Singpore’s growth may not be as good as it seems

The Singapore economy seems to be doing well lately with the stock market roaring upwards everyday. The Singapore Strait Times Index (STI) has risen from 1976 points in October 2000 to about 3546 points as of 7th June 2007, an increase of 79% over slightly less than seven years.

A more detailed look at the data, however, reveals a different story. The Singapore dollar (SGD) had been weakening against hard currency (which in this case- gold) for the same period. The gold price measured in SGD was around 465.60 in Oct 2000, and had weakened to around 1028 recently, a drop of 220%. Meanwhile, the STI measured in gold term falls from 4.24 STI units per unit of SGD gold to 3.45 STI units for the same period. This represents a fall of about 19.7% for the STI measured in hard currency!

This implies that the purchasing power of SGD falls for the past seven years.

A falling purchasing power of the currency is bad for the ordinary citizens and the have not. This is because during such time, smart operators and large industrial groups accumulated large fortunes at the expense of small savers and the working class. The smart operators can hedge the falling currency through diversifying into asset class and hard currencies, but the ordinary working class either has no such knowledge, or has no such means.

To add to their misery, the Gini Coefficient (a measurement of of inequality of a distribution of income) widens from 0.425 in 1998 to 0.472 in 2006. An indication of the rich getting richer at the expense of the poor.

Furthermore, the Gross Domestic Product (GDP) forecast for Singapore by Monetary Authority of Singapore (MAS) this year is between 4.5 to 6.5%, below that of Hong Kong’s 6.8%. Hong Kong has a cheaper government and without Goods and Services Tax.

The hard question we need to ask ourselves is whether has the life of the ordinary working class improved for last seven years. From the above, I think the answer is a resounding “NO”.