Saturday, August 28, 2004

Random Commission Interview Notes

Notes from all over in preparation for commission interview. Didn't use any of it in the end, as they didn't touch on current affairs. Pardon the terrible indenting, some how, everything goes awry when I cut and paste from Word.

US Troop Reshuffle
Long term, over 10 years so as not to affect political situation
Current huge number of troops stationed in Europe – little relevance today
New warfare, no need for large military bases, more mobility with small bases around the world
Save taxpayer’s money, bring troops home
Strengthen US security by not defending allies all the time, stop being tied down by allies
Lay foundation for bigger US involvement?
European local economy affected by US pull-out
China threatened because no pull out from Japan


MM Lee Speech
Stay competitive by cost reduction – variable wage component, reduce CPF contribution, reduce fees and taxes, raise GST(?)
High growth due to engines of growth in China and India, FTAs with US, Japan, Australia, NZ
Maximize opportunities with bilingualism, less fierce competition than in China
Challenges faced by young generation – SARS, recession, Asian financial crisis
Need to fight complacency

Israel
Building homes in West Bank
Israelis uncompromising, expand illegal Jewish settlements, excessive force against protesters
Palestinians uncompromising in driving out Jewish
Need for US to reengage.

China-Taiwan-US
Peace based on 1) Taiwanese restraint on calls to independence 2) China’s willingness to use force 3) US consistency in maintaining status quo
Time running out – economics will make Taiwan dependent on China, while with time, independence will become entrenched in Taiwanese political identity, resulting in fewer options
Problem with Pentagon urging large arms transfers to Taiwan – while there is a need to strengthen Taiwanese military to prevent slide into conflict, US not consistent in engaging dialogue
Challenges of rise of China
Economic expansion boost growth in region
Uncompromising in sovereignity issues
SEA countries could be forced to take sides in US-China crisis

Indonesian Elections
Megawati alliance with Golkar and 2 other minor parties PPP and PDS, giving them positions in government
If Bambang wins, Democrat Party will strengthen and undermine Golkar, also Mega’s last term in power
Golkar mobilize support at grassroot level
PPP win Muslim vote (via NU)
Political culture of personality based and traditional authority oriented
Concerns of corruption – benefits Bambang, untainted by status quo parties
Bambang going for people’s coalitions rather than party alliances
Strength of grassroots independent of parties

Regional Hotspots won’t erupt into war
Nations have vested interest in stability.
Inter-dependence for economic prosperity
Common threat of terrorism

Baby Problem
Maternity Leave
Family Unit
Financial incentives

Medishield Premiums up
Raise premiums to cope with higher bills
Get more to join to bring down costs of premiums
Force people to subscribe to medishield before other products

US Elections
Kerry supported in Europe for more conciliatory stance

First Economic Roundtable
Fiscal Policy
Tighter than rest of Asia
Hard to loosen further due to high propensity to import, so government spending gets leaked out
Long-term supply-side perspective not beneficial – personal income tax cuts affects 30% of Singaporeans, while GST hikes hurts 70%. CPF cuts also hurt lowest income group
Fiscal stimulus policy should target poor – social welfare, poor have highest marginal propensity to consume, poor higher marginal propensity to consume local products
More done to tackle structural unemployment, chronically ill, elderly, especially with declining CPF
Overly prudent fiscal policy leading to deflationary impact, with FDI flows harder to attract.
Underestimate role of domestic demand? Focus on service sectors
Design of prudent social safety net

Monetary Policy
Review of exchange rate policy
Trade-weighted currency policy based on trade in goods, excluding trade in services and capital flows
Risks of losing out to pegged currencies in case of devaluation of US dollar
Exchange rate depreciation does not work because of high import content of Singapore’s exports mean that rise in costs of imported inputs will erode gain from exchange rate depreciation? Service oriented industry have much larger domestic component so perhaps exchange rate is important
Underestimate risks of deflation
If exchange rate not used to ease economy, then adjustment to solve competitiveness problem will occur through correction of domestic prices such as real estate and wages, resulting in dangerous deflation
Fear uncalled for as ASEAN on reflation
Structural problem of huge current account surpluses due to reduction in investment rate decrease rather than saving increase
Policy recommendation of returning surpluses to people through ERS and Singapore shares, better targeting and design of surplus distribution

Competition
Problems
Regional competitors catching up
Globalisation implies economies of scale more important – small market is a disadvantage
Regional hinterland is weak now
High costs centre
Region hotting up competition due to reduction in inefficiencies
Irrational competition via government subsidies
Why do Singaporean workers demand high wages? Due to high costs of home ownership and transportation, taxes.
High costs must come with high returns – need to generate new business opportunities, regulatory framework, competition structure
Economic decision making dominated by government – correlated errors, eg over-allocation of capital in property
Chinese boom not so dependent on SEA labor and capable of sucking away FDI.
Malaysia challenging strongly with Port Klang, KL International Airport, Multimedia Super Corridor, Tanjung Pelapas
Obstacle – Structural Weakness in Economy
Distorted decision making
Prices do not reflect true economic value resulting in distorted economic decision making, due to dominant role of government in ownership of key factors of production and consequent influence on prices, resulting in poor allocation of resources by entrepreneurs.
Government set artificial targets such as maintaining manufacturing share of GDP – skew policies to target, damage elsewhere in economy
Role of manufacturing in job creation?
Biases in Policy Against Domestic Investment
Attract FDI, no comparable effort to promote domestic investments.
Underestimate domestic demand
Over-reliance on Certain Sectors
Over-reliance on MNC and GLC.
Policy shift to SME recently
MNC not optimal in job creation
Lack of Competition Hurts Competitiveness
Service sector dominated by GLC – poor productivity
Labor Issues
Workforce able to cope with economic shift? Especially with ease of entry of skilled foreign workers
Viability of manufacturing sector need critical mass of technical workers
Question of whether wage policy has reached effectiveness in targeting competitiveness
Regional Integration
FTAs detract us from regional integration?
If US were to sign FTA with regional players, our advantage would be eroded
US-ASEAN FTA?
Cost Issues
Role of government agencies pushing up costs, e.g. power, transport, due to target return of capital
Use of price mechanism to allocate scarce resources, e.g. transport, water tax, foreign worker levies, result in high costs with increase in demand. Government entities functioning too much like profit centers
Policy Implication
Product-weighted exchange rate regime
CPF cuts blunt but effective in the past, but as Singapore liberalize, policy makers will find less instruments at their disposal (fiscal, exchange rate).
Focus on ASEAN hinterland

Conclusion
Fiscal policy ineffective in managing aggregate demand in downturn due to high import leakages
Over-emphasis on fiscal prudence burdens economy
Need for social safety nets to address aging population, rising structural unemployment
Policy biases towards MNCs and manufacturing
Pricing mechanisms to allocate scarce resources leads to eroding competitiveness


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