The Learning Economist

The Learning Economist has a new home on Wordpress!

2009-12-05T13:11:00.001+08:00

relink:

http://econsiseasy.wordpress.com/

2009 'A' Level Paper 2

2009-11-20T19:23:00.000+08:00

Section A (Micro):
1. Governments around the world protect consumers against market failure due to market dominance.
a) Analyse with supporting examples, how market dominance might lead to market failure. (10)
b) Assess the extent to which market dominance, rather than any other potential market failure, is the major cause of government intervention in the markets for goods and services within Singapore. (15)

2. A very popular band is due to play one concert at a 5000 capacity venue. The plan is to charge different prices according to the area in which the seat is located.
a) Explain whether this pricing policy could be considered to be an example of price discrimination. (10)
b) Discuss the problems that are likely to be faced in determining the prices to be charged for the seats. (15)

3. There have been large changes in the price of crude oil over the past few years.
Discuss what determines whether consumers or producers are more likely to bear the cost of these oil price changes. (25)

Section B (Macro):

4. The relative importance of the components of the circular flow of income for a small and open economy, such as Singapore, is likely to be different from a large and less open economy, such as the USA.
a) Explain this statement. (10)
b) Assess whether a change in the external value of its currency is more likely to have a larger impact on Singapore or the USA. (15)

5. Economic measures of the Singapore economy for 2007 indicate that GDP was S$243b. The current account on the balance of payments was S$59b in surplus.
a) Explain how you might use GDP and balance of payments data to measure the performance of an economy. (12)
b) Assess whether these economic indicators are the best measures of economic performance and standard of living in Singapore. (13)

6. An economist stated "The trend towards globalisation leaves no room for protectionism".
a) Account for the trend towards globalisation. (10)
b) Discuss whether you agree with the economist's view. (15)

Coach Operators Fined $1.7m for price fixing

2009-11-03T14:07:00.003+08:00

Nov 3, 2009 (Straits Times)

By Maria Almenoar

SIXTEEN coach operators and their association have been fined $1.69 million by the Competition Commission of Singapore (CCS) for fixing the prices of express bus tickets to Malaysia.

They were found to have set a minimum price for tickets and agreed on prices for a fuel and insurance charge (FIC) to the tickets between 2006 and June last year.

HOW 17 FIXED PRICES OF COACH TICKETS
Investigations by the Competition Commission of Singapore revealed that the coach operators met regularly with the Express Bus Agencies Association to fix:

Minimum selling prices of the coach tickets. As a result, these coach operators adjusted ticket prices to either at or above the minimum level, resulting in higher ticket prices
Fuel and insurance charges (FIC) across the board to mark up ticket prices. The charges were revised upwards on various occasions after they were implemented.

During this period, it is estimated that the coach operators pocketed over $3.65 million from the sale of the FIC. The 17 fined are:

Alisan $10,807
Express Bus Agencies Association $10,000
Enjoy $23,425
Five Stars $450,207
GR Travel $52,432
Grassland $27,706
Gunung Raya $76,668
Konsortium $337,635
Lapan Lapan $10,000
Luxury $10,000
Nam Ho $10,000
Regent Star $103,875
Sri Maju $24,600
T&L $10,000
Transtar $518,167
Travelzone $10,000
WTS $13,611

These operators represent 60 per cent of the industry and are estimated to have earned $3.65 million from the surcharge imposed.

The penalties ranged from $10,000 to $518,167, with fines corresponding to the size of the companies. The fines were up to 3.85 per cent of the companies' turnover.

Mr Teo Eng Cheong, Chief Executive of CCS, said: 'Our investigations show clearly that the 16 companies and the association colluded to fix prices. Instead of stopping the collusion, the association facilitated the price fixing through its regular meetings and a rebate system to encourage the sale of FIC coupons.

'When faced with cost increases, businesses should aim to improve productivity or innovate so as to maintain their profitability without increasing prices. Instead, these coach operators took the easier path. They colluded to increase prices and passed on their costs to consumers. Consumers therefore bore the brunt of the cost increases.'

Last year, six pest companies were investigated and fined between $4,300 and $92,600 for bid-rigging.

Related links

Life and How to Survive It

2009-10-24T02:51:00.000+08:00

Below is a speech to the graduating class of 2008 at NTU convocation ceremony last week by Adrian Tan, a litigation lawyer and the author of The Teenage Textbook.

I must say thank you to the faculty and staff of the Wee Kim Wee School of Communication and Information for inviting me to give your convocation address. It's a wonderful honour and a privilege for me to speak here for ten minutes without fear of contradiction, defamation or retaliation. I say this as a Singaporean and more so as a husband.

My wife is a wonderful person and perfect in every way except one. She is the editor of a magazine. She corrects people for a living. She has honed her expert skills over a quarter of a century, mostly by practising at home during conversations between her and me.

On the other hand, I am a litigator. Essentially, I spend my day telling people how wrong they are. I make my living being disagreeable.

Nevertheless, there is perfect harmony in our matrimonial home. That is because when an editor and a litigator have an argument, the one who triumphs is always the wife.

And so I want to start by giving one piece of advice to the men: when you've already won her heart, you don't need to win every argument.

Marriage is considered one milestone of life. Some of you may already be married. Some of you may never be married. Some of you will be married. Some of you will enjoy the experience so much, you will be married many, many times. Good for you.

The next big milestone in your life is today: your graduation. The end of education. You're done learning.

You've probably been told the big lie that "Learning is a lifelong process" and that therefore you will continue studying and taking masters' degrees and doctorates and professorships and so on. You know the sort of people who tell you that? Teachers. Don't you think there is some measure of conflict of interest? They are in the business of learning, after all. Where would they be without you? They need you to be repeat customers.

The good news is that they're wrong.

