Thursday, December 23, 2004

Government bodies cut costs for private sector 

Cost-cutting seems to be the theme recently in the government. This time, the government is cutting costs for the private sector.

On Tuesday, the Maritime and Port Authority (MPA) announced that it is revising down its port fees from 1 January next year to make Singapore’s port more competitive. Yesterday, JTC Corporation and the Housing and Development Board announced that they will cut industrial land rents from January next year.

Most governments cut prices when the economy is weak. While the Singapore economy appears to be in a soft patch, full-year growth is still expected to exceed 8 percent this year.

So the latest cuts are obviously meant to address structural issues rather than cyclical ones.

The government has shown itself to be unwilling to cheapen the Singapore dollar to boost the economy’s competitiveness. I can understand this view. Many other countries — especially in Asia — have been trying to keep their currencies weak for precisely this reason. But cheapening the currency also tends to result in low interest rates — which in turn causes over-indebtedness — as well as the over-accumulation of overvalued US dollars in the foreign exchange reserves. Trying to outdo these countries in cheapening the local currency is ultimately self-defeating.

And yet, Singapore needs to keep itself competitive. Targeted price cuts like those by the MPA and JTC look like the answer.


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