Speeches

Introduction

There appears to be a growing consensus in the international community that the worst of the crisis is over, that there are signs of bottoming out, and even hints of recovery in some economies. However, even as we move out of the woods, we need to be mindful of how recovery is taking place, and it is this aspect that I will focus my comments on.

2 I'll group my comments as follows - macroeconomic risks, fiscal risks and some emerging risks.

Macroeconomic Risks

3 Two major trends arising out of the crisis are deleveraging and rebalancing. Deleveraging, as companies begin to restructure and refinance debt; and rebalancing, as global consumption shifts from G3 to the BRIC economies; from US to Asia. While one can justifiably argue that these are long-overdue corrections to the global economy, each of these trends carries its own risks.

4 If deleveraging happens too slowly, there is a risk the region may suffer a 'lost decade', as Japan did in the 1990s. If it happens too quickly - though this is less likely - growth may continue to be volatile.

5 With rebalancing, the shift towards saving in the US and the increase in consumption in emerging markets have to happen in tandem. Because this is a theoretical ideal, and such coordination is extremely difficult in practice, there is a high risk of sub-optimal growth in the region in the years ahead. The question, of course, is how sub-optimal.

Fiscal Risks

6 From the perspective of governments, there are also risks associated with fiscal stimulus. And here there has been an interesting shift in global opinion. At the end of 2008, when the crisis was still unfolding, there was concern that governments were not putting in enough. It was suggested that governments pump in stimulus equivalent to 2% of GDP, but few countries met that benchmark. Now, the IMF and other international bodies have started calling for governments to consider exit strategies. Even though recovery may still be quite far off, it is not too early to think about exit strategies.

7 One concern is with weaning businesses and households off the effects of countercyclical expenditure. In Singapore, we try to deal with this by setting expectations from the outset with clear 1-year expiry dates for our Jobs Credit and Special Risk-Sharing Initiative schemes.

8 A related and very important issue is fiscal sustainability. Many governments have implemented an unprecedented amount of stimulus to deal with an unprecedented crisis. However, to do this, several governments in the region will run significant budget deficits, and some have borrowed from IFIs, from capital markets, and from other governments. There is the question of how to manage this downstream by raising government revenue in such a way that is politically acceptable, and yet does not compromise growth potential.

Emerging Risks

9 Apart from the typical macroeconomic concerns, finance ministers now find themselves having to deal with the fiscal impact of the H1N1 pandemic as well. With the WHO's recent escalation of H1N1 to threat level 6, and shifts from containment to mitigation in many areas, governments have to engage in more discretionary or unbudgeted spending, from vaccines, to public communications, to health screening.

10 Fortunately, several of us have some of this infrastructure in place from the time SARS struck in 2003. But we still need to continue building up this infrastructure and the capability to respond if the virus mutates, as well as develop business continuity measures both within and across borders.

11 Thank you.