The bad news is that you don't need further education because your entire life is over. It is gone. That may come as a shock to some of you. You're in your teens or early twenties. People may tell you that you will live to be 70, 80, 90 years old. That is your life expectancy.

I love that term: life expectancy. We all understand the term to mean the average life span of a group of people. But I'm here to talk about a bigger idea, which is what you expect from your life.

You may be very happy to know that Singapore is currently ranked as the country with the third highest life expectancy. We are behind Andorra and Japan, and tied with San Marino. It seems quite clear why people in those countries, and ours, live so long. We share one thing in common: our football teams are all hopeless. There's very little danger of any of our citizens having their pulses raised by watching us play in the World Cup. Spectators are more likely to be lulled into a gentle and restful nap.

Singaporeans have a life expectancy of 81.8 years. Singapore men live to an average of 79.21 years, while Singapore women live more than five years longer, probably to take into account the additional time they need to spend in the bathroom.

So here you are, in your twenties, thinking that you'll have another 40 years to go. Four decades in which to live long and prosper.

Bad news. Read the papers. There are people dropping dead when they're 50, 40, 30 years old. Or quite possibly just after finishing their convocation. They would be very disappointed that they didn't meet their life expectancy.

I'm here to tell you this. Forget about your life expectancy.

After all, it's calculated based on an average. And you never, ever want to expect being average.

Revisit those expectations. You might be looking forward to working, falling in love, marrying, raising a family. You are told that, as graduates, you should expect to find a job paying so much, where your hours are so much, where your responsibilities are so much.

That is what is expected of you. And if you live up to it, it will be an awful waste.

If you expect that, you will be limiting yourself. You will be living your life according to boundaries set by average people. I have nothing against average people. But no one should aspire to be them. And you don't need years of education by the best minds in Singapore to prepare you to be average.

What you should prepare for is mess. Life's a mess. You are not entitled to expect anything from it. Life is not fair. Everything does not balance out in the end. Life happens, and you have no control over it. Good and bad things happen to you day by day, hour by hour, moment by moment. Your degree is a poor armour against fate.

Don't expect anything. Erase all life expectancies. Just live. Your life is over as of today. At this point in time, you have grown as tall as you will ever be, you are physically the fittest you will ever be in your entire life and you are probably looking the best that you will ever look. This is as good as it gets. It is all downhill from here. Or up. No one knows.

What does this mean for you? It is good that your life is over.

Since your life is over, you are free. Let me tell you the many wonderful things that you can do when you are free.

The most important is this: do not work.

Work is anything that you are compelled to do. By its very nature, it is undesirable.

Work kills. The Japanese have a term "Karoshi", which means death from overwork. That's the most dramatic form of how work can kill. But it can also kill you in more subtle ways. If you work, then day by day, bit by bit, your soul is chipped away, disintegrating until there's nothing left. A rock has been ground into sand and dust.

There's a common misconception that work is necessary. You will meet people working at miserable jobs. They tell you they are "making a living". No, they're not. They're dying, frittering away their fast-extinguishing lives doing things which are, at best, meaningless and, at worst, harmful.

People will tell you that work ennobles you, that work lends you a certain dignity. Work makes you free. The slogan "Arbeit macht frei" was placed at the entrances to a number of Nazi concentration camps. Utter nonsense.

Do not waste the vast majority of your life doing something you hate so that you can spend the small remainder sliver of your life in modest comfort. You may never reach that end anyway.

Resist the temptation to get a job. Instead, play. Find something you enjoy doing. Do it. Over and over again. You will become good at it for two reasons: you like it, and you do it often. Soon, that will have value in itself.

I like arguing, and I love language. So, I became a litigator. I enjoy it and I would do it for free. If I didn't do that, I would've been in some other type of work that still involved writing fiction – probably a sports journalist.

So what should you do? You will find your own niche. I don't imagine you will need to look very hard. By this time in your life, you will have a very good idea of what you will want to do. In fact, I'll go further and say the ideal situation would be that you will not be able to stop yourself pursuing your passions. By this time you should know what your obsessions are. If you enjoy showing off your knowledge and feeling superior, you might become a teacher.

Find that pursuit that will energise you, consume you, become an obsession. Each day, you must rise with a restless enthusiasm. If you don't, you are working.

Most of you will end up in activities which involve communication. To those of you I have a second message: be wary of the truth. I'm not asking you to speak it, or write it, for there are times when it is dangerous or impossible to do those things. The truth has a great capacity to offend and injure, and you will find that the closer you are to someone, the more care you must take to disguise or even conceal the truth. Often, there is great virtue in being evasive, or equivocating. There is also great skill. Any child can blurt out the truth, without thought to the consequences. It takes great maturity to appreciate the value of silence.

In order to be wary of the truth, you must first know it. That requires great frankness to yourself. Never fool the person in the mirror.

I have told you that your life is over, that you should not work, and that you should avoid telling the truth. I now say this to you: be hated.

It's not as easy as it sounds. Do you know anyone who hates you? Yet every great figure who has contributed to the human race has been hated, not just by one person, but often by a great many. That hatred is so strong it has caused those great figures to be shunned, abused, murdered and in one famous instance, nailed to a cross.

One does not have to be evil to be hated. In fact, it's often the case that one is hated precisely because one is trying to do right by one's own convictions. It is far too easy to be liked, one merely has to be accommodating and hold no strong convictions. Then one will gravitate towards the centre and settle into the average. That cannot be your role. There are a great many bad people in the world, and if you are not offending them, you must be bad yourself. Popularity is a sure sign that you are doing something wrong.

The other side of the coin is this: fall in love.

I didn't say "be loved". That requires too much compromise. If one changes one's looks, personality and values, one can be loved by anyone.

