financial centre. In a highly competitive global environment, MAS must constantly review Singapore's value proposition and growth strategy. Competition from emerging financial centres in the region is intensifying, but the opportunities in Asia, such as infrastructure development and wealth management, are growing rapidly too. MAS needs to continue leveraging on Singapore’s system-wide capabilities to strengthen our position as an international financial centre.


22   MAS has done well over the last 40 years. From its humble beginnings, it is now a key institution of governance in Singapore, an enlightened regulator of our financial industry and a respected partner in the international community. The journey ahead will be every bit as challenging.  If MAS remains focused on its mission and displays the same spirit of innovation as in the past, I am confident that MAS will have a bright future.

23   I congratulate MAS again on its 40th anniversary. Thank you.