FINANCIAL LIBERALISATION AND ECONOMIC DEVELOPMENT IN SINGAPORE

Abstract

In the midst of revolutionary winds of change sweeping through the global economy today, liberalisation has gradually become a trend in industrialised and developing countries alike. In the light of Singapore's efforts in promoting the island-state to the pinnacle of financial success, this paper attempts to examine the effects of the various liberalisation measures that have been undertaken by this country on the development of her financial sector and hence her economy as a whole. The relationship between financial and economic development has been a subject of much controversy The various views and arguments, including this author's own, with regard to this issue are first presented. This is followed by a historical account of the various steps that have been undertaken by the Singapore government to deregulate the financial climate here. The empirical results of an analysis of some key financial deepening indicators are next presented. Based on these results, the effects of the various liberalisation policies adopted by this country on her economic development are examined. Of course, as mentioned earlier, financial development is only one of many factors that could have an effect on the development of a country's economy. (Indeed, it is virtually impossible to identify all factors affecting a country's economic development). But despite the inherent difficulties of the empirical analysis, it turned out that the deepening of the financial sector in this country did seem to have contributed to her economic well-being, lending some support to the "development hypothesis" view that will be mention in later chapters. This conclusion is particularly true when one looks at the "direct" contributions of the financial sector, a targeted growth area in its own right, to the growth of this country. Nevertheless, the financial system in this country is certainly not without flaws. Some shortcomings of the governing system in Singapore will be discussed further. In summary, the policy recommendation here, given the nature and characteristics of the financial and economic structure, is diminished government participation in the financial sector. On the other hand, a system without prudent regulation is not desirable too. Hence, the question here, perhaps would be what the optimal level of government participation is?