Wednesday, April 15, 2009

Not Aggressive Enough

Singapore has an economy that is run by its' exports. Like all the export-oriented economies in Asia, this recession has hit Singapore especially hard. So it's no surprise that the Monetary Authority of Singapore (MAS) has announced that they will be shifting the centre of the trade-weighted band for the Singapore dollar down lower. In case you are wondering, it means a devaluation of the Singapore dollar.

The MAS also made a point of saying that there's "no reason for any undue weakening of the Singapore dollar." Of course this is total nonsense because with this move, Singapore is clearly on the slope of currency devaluation. Singapore is not the first to do so and we will not be the last.

I fully support the MAS move here. If anything, I fear they were not aggressive enough in the devaluation. Currently, the Singapore dollar will be devalued by 1.5 to 2 percent after this devaluation. Singapore just reported a 20% contraction in the economy between January and March, so a devaluation of about 1.7% does not seem enough in my view.

With external demand for our goods going down, I believe that the MAS must everything necessary to make Singapore exports as attractive as possible. For all the talk about Singapore's "sound fundamentals" and improved consumption in the United States, Singapore's economy is still getting worse.

If it means a further devaluation of the Singapore dollar to get the rebound, I say go right ahead and do it aggressively.

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