samchain/econo-pairs-v1 huggingface dataset:
Lee Hsien Loong: Remaking the Singapore economy Keynote address by Mr Lee Hsien Loong, Deputy Prime Minister of Singapore and Chairman of the Monetary Authority of Singapore, at the Annual Dinner of the Economics Society of Singapore, Singapore, 8 April 2003. *  *  *  Introduction I agreed to speak on the theme of Remaking the Singapore Economy many months ago. It seemed an appropriate subject to talk about, given that we were engaged in a major exercise to remake the Singapore economy. As part of the exercise, we pondered the likely risks that might derail our recovery and longer-term plans - a double dip in the US economy, more terrorist attacks, the war in Iraq going awry, and oil prices shooting up. But events have a habit of taking plans by surprise. I did not imagine that we would be fighting the threat of a new and dangerous disease. SARS SARS has significantly disrupted our economy. It has affected not only tourist spending but also domestic consumption. We are not yet certain how prolonged or serious the impact of SARS will be. It will depend not just on how we manage the problem in Singapore, but also on how widely the disease spreads around the world. But certainly our first half growth will be affected, and we will have to revise down our growth forecasts for the year. The Government has acted decisively to contain the outbreak. We have set up a ministerial taskforce to deal with all aspects of the problem.

The Stavanger was built not far from here, at Tollerodden in Larvik, and is an excellent example of the many wooden boats designed by shipbuilder legend Colin Archer. It was recently decided to return the Stavanger to Tollerodden, where it will be one of the main attractions at a planned Colin Archer Centre. The sailing performance of Colin Archer’s lifeboats was superior to that of the boats constructed by his competitors at that time, and they are beautifully designed. If you would like to see what a real Colin Archer lifeboat looks like, I recommend a trip down to the jetty once the official part of the programme here at Noatun is over to see the RS 1 Colin Archer, which, thanks to the dedicated efforts of enthusiasts, is still in magnificent condition. Moored next to it is the RS 135 Kaptein E. Nygård, which is stationed here in Horten on a daily basis and which is also open to visitors. Personally, I am no stranger to the sea. I have spent my summer holidays in Hvaler every summer since the mid-1960s, and I have thoroughly enjoyed sailing through the archipelago, admittedly at low speed. I always have sea charts and a GPS chart plotter on board and I am quite sure this is why I have not needed any assistance from the Norwegian Society for Sea Rescue so far. However, I greatly respect the Society’s work and what it means for the many people who sail along our magnificent coast.
This can happen if the households expect a permanently lower level of public expenditure in the future and thus also a lower level of taxation. In such a situation, budget consolidation would lead to an increase in private consumption and production. How applicable this hypothesis is to the current situation in the United States and Europe is being widely discussed by economists at the moment. My assessment is that it is more likely that the expected cutbacks will have a negative impact on growth. 2  BIS central bankers’ speeches  Trade links When a slowdown hits major economies like the United States and Europe it leads to a reduction in world trade as a whole. Figure 1 shows that world trade has developed relatively weakly in 2011, which has had a negative effect on Swedish exports. Figure 1 Development of world trade Index, 2000=100  Note. The index series is calculated on the basis of global import and export volumes. Source: CBP Netherlands Bureau for Economic Policy Analysis  A fall in demand on large markets has both direct and indirect effects on Swedish exports. Let’s look, for example, at the trade links between Sweden and the United States. A slowdown in the US economy spreads directly to Sweden in the form of reduced demand for Swedish exports. There is also an indirect effect in the sense that a slowdown in the United States leads to a reduced demand for goods and services from, for example, Asia.

