Between 2010 to 2020, Asia needs to invest a total of around US$8 trillion in overall national infrastructure and an additional US$287 billion in specific regional infrastructure projects. Financing such national and cross-border infrastructure projects for economic integration in the Asia-Pacific region is challenging and complicated. In general, there are several sources of infrastructure finance — Government Budget, Multilateral Development Banks, Commercial Bank Credit, Capital Markets, Sovereign Wealth Funds and Public-Private-Partnership. But each of these has its own features and certain limitations. While national government budgets will continue to be the mainstay for financing infrastructure, it will need to be supplemented by Multilateral Development Banks in the future. Asian governments must put their collective work to mobilize their large pool of savings for regional infrastructure investments. Strengthening national and regional bond markets — through vehicles like the Asian Bond Market Initiative and the Asian Bond Funds — is one of the few steps in narrowing the infrastructure financing gap. The Asian region's forex reserve, including those in the Sovereign Wealth Funds, could also play an important role. Public-Private Partnership may play a bigger role in the near future. What is needed is substantial work to address the challenges to build and implement the PPP models. Asian governments need to act together and develop “bankable” projects for attracting the private sector.
In the Asia-Pacific region, building and maintaining quality infrastructure so as to meet the demand from its growing population and its increase in economic activities is gaining policy recognition. The Asian Development Bank (ADB) estimates that from 2010 to 2020, Asia's overall national infrastructure investment needs will reach US$8 trillion, out of which 68 per cent will be for new capacity investments and 32 per cent will be for maintaining and replacing existing infrastructure. Hence, on average the infrastructure investment need is expected to amount to about US$730 billion per year (Table 19.1). In addition, the region will need to spend approximately US$300 billion on regional pipeline infrastructure projects in transport, energy, and telecommunications. Altogether, there will be an infrastructure investment need of about US$750 billion per year during this eleven-year period (ADB/ADBI 2009; Bhattacharya 2010).
Out of this, infrastructure financing needs for the ASEAN region accounts for over US$60 billion per year.
ASEAN and APEC share many goals and priorities in promoting economic and developmental cooperation in Southeast Asia and the wider Pacific region. Connectivity is one of these. ASEAN endorsed the Master Plan on ASEAN Connectivity in 2010, while APEC, under Indonesia's Chairmanship in 2013, is looking at components similar to this plan. To avoid duplication and to optimize on limited resources, APEC has highlighted seven areas for possible collaboration with ASEAN — supply chain connectivity, trade facilitation, investment, disaster management, structural reform, food security and SMEs. But challenges persist. ASEAN wants to ensure its pivotal role in regional economic integration but feels threatened by the U.S. policy to promote APEC or TPP. Moreover, at this moment, ASEAN's participation in APEC is limited because three of its members — Myanmar, Cambodia, and Laos — are not part of APEC. With uncertainty in the West, cooperation in Asia is likely to gain importance. Cooperation amongst Asian neighbours can play the role of “bridge builder” between individual Asian economies with the rest of the world. This can reduce disparities in income and have positive spillover effects for technological development, energy security, disaster preparedness and other critical areas.
For the past two decades, APEC and ASEAN have been working to promote regional economic integration in Asia. While APEC with its twenty-one member states is the much wider organization, ASEAN is constituted of ten members in close geographical proximity and boasts free trade agreements (FTAs) with China, India, the Republic of Korea, Japan, Australia and New Zealand. The latter also engages the United States and Russia during the East Asia Summit and brings in Canada and the European Union as dialogue partners. Besides economics, ASEAN also works on political-security and socio-cultural cooperation in the region.
Both APEC and ASEAN share similar goals and priorities on trade and investment liberalization, facilitation, economic and technical cooperation, food and energy security, disaster management, connectivity. However, these areas are tackled differently. For APEC, priorities are set from the top down, with direction from Economic Leaders. These are then combined with bottom-up ideas and initiatives with direct inputs from the business community, working groups and lessons from capacity building projects (Bollard 2013).
The sub-prime crisis that began in the U.S. housing market in 2007 snowballed into a global financial and economic crisis and is described as the most serious crisis to hit the global economy since the Great Depression. The contagion of the crisis transmitted from the financial sector to the real sector through demand slump, production plunge, unemployment rise and credit seize. Most worryingly, world trade — the main channel of crisis transmission — fell sharply. The GDP growth rates fell for both advanced and developing economies, leading to first-time contraction in global GDP since World War II. The crisis forced countries around the world to come up with aggressive and unconventional monetary and fiscal policy measures. There were several instances of coordinated policy actions by the central banks, which helped to avert an escalation of the crisis and prevented a meltdown of financial systems.
The crisis also busted the myth that Asia was sufficiently decoupled from the Western financial systems and that it had become independent from the cyclical developments of the global economy (Yung 2011). This is reflected in empirical data which suggest that Asia has not been immune as indicated by losses to financial institutions in the region, impacts on the stock market, and widening sovereign spreads in the region.
Singapore was no different from most of the Asian economies. It was the first East Asian nation to fall into recession, reflecting the vulnerability of the economy to global economic shocks. In 2008, GDP slumped due to a contraction in manufacturing activity in the second quarter, which subsequently extended to construction and a broad range of services. Its year-on-year real growth rate had plunged from 9 per cent in 2007 to 1.7 per cent in 2008 and further to –0.8 per cent in 2009 (see Figure 4.1).
This prompted the policymakers of Singapore to come up with a series of fiscal and monetary policy measures that helped the city-state economy to catapult itself out of recession in the third quarter of 2009.
Given this background, this chapter seeks to summarize the effects of the 2008 global financial crisis (GFC) on Singapore, and analyses the government's policy response to the same. In the latter half it discusses Singapore's economic outlook in the face of continuing global economic uncertainties, and evaluates how the island nation is faring in light of the government's recent measures to revitalize the economy.
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