Archive | July, 2012

Singapore’s population conundrum


Singapore’s resident total fertility rate (TFR), or the average number of births a hypothetical woman can expect to have by the end of her childbearing years if she experiences the age-specific rates in a given year, has been well below the replacement level (generally considered to be 2.1) since 1976. Singapore has one of the lowest fertility rates in the world, together with Hong Kong, China; Japan; Republic of Korea; and Taipei,China (United Nations 2009). Our projections (Institute of Policy Studies May 2012) show that if the TFR remains constant at 1.24 births per woman from 2005, Singapore’s citizen and permanent resident population (known collectively as the “resident population”) will decline from 2020. Read more.


US zero interest rates provoke world monetary instability and constrict the US economy

US zero interest rates provoke world monetary instability and constrict the US economy
The international dollar standard is malfunctioning. The Fed’s reduction of the interest rate on Federal Funds to virtually zero in December 2008 (a move that was followed by major European central banks) exacerbated the wide interest rate differentials with emerging markets and provoked world monetary instability by inducing massive hot money outflows by carry traders into Asia and Latin America. The disruption could be partially justified if it had helped the United States recover from the 2008–2009 financial crisis. However, evidence suggests otherwise. Speculative money flooding into emerging markets by “carry traders” causes local currencies to be overvalued. Read more.


Should a resumption of US quantitative easing worry emerging Asia?

Federal Reserve Building - Washington DC, USA
Two episodes of quantitative easing (QE) by the United States (US) Federal Reserve Bank (Fed) since early 2009 aroused widespread concerns in emerging Asia and elsewhere because of the possibility that they would weaken the US dollar (so-called “currency wars”) and stimulate capital inflows in emerging economies that might lead to increased inflationary pressures and asset price bubbles. For example, the vice minister of finance of the People’s Republic of China (PRC), Zhu Guangyao, said on 18 November 2010 that “As a major reserve currency issuer, for the US to launch a second round of quantitative easing at this time, we feel that it did not recognize its responsibility to stabilize global markets and did not think about the impact of excessive liquidity on emerging markets” (Reuters 2010). Read more.


Is the India growth story over?

Unexpectedly weak growth in the first quarter of 2012 was a slosh of icy water in the hot Indian summer. The near-halving of GDP growth to 5.3% in the first quarter of 2012 from a stellar 10.1% in the same period in 2010 has led some analysts to question whether India’s high-growth phase was a blip. However, a close look at the underlying causes of the present downturn suggests that it is cyclical, although with deep underlying distortions that need a fundamental overhaul to put growth back on track. The structural drivers capable of sustaining high growth rates over a long period remain in place. Read more.


Asia’s growth, production networks, and SMEs

Asia’s growth, production networks, and SMEs
The escalating Eurozone crisis and signs of spluttering world growth have put Asia and its manufacturing enterprises into the spotlight again. Part of Asia’s rapid trade-led growth over several decades is associated with production networks and a regional division of labor. An expanding literature suggests that the region’s trade is increasingly made up of growing intraregional trade in intermediate inputs (Athukorala 2011). Production activities are increasingly being geographically fragmented across countries and linked by a dense network of trade in intermediate goods (Baldwin 2008). Small- and medium-sized enterprises (SMEs) are viewed as the backbone of national economic development in many Asian economies, accounting for the majority of firms and a large share of employment (Harvie 2010). Read more.


Reforming the global financial architecture

Reforming the Global Financial Architecture
The recent global financial crisis has renewed concerns about the inherent instability of the current international monetary system in which the world’s demands for asset or liquidity are met predominantly using the currency of one country, the United States dollar. If the supply of the global currency is inadequate to support global trade, the world faces deflationary risks. However, since the country issuing the global currency has the privilege of borrowing abroad in its own currency cheaply, its borrowing and, hence the supply of global currency, may become excessive. This may eventually become unsustainable, and may have significant systemic implications for the rest of the world, as witnessed in the global financial crisis. Read more.