The average sovereign debt in the euro area increased from 79.7 per cent of GDP in 2009 to 85.8 per cent in 2010, and is expected to increase to 88.6 per cent in 2011. Table 1 Budget deficit and sovereign debt in the euro area (Percentage of GDP)  Budget deficit  Sovereign debt  2009  6.4  79.7  2010  6  85.8  2011  4.4  88.6  Source: IMF Fiscal Monitor  The budget deficit in the United States is expected to reach 10.8 per cent of GDP this year, while the United States’ gross debt currently exceeds 100 per cent of GDP. In the summer, this situation, in combination with what appeared to be a political inability to deal with the problem of public finances, led the credit rating agency Standard & Poor’s to reduce the credit rating of the United States for the first time in 70 years. The main reason for the increase in the level of debt is that GDP growth decreased and unemployment increased in connection with the crisis in 2008–2009. Public finances are automatically weakened when GDP growth is low in developed countries as tax revenues then decrease and expenditure for transfers increases. Some countries, such as the United States and Ireland, also implemented extensive and costly government measures to support the financial sector.
But the challenges are necessary ones, as I see it. Basel II was made necessary and inevitable by the evolution of the banking sector following the introduction of Basel I, particularly the growth of internationally active banks and improvements in their risk management practices. Global trends and banking sector developments A number of factors over the last two decades have resulted in bigger, more international and more diversified banking institutions. Many banking institutions have seized the opportunities presented by liberalisation and globalisation to expand beyond their home bases and traditional lines of business. At the same time, rapid technological advances, particularly in computing, allowed for the streamlining of operational processes and made possible the effective management of large international financial conglomerates by reducing some of the inefficiencies of scale. Many, though certainly not all, of the banking institutions that expanded in this way have been quite successful. They have benefited from economies of scale. Furthermore, the broader product range and presence in multiple economic zones have helped to smooth product and economic cycles. Advancements in risk management But, expansion has brought with it significant risk management challenges. The growing size of these institutions, their spread across geographic boundaries, and their diversity of products and customers, have made it necessary for decision-making to be decentralized, at least to some extent, in order to be responsive to the needs of customers.

Within this framework, the GPFG should be managed in a responsible way. The report to the Storting notes that there is broad political agreement that the GPFG should not be an instrument of foreign policy or climate policy, and it is important that this continue to be the case in the future. Restrictions or instructions that have a significant impact on the trade-off between return and risk will limit the potential to achieve solid performance over time. 2/2  BIS central bankers' speeches
To keep these experiments as transparent as possible, consider the simplest possible one-factor model of financial liberalisation. The one factor is the level of economic development of the G20 economies, as proxied by GDP per capita. Theoretically, we would expect financial liberalisation to be shaped by economic development. This is consistent with the economic growth literature emphasising the positive, two-way relationship between financial deepening and economic growth (Levine (2005)). The cross-section and time-series evidence presented here supports that hypothesis. To generate projections for the single factor – GDP per capita – we use a calibrated crosscountry convergence model, in the spirit of Barro and Sala-i-Martin (1992) and Mankiw, Romer and Weil (1992). These GDP per capita projections are then adjusted for expected future changes in population growth to give a set of cross-country projections for GDP from 2010 to 2050. Chart 7 shows the global distribution of G20 GDP at decadal intervals over this period. These projections are necessarily tentative, but are broadly in line with external estimates.3 Nominal GDP in the emerging G20 exceeds that in the advanced G20 by 2030. The advanced economies’ share of G20 GDP halves between 2010 and 2050, from 70% to 36%, while the emerging G20 economies’ share rises from 30% to 64%. Over the next 40 years, advanced and emerging countries will most likely swap GDP shares. By 2050, China’s share of G20 GDP is 22% and India’s 18%, with the US falling to 20%.

It will be consisted of Governor, Vice Governors, one member to be elected from among the Board members and one member to be designated by Council of Ministers upon the proposal of the Governor. This Committee will play an important role in setting the targets and regulations, upon which the Central Bank will act jointly with the Government. However, the Central Bank will support the governments’ policies on economic growth and employment, on condition that they do not conflict with the aim of achieving price stability. The Draft-Law is removing a number of constraints of the present Law on the monetary policy actions and is bringing new facilities. The concepts of Transparency and Accountability are underlined in the Draft-Law. For example, the Governor of the Central Bank will report to the Council of Ministers and will brief the Planning and Budget Commission in Parliament twice a year on the Bank’s activities. Moreover, the Bank will disclose its monetary policy implementation to the public by means of reports and announcements. In addition to this, if by any chance inflation targets are missed or should there be a probability of failing to hit the targets, then the Bank will explain the reasons thereof to the Government and to the public. The balance sheet, profit and loss account of the Bank will be audited by independent agencies, which is another element increasing the Bank’s transparency.
The baseline scenario of the September Report assumes that the CPI’s annual inflation will continue to approach 3% in the coming months, closing 2016 at 3.5%. The CPIEFE will descend to 3% faster than will headline CPI, and by early 2017 it will be below this mark (figure 3). This scenario assumes that inflation will converge to the target somewhat sooner than we expected in June, which partly relies on the exchange rate remaining relatively stable over the short term. As I said, this is subject to significant degrees of uncertainty, as illustrated by the fluctuations that the parity has shown in recent months. As a working assumption, our projections consider that the real exchange rate (RER) will hover around its current levels throughout the projection horizon, in line with the assessment that today it is not far from what can be inferred from its long-term fundamentals (figure 4). Globally, despite the reversal of recent weeks, external financial conditions facing emerging economies have outperformed our projections in earlier Reports (figure 5). This improvement has been accompanied by the markets’ perception that the expansionary monetary policies in the developed world will persist for longer. In this context, the changes in expectations regarding the Fed’s monetary policy conduct have been particularly important because of both its weight in financial markets and the uncertainties surrounding it (figure 6). The markets assume a more gradual normalization of monetary policy than that announced by the Fed.

