Ethos Issue 6, Jul 2009
Extraordinary Times,
Fundamental Principles:
The 2009 Budget and the Ministry of Finance’s
Approach to Countercyclical Economic Strategy
Jonathan Pflug
Four key principles anchor the bold anti-recessionary
measures in Singapore’s 2009 Budget.
On 22 January 2009—a month
earlier than convention
dictated—Singapore’s Minister
for Finance introduced an extraordinary
Budget, designed to address “a time
of grave economic crisis”.1 In response
to the gravity of the global financial
crisis, the Government put forward
a S$20.5 billion Resilience Package.
The size of the Budget—with the Basic
Balance amounting to a deficit of 6% of
GDP—is unprecedented in the history of
independent Singapore.2
SAVING JOBS, LOOSENING CREDIT:
TWO EXTRAORDINARY MEASURES
Along with initiatives to help
individuals and households, as well
as direct Government spending to
pump-prime the economy, Budget 2009
focuses primarily on helping Singapore’s
businesses weather the downturn brought about by the crisis, while
building competitiveness for the long
term. Underpinning the Government’s
assistance to businesses are two unique
measures: the Jobs Credit scheme; and
the Special Risk-Sharing Initiative (SRI).
As with any recession, preserving
jobs remains a key Government priority.
Prior to the Budget speech, Credit Suisse
analysts estimated that up to 300,000
jobs might be lost during the downturn,
with 100,000 of those jobs held by
Singaporeans. In order to save jobs, the
Jobs Credit scheme offers incentives for
companies to retain existing workers
and to employ new ones, where their
business warrants.
Singaporean banks have remained
well-capitalised and relatively unburdened
by toxic assets. However, when we
were looking at the issue at the time
of the Budget, we saw that the credit
contraction that began on Wall Street
rapidly degenerated into systemic
risk aversion across banks worldwide,
including Singapore. In order to help
viable companies receive the financing
they need to stay afloat and grow, the SRI
provides a suite of measures in which
the Government takes on a significant
share of the risks of bank lending.
DIFFERENT STRUCTURES,
SHARED BASIC PRINCIPLES
Since the two measures target different
objectives, they are structured quite
differently.
The Jobs Credit scheme addresses the
fundamental need to mitigate the effect
of a sharp downturn by alleviating
business costs through a fiscal injection.
With the Jobs Credit scheme, the
Government provides significant direct
assistance to businesses, with no
additional administrative burden
on recipients.
In contrast, the SRI addresses the
need to unfreeze credit chokepoints
across diverse loan types, for diverse
uses across the entire supply chain. As
such, the SRI comprises a suite of credit
measures intended to cover a whole
range of business activities. Some of
these measures could also be relatively
complex and require close collaboration
amongst financial institutions, recipient
companies and the Government.
Nevertheless, both policies are based
on common fundamental principles that
reflect the Ministry of Finance (MOF)’s
countercyclical economic strategy:
• Act with impact: Unprecedented
circumstances require responses of
unprecedented scale;
• Act with a long-term view: Achieve balance between short-term needs
and
long-term goals;
• Act with efficiency: Build on established
infrastructure for timely intervention,
with minimal administrative burden
to participants;
• Act in partnership: Move cohesively
with all stakeholders, public and private.
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