Rather, I exhort you to love another human being. It may seem odd for me to tell you this. You may expect it to happen naturally, without deliberation. That is false. Modern society is anti-love. We've taken a microscope to everyone to bring out their flaws and shortcomings. It far easier to find a reason not to love someone, than otherwise. Rejection requires only one reason. Love requires complete acceptance. It is hard work – the only kind of work that I find palatable.

Loving someone has great benefits. There is admiration, learning, attraction and something which, for the want of a better word, we call happiness. In loving someone, we become inspired to better ourselves in every way. We learn the truth worthlessness of material things. We celebrate being human. Loving is good for the soul.

Loving someone is therefore very important, and it is also important to choose the right person. Despite popular culture, love doesn't happen by chance, at first sight, across a crowded dance floor. It grows slowly, sinking roots first before branching and blossoming. It is not a silly weed, but a mighty tree that weathers every storm.

You will find, that when you have someone to love, that the face is less important than the brain, and the body is less important than the heart.

You will also find that it is no great tragedy if your love is not reciprocated. You are not doing it to be loved back. Its value is to inspire you.

Finally, you will find that there is no half-measure when it comes to loving someone. You either don't, or you do with every cell in your body, completely and utterly, without reservation or apology. It consumes you, and you are reborn, all the better for it.

Don't work. Avoid telling the truth. Be hated. Love someone.

You're going to have a busy life. Thank goodness there's no life expectancy.

Project Work Oral Presentation - Tips and Some Great Presentations

2009-10-13T10:15:00.004+08:00

Death by PowerPoint

Great Presentations

Great Speeches

Singapore Budget 2009 - Measures to Address Income Inequality

2009-08-29T18:44:00.002+08:00

Measures to help reduce income inequality (targetted at helping the needy families) + how to increase Singapore's competitiveness

The Emissions Trading System

2009-08-29T11:24:00.000+08:00

On Liberalisation & De-regulation in Singapore

2009-08-04T15:54:00.002+08:00

read an earlier post... click here

Includes:

- Definition: Privatisation, Deregulation and Liberalisation

- Market Liberalisation in Singapore

Telecommunications market
Electricity Retail Market
Singapore media market
Singapore's Gas Market
Commercial Banking Sector
Postal Services Market

click here

Small is the new big

2009-06-29T00:33:00.000+08:00

from Seth Godin's blog

Big used to matter. Big meant economies of scale. (You never hear about “economies of tiny” do you?) People, usually guys, often ex-Marines, wanted to be CEO of a big company. The Fortune 500 is where people went to make… a fortune.

There was a good reason for this. Value was added in ways that big organizations were good at. Value was added with efficient manufacturing, widespread distribution and very large R&D staffs. Value came from hundreds of operators standing by and from nine-figure TV ad budgets. Value came from a huge sales force.

Of course, it’s not just big organizations that added value. Big planes were better than small ones, because they were faster and more efficient. Big buildings were better than small ones because they facilitated communications and used downtown land quite efficiently. Bigger computers could handle more simultaneous users, as well.

Get Big Fast was the motto for startups, because big companies can go public and get more access to capital and use that capital to get even bigger. Big accounting firms were the place to go to get audited if you were a big company, because a big accounting firm could be trusted. Big law firms were the place to find the right lawyer, because big law firms were a one-stop shop.

And then small happened.

Enron (big) got audited by Andersen (big) and failed (big.) The World Trade Center was a target. TV advertising is collapsing so fast you can hear it. American Airlines (big) is getting creamed by Jet Blue (think small). BoingBoing (four people) has a readership growing a hundred times faster than the New Yorker (hundreds of people).

Big computers are silly. They use lots of power and are not nearly as efficient as properly networked Dell boxes (at least that’s the way it works at Yahoo and Google). Big boom boxes are replaced by tiny ipod shuffles. (Yeah, I know big-screen tvs are the big thing. Can’t be right all the time).

I’m writing this on a laptop at a skateboard park… that added wifi for parents. Because they wanted to. It took them a few minutes and $50. No big meetings, corporate policies or feasibility studies. They just did it.

Today, little companies often make more money than big companies. Little churches grow faster than worldwide ones. Little jets are way faster (door to door) than big ones.

Today, Craigslist (18 employees) is the fourth most visited site according to some measures. They are partly owned by eBay (more than 4,000 employees) which hopes to stay in the same league, traffic-wise. They’re certainly not growing nearly as fast.

Small means the founder makes a far greater percentage of the customer interactions. Small means the founder is close to the decisions that matter and can make them, quickly.

Small is the new big because small gives you the flexibility to change the business model when your competition changes theirs.

Small means you can tell the truth on your blog.

Small means that you can answer email from your customers.

Small means that you will outsource the boring, low-impact stuff like manufacturing and shipping and billing and packing to others, while you keep the power because you invent the remarkable and tell stories to people who want to hear them.

A small law firm or accounting firm or ad agency is succeeding because they’re good, not because they’re big. So smart small companies are happy to hire them.

A small restaurant has an owner who greets you by name.

A small venture fund doesn’t have to fund big bad ideas in order to get capital doing work. They can make small investments in tiny companies with good (big) ideas.

A small church has a minister with the time to visit you in the hospital when you’re sick.

Is it better to be the head of Craigslist or the head of UPS?

Small is the new big only when the person running the small thinks big.

Don’t wait. Get small. Think big.

Cathay Pacific to launch major cost-cutting measures

2009-06-22T22:23:00.004+08:00

Originally published on asia.businesstraveller.com 17/04/2009

Deteriorating business conditions have forced Cathay Pacific (CX) to reduce passenger capacity by 8 percent and overall cargo capacity by 11 percent starting May. Its sister airline Dragonair will also see a 13 percent cut in passenger capacity.

Simultaneously, CX is introducing a voluntary Special Leave programme for its 17,000 workforce worldwide, encouraging them to take unpaid leave between one and four weeks, depending on seniority. Other cost-cutting measures include deferring airport lounge renovations in Hongkong and London as well as deliveries of new aircraft, looking into whether or not to renew aircraft leases expiring, renegotiation with suppliers for more discounts.