In the case of fiscal policy, this problem has been properly addressed in our country by way of a fiscal rule that establishes that fiscal spending must be consistent with the economy’s capacity to generate earnings in the medium term. This rule has been carefully monitored, and has even 5 / 14  BIS central bankers' speeches  been replicated in other countries. Ending it could not only result in many problems in the future, but also lessen the macroeconomic effects of fiscal spending today. Make no mistake: I am not for total inflexibility, nor am I for mechanically subscribing to a rule, as I am convinced that flexibility is necessary on certain occasions. This has been the case, actually. My concern is rather whether we have exhausted these degrees of flexibility. Let me remind you that just over one year ago the initial structural balance (or zero deficit) objective was modified. In addition, to accommodate revisions to the long-term price of copper and trend GDP—both potentially curbing the spending capacity—the Ministry of Finance decided to recalculate the rule every year using the new parameters, and from there reduce the structural deficit by 0.25 percentage points of GDP. No doubt this is one way to adjust gradually to the new boundaries that the rule establishes for fiscal spending, but it obviously implies that in a cycle where the key parameters are revised downward, we will be spending above our medium-term revenues for a longer period of time.
The proposed changes in the capital adequacy rules will apply with effect from 2005, but developments in the capital market could very well lead to the banks’ credit granting being adapted gradually to the new rules in advance of their introduction. It is therefore important for capital-intensive operations to prepare now for a more individualised credit assessment in future. The opportunities for finding competitive financing on the loan market at a low interest rate will be available to those who can convince lenders that their operations will generate stable future income. Higher risks, e.g. in the form of varying income flows will cost more. Looking towards the future I can see two important issues for the industry to consider for the future. The first is the financing of the new construction that is needed, where the effects of the modern credit granting process and the new capital adequacy rules will affect SABO’s operations. It will be a sensitive issue for housing companies in municipalities with high vacancy rates and declining populations, particularly in the light of your own report issued just before Christmas. Previously, municipalities and municipal operations with municipal guarantees have been able to obtain loans on improved terms. In addition to the property as collateral, a municipal housing company has been able to use the municipality’s guarantee as collateral. In future, it is not so certain that this will lead to improved loan terms to the same extent as now.

Residential construction of apartments in apartment blocks in relation to the population increase has been lowest in Stockholm county, followed by Skåne county and Västra Götaland county. One ray of hope is that the number of building permits granted for apartment blocks is continuing to increase, which indicated a continued increase in new production of apartment blocks. Factors such as regulated rents for rental properties, i.e. the utility value system, a lack of land with planning permission in growth regions, the construction of the municipal tax equalisation system, the imbalance between traffic situations and housing in growth regions and long planning processes probably all contribute to the relatively low level of residential construction, even in areas where demand is high. A further restriction is the lack of competition in the construction sector. This is demonstrated in the developments in prices and wages in the sector. Construction workers’ wages have increased more than those of industrial workers in recent years. Another example is that the costs of construction  2  BIS Review 2/2002  materials, which constitute approximately one-third of total construction costs, have shown price increases over and above other industrial products for some time now, with price rises even during periods of low demand. One important explanation for this is the fact that the construction trade is concentrated to a small number of large companies. In some markets, for instance, those for cement, reinforcement steel and plasterboard, one company accounts for more than 50 per cent of total sales.
Chart 5: Debt instruments outstanding in the international financial market USD billion 16 000 14 000 12 000 10 000 8 000 6 000 4 000 2 000 0 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Bonds issued in the international market Debt instruments issued in the international market Source: BIS  4  BIS Review 60/2006  Chart 6: Volume and structure of global financial assets (USD trillion) USD billion 250 209  200 58.5  150 96  100 53  50 0  5.4 12 2.2 1.7 2.8  1980  16.4 10.6 11.7 14.3  20.0 13.1 15.9 20.0  119  35.4  35.7  20.1  21.4  30.7  29.8  31.9  32.1  33.4  60.6  25.0 14.4 20.2  69  118  56.4  36.5  1993 1996 1999 2003 2004* Bank deposits (CAGR* - 7,8%) Government debt securities (CAGR - 6,9%) Private debt securities (CAGR - 10,2%) Equity securities (CAGR - 8,6%)  2010**  CAGR – Compounded Average Growth Rate. * - preliminary data. ** ― forecast by McKinsey Global Institute. Source: McKinsey Global Institute. As opposed to green-field investments, the portfolio capital is very mobile and, depending on the situation (macroeconomic or political) it may move easily among local markets. This may lead to high instability on the FX market causing significant exchange rates fluctuations. One of the methods of hedging against the risk of currency appreciation or depreciation is taking positions in derivatives.

