About Singapore -- A foreign perception

Introduction:
An article which offers a foreigner's perception of Singapore. So far, our mainstream news diet has always consisted of the local television and newspapers. The only feasible and low cost way to encounter the foreign media would be through the Internet.

Even so, I've decided to leave out certain articles which have flammable potential -- in these sensitive times, one cannot afford to be too careful...

I leave it to you to decide whether things in Singapore are as rosy as it is proclaimed in the local news media recently...


The article:

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By Dan Fineman
6 May 2004
Far Eastern Economic Review
(c) 2004 Dow Jones & Company, Inc.

Austere fiscal policies hurt Singapore more than possibly any country
on the planet. Although Singapore markets itself as a low-tax country
with world-class social programmes, in reality the government taxes
heavily and spends little. The resulting huge surpluses -- largely
hidden and off-budget -- strengthen the ruling party but weaken the
economy. Unless the government drastically loosens fiscal policy,
businesses will lose competitiveness and long-term growth will slow.

Singapore's political system and fiscal strategy are inextricably
intertwined. Only a government dominated by a single party could
consistently post such large surpluses and only an extraordinarily
well-financed state could exert such extensive control over political
and economic life.

Big structural surpluses most benefit the ruling party, to the
detriment of the private sector. Unconstrained by tight finances, the
government pays cabinet members and civil servants some of the
world's highest public-sector packages. Although generous salaries
discourage corruption, they also lure the best talent to the
government and ruling party. Private enterprises -- and rival
political parties -- suffer brain drains. When campaigning, the
ruling party argues that the opposition lacks capable leaders.
Because high pay has attracted the island's brightest to the
government camp, the claim rings true.

A variety of analytical shields obscures the embarrassing size of
government surpluses. Accounting principles differ from global
standards. A bewildering array of statutory boards, government-linked
companies, investment corporations and holding companies transact
among themselves at undisclosed prices. Key data such as the
government's share of national savings and the profits of holding
companies and investment corporations are kept secret. One analyst
calls the national accounts a "masterpiece of obfuscation."

Actual surpluses greatly exceed the already impressive stated
numbers. From 1991 to 2001, the government reported surpluses
averaging 3.6% of GDP, but Mukul Asher of National University of
Singapore calculates an adjusted average of 9.7%, nearly triple the
announced figures. Official budgets exclude land-lease revenues,
investment income and profits from off-budget state bodies. Because
Asher includes only publicly disclosed revenues, his adjustments
understate real surpluses.

The high-surplus strategy lowers Singapore's standard of living.
Deprived of disposable income by numerous taxes, Singaporeans
consistently consume a share of GDP 10-20 percentage points below
Hong Kong levels, while Hong Kong maintains a higher per-capita
income. Their high-revenue, low-expenditure government leaves
Singaporeans a smaller slice of a more modest pie.

Overly stringent fiscal policies sap Singapore's competitiveness.
Excess surpluses depress the cost of capital and encourage firms --
many state-owned -- to overinvest. According to JPMorgan, listed
Singapore companies provided a return on equity below the non-China
developing Asian average in four of the last five years and half the
United States benchmark since 1996.

An excessively pro-fiscal design is contributing to a looming crisis
in Singapore's national pension plan, the Central Provident Fund, or
CPF. Rather than invest balances on beneficiaries' behalf, CPF pays
contributors a low, artificially determined interest rate. The state
pockets as a hidden tax the potentially huge difference between the
actual investment yield and what beneficiaries receive. In contrast
to most countries' schemes, Singapore allows working contributors to
pay medical bills with plan balances. The resulting outflow depletes
retirement funds but relieves the government of potential health-care
liabilities.

Arguably, provisions allowing home buyers to tap CPF balances work to
similar effect. State entities own an estimated 85% of the island's
land. If, as some analysts believe, CPF financing has contributed to
high land prices, the government gains from home purchases, while
pension balances dwindle. Largely as a result of its fiscally
friendly features, CPF will prove grossly inadequate for meeting
individual retirement needs.

Slower economic growth has eliminated reported surpluses this decade,
but the lack of change in broader fiscal policies indicates that
actual balances remain high. Until the dominant-party political
system that thrives on outsized surpluses undergoes fundamental
reform, Singapore will struggle with an underfunded pension plan,
inefficient businesses and sickly consumption.

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