Tony Tyler, CX chief executive, said these decisions were taken “after carefully considering all our options”. He added the paramount aim was “keeping our network and team together in this challenging environment”.

The staff, he believed, understood the rough patch their company was experiencing. He said: “One employee I met summed it up very well: ‘We are all in the same boat.’ What we’re trying to do now is to keep the boat afloat (while) sailing through the storm.”

In the first quarter of the year, the airline’s turnover was 22.4 percent lower than the same period in 2008. Tyler warned that if the recession worsened, CX would look at instituting other measures, but what these were, he declined to say.

CX has become the latest victim of the continuing global financial crisis.

In February, Singapore Airlines cut passenger capacity by 11 due to falling demand and decommissioned 17 of its aircraft to cut costs. It is in talks with employees regarding early retirement and unpaid leave, but insisted that retrenchment was strictly a last resort.

Qantas on April 14, announced it would slash up to 1,750 jobs, ground 10 aircraft and defer delivery of the superjumbo Airbus A380 and other aircraft. It has downgraded its profit forecasts by as much 80 percent.

See also: How companies are reducing costs

Question:
What are some of the ways airline comapanies can cut costs in the economic downturn?

CUTTING COSTS, SAVING JOBS - Kenny the Fish stays buoyant

2009-06-22T22:09:00.003+08:00

April 2, 2009 (ST by Yang Huiwen)

Boss of ornamental fish group Qian Hu has imbued staff with culture of cost consciousness

THE global economy is in troubled waters, but ornamental fish group Qian Hu is well-placed to swim against the tide thanks to extensive measures to scale back costs.

Having a boss known as Kenny the Fish who leads from the front and pledges no layoffs helps as well.

Kenny Yap - executive chairman and managing director - told The Straits Times: 'In Chinese, there is a saying that business is half earned and half saved. That very much applies to us.'

He has made the firm highly cost-conscious over the years and the culture has become so accepted by staff that it has allowed the firm to get even leaner during these times.

Mr Yap, 43, who has won numerous entrepreneur awards, is credited with transforming a small time specialist breeder into an integrated group exporting ornamental fish to over 80 countries, with retail stores in Malaysia, Thailand China.

The downturn has certainly hit the firm but the numbers still stack up pretty well.
Revenue dipped 7.2 per cent in the fourth quarter last year, but better cost controls meant net profit rose 10 per cent over 2007's to $1.74 million.

'We've had a low-maintenance company lifestyle all along. It's all about building good habits when it comes to managing costs,' said Mr Yap.

Keeping costs down became part of the group's DNA after an ambitious but expensive move to expand and diversify from 2004 to 2006 sent the firm briefly into the red. There was a desperate need to control costs then, prompting Mr Yap and two other deputy CEOs to give up bonuses for three years.

It also taught valuable lessons in cost management that have left them in good stead to weather this global turmoil. Qian Hu is so cost-conscious it does not even engage a cleaner. Instead, staff draw up a duty roster and take turns to clean the premises at Jalan Lekar every day. This instils in employees the 'concept of ownership', said Mr Yap, who does his share of the work by cleaning the toilets.

Leaders have to lead by example, he added. 'If you are fair to your employees, they will make sacrifices during bad times.'

Good times or bad, senior executives fly economy class or even take budget airlines for business trips, and stay in two- or three-star hotels.

But the firm is stepping up its cost-control measures, after setting an internal target to further bring down total expenses from the previous year's. Measures include more aggressive recycling, conserving energy, a cheaper menu at its corporate dinner and improving productivity of its fish breeding process.
Staff have been assured no one will be losing his rice bowl, thanks to its 'corporate culture of being prudent in spending, even during good times', said Mr Yap.

Operations manager Ong Seng Ann, 41, said: 'All along, I think the company has been very conservative when it comes to spending. Everyone of us is doing his part and doing it well, and hopefully that will keep the company going strong.'

He and his operations team, for example, are doing their bit by aiming to reduce the death rate of fish through more inspections and quality checks.

The company has also become tougher on overtime claims. Operational staff, who take care of the fish, have been encouraged to 'clock out' when they have completed their day's work, said human resources senior manager Raymond Yip.

It recently converted all its lever-type turn-on taps to spring-activated push taps to save water. There is also a greater focus on recycling items such as plastic bags and styrofoam boxes.

Qian Hu is also cutting down on internal company events. Its recreational days for staff have been cut from three to two a year.

The Jobs Credit scheme is offsetting about $220,000 in wage costs a year. This helps mitigate a 2 to 4 per cent increment in staff salaries implemented last year. There are no plans to freeze or cut pay, although the firm is capping headcount at the current 137 for its Singapore operations.

Mr Chai Teck Yi, 24, who works in the export part of the business, said he was relieved that he was assured of his job. 'It helps that our bosses give us regular updates of how the company is doing and the plans they have in store.'

Said Mr Yap: 'Frequent communication with employees is extremely important during the
cost-controlling period. This is because we must constantly impart that concept and at the same time update them on the progress so that they can be assured there is a purpose for their sacrifice and there are results as well.'

Qian Hu is also taking a more cautious approach in managing cashflow. The finance department now monitors its debt collection on a daily basis to make sure customers are sticking to their credit terms, instead of a few times each month.

'I don't think the business is recession-proof, but it is resilient,' said Mr Yap. For this year,the group will continue to focus on containing operating costs and increasing productivity, he said.