And I will offer some perspectives on how these challenges should affect the hierarchy of priorities of central banks, and of those who have responsibility for supervision and oversight of the financial system. A characteristic feature of periods of financial innovation is that growth in new instruments and changes in the structure of those markets can outpace the development of the risk management and processing and settlement infrastructure. This gap, the gap between the speed at which markets move to capture the benefits of new opportunities and the pace of development in the supporting control and execution infrastructure, is inevitable. The size and duration of the gap and the risks it presents to the financial system are a function both of will and of ability. They are determined, in part, by the scale of investments that firms make in the infrastructure-investments in people, in technology and in control processes-and they are determined in part by knowledge and experience, which are functions of the environment surrounding innovation. Market discipline exercised by counterparties should create incentives to close these gaps relatively quickly, but competition among financial intermediaries can, at least for some period of time, create offsetting incentives and may make individual institutions less willing to move ahead of the pace of improvement of average practice among market participants. This can take the form of what economists call a collective action problem, leaving individual institutions and the systems as a whole with more risk than would be desirable.
Davíð Oddsson: Review of the Icelandic economy Address by Mr Davíð Oddsson, Chairman of the Board of Governors of the Central Bank of Iceland, at the Bank’s annual meeting, Reykjavik, 31 March 2006. *  *  *  Chairman of the Supervisory Board, Prime Minister, Cabinet Ministers, Ladies and Gentlemen: On behalf of the Board of Governors of the Central Bank of Iceland I welcome you all to the 45th annual meeting since the Central Bank was established on April 7, 1961. The Bank’s financial statements for the year 2005 have been ratified today by the Prime Minister. The Bank’s annual report has also been published. It includes a report on the Bank’s performance and a summary of how it has implemented its mandatory role. The Chairman of the Supervisory Board devoted part of his address to Birgir Ísleifur Gunnarsson, the former Chairman of the Board of Governors. The present Governors endorse his words wholeheartedly. In this context I would like to draw attention to two points that the former Chairman of the Board of Governors mentioned at the last annual meeting. One concerned the Bank’s forecast for inflation and the current account deficit. At that time the Bank forecast that the current account deficit would be equivalent to 12% of GDP in 2005 and inflation would be 2½% by today. Now it is clear that developments have been less favourable than was forecast and hoped. The current account deficit ended up at 16.6% of GDP and inflation is currently 4.5%.

The international debate may now be turning in the opposite direction to that taken by Iceland and others when the banking supervision was separated from the Central Bank in its day. Iceland is a small country with rapidly expanding financial and banking business. It is a cause of some concern that supervisory and regulatory institutions have not grown correspondingly, although they have still performed their functions very well. The Icelandic banks are well aware of and understand the fundamental importance that strong institutions such as the Central Bank and FME have for assessments by ratings agencies and international analysts. The Board of Governors raises this point here for consideration in conceivable reforms of Iceland’s financial institutional framework. But other action is needed as well. In consultation between the Government of Iceland and the Central Bank, it has been decided to increase the Bank’s foreign reserves in coming years and boost its capital position further, probably with foreign borrowing rather than by purchasing foreign currency in the markets. This is of course done on a long-term view and reflects ongoing changes in the external economic environment rather  BIS Review 28/2006  3  than the temporary market unease at present. Also, the Central Bank has recommended to the Ministry of Finance and the Government that special action should be taken to strengthen the foundations of the Icelandic bond market. The Treasury is in an unusually strong position at present and its debts are decreasing from one year to the next.