Question:
Identify some of the ways Qian Hu is cutting costs

THE BIGGER PICTURE: MERGER TRENDS UNDER GLOBALISATION

2009-05-24T20:46:00.005+08:00

The last twenty years have witnessed perhaps the most drastic process of corporate consolidation in history. Since the middle of the 1980s, the rate of global merger activity has risen exponentially (see Figure 1). Between 1980 and 2000, the value of global mergers rose 100-fold, reaching $15 trillion by the Millennium.

In 1999, the number of merger deals announced was triple what it had been a decade earlier, and 30 times what it was in 1981 – although there has been a marked slowdown since the burst of the dotcom towards the end of 2000 and subsequent downturn in the global economy.

Just as significant as the volume and value of merger activity in this timeframe was the nature of the deals being negotiated. Whereas the great majority of deals up to the 1990s took place within national boundaries, the last decade or so has witnessed a marked increase in the number of cross-border mergers. While international deals represented less than 20% of total merger value in the early 1980s, the proportion had risen to 33% by the Millennium.

While M&A activity has been widespread across numerous sectors, the industries most affected have been telecommunications, pharmaceuticals, media, automotives, energy, utilities, defence, food retail, and financial services. This has reflected not only a more ambitious growth agenda of trans-national corporations in recent years, but also an increased incentives for global amalgamation brought about by the integration of financial markets, trade liberalisation, deregulation and privatisation of national industries that have been the hallmark of neo-liberal economic globalisation. Companies have also sought to create synergies between closely linked areas of business activity, and realise efficiency gains through economies of scale.

Ironically, corporate consolidation has also been self-perpetuating, with big mergers following other big mergers as companies struggle to keep pace with their larger competitors. This, as we will see, has been one of the major concerns of government authorities seeking to ensure that corporate takeovers do not trigger a snowball effect that leads to rapid concentration in markets.

Another (unsurprising) feature of corporate mergers is that the vast majority of large deals over recent years have involved companies in Western Europe and North America. However, developing country firms have become popular targets for large multinationals. As Western multinationals grow ever-larger – and privatisation and liberalisation continue to open up new investment opportunities – companies in developing nations are being increasingly targeted by TNCs. This is reflected in the fact that cross-border mergers and acquisitions made up roughly 85% total foreign direct investment by the end of the 1990s.

(read article)

Understanding the US Credit Crisis

2009-05-08T01:18:00.000+08:00

The Crisis of Credit Visualized from Jonathan Jarvis on Vimeo.

Designing the Tata Nano - The World's Cheapest Car

2009-04-29T22:12:00.005+08:00

World's cheapest car goes on show (Topic - Cost of Production)

See key features that make the Tata Nano so cheap.

Apr 9, 2009 - DELHI - Tata Motors has unveiled the world's cheapest motor car at India's biggest car show in the capital, Delhi.

The vehicle, called the Tata Nano, will sell for 100,000 rupees or US$2,500 (£1,277) and enable those in developing countries to move to four wheels.

The four-door five-seater car, which goes on sale later this year, has a 33bhp, 624cc, engine at the rear.

It has no air conditioning, no electric windows and no power steering, but two deluxe models will be on offer.

Tata will initially make about 250,000 Nanos and expects eventual annual demand of one million cars.

The price will be slightly more than the 100,000 once tax and other costs are taken into consideration.

The Nano release comes as India's domestic car market is predicted to soar in the coming years on the back of the country's fast-growing economy and increased consumer wealth.

'People's car'

Indian car sales are predicted to more than quadruple to $145bn by 2016.

Company chairman Ratan Tata said the launch of the Nano was a landmark in the history of transportation.

He said the car was "a safe, affordable and all weather transport - a people's car, designed to meet all safety standards and emissions laws and accessible to all".

Environmental critics have said that the car will lead to mounting air and pollution problems on India's already clogged roads.

But Tata said the car had passed emission standards and would average about 50 miles to the gallon, or five litres per hundred kilometres.

The firm also said it would introduce a diesel version of the Nano at a later date.

'Family transport'

At the unveiling ceremony Mr Tata said: "I observed families riding on two-wheelers - the father driving the scooter, his young kid standing in front of him, his wife seated behind him holding a little baby.

"It led me to wonder whether one could conceive of a safe, affordable, all-weather form of transport for such a family.

"Tata Motors' engineers and designers gave their all for about four years to realise this goal.

"Today, we indeed have a People's Car, which is affordable and yet built to meet safety requirements and emission norms, to be fuel efficient and low on emissions."

Ravi Vangala, of Hyderbad, India, said: "I... congratulate Tata for his dream, and I will definitely buy the Tata Nano car."

Questions

Identify the fixed and variable costs that goes into making the Tata Nano.
How did Tata manage to cut the costs of production in making the Tata Nano?

Recession: Who Gets Hit and Who Doesn't?

2009-04-24T17:06:00.002+08:00

Guiding Questions

Identify the factors affecting the sales of fast food chains such as McDonalds.
To what extent are elasticity concepts relevant for explaining the current situation faced by these firms?

Videos: Elasticity of Demand

2009-04-23T23:14:00.001+08:00

Some videos used or mentioned in the H2 lectures

Real World Economics - Elasticity of Demand

Learn Price Elasticity of Demand (PED) from the contrasting examples of Pedro the fishmonger and the Island ferry company.

Application of Price Elasticity of Demand and Cross Elasticity of Demand - Fake Disneyland in Beijing? Is this a close substitute to the "real thing"? Should the "real" Disneyland in Hong Kong differentiate itself from this amusement park? Why and why not? What strategies can they employ to tackle the challenge posed by other amusement parks such as this one?

Income Elasticity of Demand - Look at how luxury goods are affected by the global economic downturn. What determines the impact of the recession on a particular product?

How I Studied (or at least tried to make it pain-free)

2009-04-23T00:27:00.012+08:00

I recently took two 3-hour long essay-based exams, part of the part time Masters programme I'm currently doing at NTU.

I'm still in my first semester (out of 5) but I've gained some "wisdom" that I thought may be worth sharing with you, especially if you are one of those not "coping" so well at this moment with your studies, or have always wondered if you were studying "right".

Doing a part time Masters programme is actually rather painful... Although the lessons are only twice a week, they are three hours long (with a 5 mins break in-between), in the evenings from 6.30 to 9.30pm after a long day of work, and there are tonnes of readings to be done, everything from 30 to 60 pages of journal articles per week.

At the same time, there are long written assignments (2500 words) to be completed, with bibliography and all; class discussions which we have to participate in as they are graded, as well as individual 1 hour long presentations to be done, in which we also have to come up with discussion questions to lead the class.

And at the end of the semester, after 13 weeks of lessons, we have an exam to take for which we have barely 1 week or so to study, on top of still going to work. And for these exams, we will have to study pretty much alone, cos we don't actually have "consultations" where we get more advice on our materials from our lecturers.

So how do I cope?

The answer is: Consistent class and homework; as well as studying hard and very smart for the exams.

Before lessons: I try to complete the required readings, no matter how long they are (30, 60, 90 pages). That usually means I'll have to give up some of my activities in the weekends. On some Sundays, I'll be reading after lunch all the way to evening/dinner time. I don't try to deceive myself by saying "I'll do it later". I won't. And besides, I'll have other readings that I'll need to do. Then I'll be playing "catch-up" all the time. And anyway, reading ahead helps me to understand the lessons better and I may even be able to ask better questions and take part in discussions. I'm not being "kiasu". I'm just "minimising" the pain I'll feel later...

Readings: There is a trick to understanding what a long journal article is really saying - either read the abstract that is given, or go straight to the "Conclusion". Usually, the summary is given, the key points reiterated, which makes the article that much easier to understand when you read the whole thing later. And if a short review of the journal article is given online, better still. Read it to get a quick idea of what the article is about. And to speed read, do not "subvocalise", or what they call "silent speech", which is defined in Wikipedia as the "internal speech a person makes when reading a word, or imagining the sound of the word as it is read". This is WHY many people read quite slowly, cos they read word by word, as if they are vocalising each word in their mind. It is a habit that is not easy to break, especially if you have been doing it all your life. But if you can train only your eyes to move, you can read a lot more quickly. Trust me. Oh, and if you know you need to review the material again later, just before your exams, then when you are reading it now, highlight the key points and write annotations. It will help you save A LOT OF TIME later when you revise.

During lesson time: I try to pay 100% attention to the lecturer; and take down in the margins whatever points he/she says that I think may be helpful in my understanding or revising of the material later on for my exams. Since I won't have a chance to ask questions later, or may forget what I need to ask, I try to raise the question in class instead of staying ignorant. Anyway, when you are ready to ask questions, you tend to stay awake better too.

Assignments/Presentations/Class Discussions: I try to "ace" them as well as I can. I do the research that needs to be done. I try to know the topic very very well. I study the question carefully and try to answer it. REALLY ANSWER IT. By doing well in my assignments, I find that I would have also covered the topic pretty well and when it comes to revision later on, I can practically "skip" the topic cos I'm already so familiar with it. TIME IS EXTRA PRECIOUS during revision time so the less studying I need to do, the better. And if the assignment is graded, I'll have already scored part of the marks and I need to worry about my final exam a lot less.

Exam Preparation: When I'm a student preparing for the exams, I study. Plain and simple. I put in the hours that I need to put in (as much as it is necessary to cover ALL the materials) and put aside all unnecessary distractions, including the phone, the Internet or TV. I try to get enough sleep just to keep healthy and eat properly (avoiding starchy food that makes me sleepy) and drink enough water to ensure I don't dehydrate. And how do I make sure I"m studying smart? To make sure that what I am studying is "meaningful", I create questions that I have to answer. These questions can be "lower level questions", such as recall type to help me remember stuff, or "higher level questions", such as discussion of both sides of an issue. Creating questions also helps me to see the broad issues surrounding a topic, which in a sense allows me to anticipate what may come out in an exam.

Do not just "go through the motions" flipping through the notes. If you can't recall what you have read, YOU HAVE WASTED YOUR TIME!

Pre-Exam: I try not to cramp any material into my brain in the last minute. I just pick up my list of questions and jog my memory a bit to make sure the stuff I know is ready for recall. No point picking up a whole set of notes and re-reading. You will only exhaust your mind and make yourself nervous. An hour or two before the exams you really can't do anymore.

So this is what I did. Hope it helps.

Case Study Assignment - The Market For Organic Food

2009-04-19T10:44:00.002+08:00

Some tips and reminders:

(a)(i) With reference to figure 1, describe the trend of organic food sales from 1998 to 2006. [2]

Look carefully as Figure 1 comprises three different graphs. Consider carefully which one is relevant for answering the question.
Trend has already been taught to you in class. Remember NOT to merely describe the graph – your examiner can read it him/herself! Show you can identify the general trend as well as highlight any specific features of the trend. Note that the question is worth 2 marks so do not just give one point (for data interpretation questions).

(a)(ii) Account for the trend shown in (a)(i) [4]

Command word: Account for – what does this word require of you? Note that the question is worth 4 marks so a certain level of elaboration and display of the relevant skills is expected.
Content: Relevant data from the extracts should be found to support your answer. However, DO NOT JUST QUOTE DIRECTLY FROM THE PASSAGE as your answer! Link it to the appropriate economic terms and analysis – Note: this is NOT a COMPREHENSION QUESTION!

b. Discuss the likely impact of the current worldwide recession and the recent incidents of food scares on the market for organic food. [6]

Command word: Discuss – what does this word require of you? Note that as a result, the question is worth 6 marks as an even higher level of response (i.e. consideration of two sides) is expected. Note: How will you SHOW that you are discussing?
Content: Again, DO NOT JUST QUOTE DIRECTLY FROM THE PASSAGE! While you should refer to the relevant data given, you need to link to appropriate economic terms and analysis. Link to your understanding of economics (both economic terms and analysis) – this is NOT a COMPREHENSION QUESTION!
Content: What does it mean by "market for organic food"? You should note that in the whole of Topic 3, you have been studying various markets and how they respond to changes in demand and supply factors; and as a result new market equilibriums are achieved. Hence, to give a comprehensive answer to this question obviously requires you to do the necessary analysis in this manner.

c. Evaluate the measures that organic food producers and retailers CAN adopt to raise their profit levels. [8]

Command word: Evaluate – what does this word require of you? Note that as a result, the question is worth even more, at 8 marks as an even higher level of response (i.e. judgement) is expected. What should you consider when you evaluate a measure? Strengths? Limitations? Effectiveness?
Content: Profit level is calculated as the difference between total revenue and total cost. Hence, measures can be drawn from both the revenue and cost side – consider what can affect the revenue and cost of firms, drawing from what you have learnt so far in the lessons.
Content: Make reference to the given data where available. Looking at the word: ‘CAN” - you may be tempted to merely come out with your own measures but note that since this is a case study, you should draw from the various sources as far as possible if it is available.

Article - Hotels cut room rates as occupancies slide

2009-04-06T17:38:00.006+08:00

Room rates fall up to 20 percent; corporate demand slows as companies cut cost. -BT

Thu, Mar 26, 2009
The Business Times

By Nisha Ramchandani

IT'S known that what goes up must come down, but in this case, the inevitable may be coming a little quicker and sharper than expected as lower occupancies force hotels to cut room rates.

At the Rendezvous Hotel for example, corporate rates have gone down 20 per cent to $190++ and walk-in rates have dropped 20 per cent to $220++. Average occupancy is hovering at 70 per cent, versus last year's 80 per cent. The hotel aims to beef up occupancy through a lower room rate so as to reclaim its 80 per cent occupancy level.

The Royal Plaza on Scotts has adjusted average room rates downward by 12 per cent, due to weakening demand for high end products such as club rooms and suites, says Patrick Fiat, general manager. Its room rates currently start from $198++.

At the Marina Mandarin, rates are down year on year but the hotel declined to give figures. Occupancies for Q1'09 were as expected, but rates are "under pressure".

One of the reasons for this is a drop in business travel as companies try to keep expenses down.

"Since the last quarter of last year, we observed that there has been a slowdown in the corporate sector. Currently, the business trend is still on the slow side, hence we have adjusted the rates to further suit our client spending power," said a spokesperson from the Marina Mandarin.

Over at the St Regis Hotel, room rates for both frequent individual travellers (FIT) and corporate have been lower for the first two months of the year compared to the corresponding period in 2008, according to Cheryl Ong, its director of marketing communications. "Occupancy is under pressure with lesser in-bound travel into Singapore," she added, but declined to comment on actual figures.

Hotels are also offering value-added packages. The Novotel Clarke Quay, for instance, has tweaked rates by between 5-10 per cent for key corporate clients. Those that forego the discount can look forward to other perks such as transportation and Internet service, said general manager Heinz Colby.

And as some consumers trade in their five-star hotel stays for value-for-money accommodation, hotels in the three and four star range are expecting to reap the benefits, although such establishments won't escape unscathed either.

"There are clients who are looking for cheaper accommodation. Hence, we are also affected. For leisure, we see a decline in visitor arrival especially for long haul travel," said Kellvin Ong, general manager of the four star Rendezvous Hotel.

"There are also other factors which may affect occupancy. New kids on the block are sprouting, which may shrink the pie," he added.

Indeed, another hurdle facing the industry, aside from the slump in visitor arrivals, is the injection of supply that the market will see this year as new hotels come on stream.

The recently launched Ibis Singapore - a no-frills, three star hotel by the Accor group - offers rooms starting from $138 per night. Other hotels that are expected to open their doors this year include the 336-room Park Hotel Clarke Quay.

According to a Kim Eng report, an estimated 2,000 hotel rooms from the Marina Bay Sands and a further 1,640 rooms from other hotels are slated for completion in 2009. This would raise the total available room-nights by 12 per cent to 11.7 million for 2009. There are currently 39,000 hotel rooms in Singapore, said the Singapore Tourism Board (STB).

If the integrated resorts (IR) fail to draw the crowds, Kim Eng estimates that average occupancy rate (AOR) could fall to 55 per cent by year end, and to 50 per cent by end 2010 - not far from the lows plumbed at the height of the Sars outbreak in May 2003, when AOR fell to 34 per cent.

On the flip side, a successful showing by the IRs coupled with the positive impact of the various global stimulus packages and the efforts of STB's $90 million BOOST scheme could stabilise AOR at 60-65 per cent for 2009 and 2010, Kim Eng reckons.

Meanwhile, hotels are banking on recent efforts by STB and tie-ups with airlines such as Singapore Airlines to bring the tourists back.

"We are expecting last minute bookings from the region as the various airlines have come up with promotions to stimulate travel. We are optimistic that there will be business out there although the numbers have not yet shown it," said Mr Ong.

STB's figures for January 2009 saw average room rate (ARR) sliding 11.7 per cent year on year to $209, while AOR dropped 17.7 percentage points to 67 per cent, well below last year's overall AOR of 81 per cent. Revpar (revenue per available room) fell 30.2 per cent year on year to $140. Hotels pulled in $124 million in room revenue, a staggering 29.9 per cent less than the corresponding month in 2008.

In contrast, for 2008 as a whole, ARR was $246, an increase of 21.9 per cent over 2007. For the first time since 2003, AOR was down by six percentage points to 81 per cent while Revpar for the year reached $199, up 13.5 per cent from 2007.

For January 2009, luxury and upscale hotels suffered larger drops in ARR and Revpar, while hotels in the economy tier - budget hotels in outlying areas - emerged in a better position.

However, economy hotels still saw a 3.4 per cent year on year dip in ARR to $101 for January, and a 26.8 per cent fall in Revpar to $66.

Article - It pays to do econs at SMU

2009-04-04T13:28:00.003+08:00

By Jane Ng & Amelia Tan (ST 4 April 2009)

ARE you pondering what field of study to take up at university?

If you qualify, picking economics at the Singapore Management University (SMU) or business at the National University of Singapore (NUS) would be worthy options.

Those armed with such qualifications emerged as the top earners in the latest Graduate Employment Survey, which was published by the Ministry of Education for the first time.

SMU economics graduates with cum laude and higher qualifications landed average monthly salaries of $4,164, a shade above the $3,971 earned by NUS business administration honours graduates.

At Nanyang Technological University (NTU), those with chemical and biomolecular engineering degrees made the most, an average of $3,232 a month.

The results of the survey, which looked at those who graduated last year and landed a job within six months, were released yesterday. In the past, the three universities did their own surveys and released results separately, but the different benchmarks they used confused some students.

Explaining the change, the MOE said yesterday that it was made so that students could make informed course decisions. Said a spokesman: 'The data gives prospective students a general indication of the employment conditions of the graduates from the various degree courses offered by our local universities.

'We understand employment conditions may have changed since, but we hope that the data may still be useful as one point of reference for the students.'

The latest figures threw up one surprise: Those who picked teaching as a career emerged among the top earners.

Those who received Arts (with Education) qualifications from the National Institute of Education made an average of $3,207 a month.

Engineering graduates, too, did well.

Those from NUS made between $2,864 (environmental engineering) and $3,448 (computer engineering from its School of Computing), while those from NTU earned between $2,891 (environmental engineering) and $3,232 (chemical and biomolecular engineering).

These figures may prompt more interest in the field, which has struggled to attract students.

Enrolment in courses such as mechanical and electrical engineering has plunged in popularity in the last decade as undergrads moved towards 'softer' options such as business.

In recent years, attempts have been made to increase interest in engineering by introducing new areas such as aerospace engineering, but interest has still flagged despite the relatively high starting salaries for graduates.

Of the three universities, only SMU was able to provide overall average monthly salaries for its graduates across all courses: The figure was $3,170, up from $3,040 in 2007.

Overall, employment rates were also positive, and were little affected by the financial crisis, which began biting last September.

At SMU, eight in 10 graduates secured job offers either before graduation or within a month of graduation.

At NUS, information systems students from the school of computing as well as dentistry students saw a 100 per cent employment rate, as did maritime studies students from NTU, and SMU information systems students with cum laude and higher qualifications.

However, human resource and wage consultants interviewed warned that the picture will not be as rosy for those about to graduate over the next few months, and they should not expect the same kind of pay and employment prospects as their seniors.

Human resource consultancy GMP Group's senior manager Josh Goh said many firms are already slashing new hires' pay by 5 per cent to 15 per cent. He expects further cuts if the recession deepens.

Singapore Human Resources Institute executive director David Ang said it will be tougher for fresh graduates to get employed as they will also be competing with recently retrenched workers for jobs.

'My advice to students is to be open to jobs which they were not specifically trained for. You can learn on the job too.'

The full employment survey can be found at www.moe.gov.sg/education/post-secondary/

Market Equilibrium: Recent changes in the markets for some goods & services in Singapore

2009-04-01T23:03:00.014+08:00

1) Premium seats hit

Asian airlines worst hit as demand for top cabins falls 23.4% (ST March 18, 2009)

by Karamjit Kaur, Aviation Correspondent

AIRLINES are finding it tough to fill first and business class cabins as the global economic downturn continues to hit demand.

Travellers downgrading or just not flying led to so-called premium traffic sliding 16.7 per cent industry-wide in January, compared with the same month last year.

It was the worst showing in more than 20 months, and Asian carriers like Singapore Airlines (SIA) and Cathay Pacific are bearing the brunt of the slump.

The weakest premium travel markets are those associated with this region, according to new data from the International Air Transport Association (Iata), which represents about 230 carriers.

Within Asia, premium traffic fell by a higher-than-average 23.4 per cent. Trans-Pacific premium traffic took a 24.7 per cent hit.

Falling fares and fuel surcharges are also alarming carriers like SIA, which earn almost half of their revenues from top-tier travellers.

A recent American Express survey found business class fares out of Singapore fell 3 per cent in the last three months of last year, compared with the July-September period.

Iata estimates that revenues from premium passengers industry-wide were down at least 25 per cent in January.

The overall drop of 16.7 per cent in the premium segment compares with a 5.9 per cent decline for air traffic across the board.

Iata said: 'What started as a financial crisis in the Western economies has now become a manufacturing crisis, hitting the export-dependent economies of Asia hardest.'

To survive what has been described as the worst crisis in decades, airlines are taking tough measures, including slashing capacity, parking planes and cutting jobs.

SIA, for one, plans to cut 11 per cent of its total capacity in the next 12 months. But with demand falling at a much faster pace, industry experts have warned of tougher times ahead.

Last month, SIA carried 1.18 million passengers, 20.2 per cent down from the same month a year earlier.

The steep fall came despite a 8.5 per cent cut in capacity.

Across its network, the airline filled just 69.7 per cent of available passenger seats, down 7.1 percentage points from a year earlier.

Cargo volumes also slipped, down by 16.9 per cent to just below 80 million kg, with SIA filling 56.7 per cent of available freight space.

This was down 5.5 percentage points from last year.

SIA, which unveiled its performance data yesterday, said: 'The prevailing global economic crisis has significantly dampened travel demand, translating to weaker uplifts.'

This was in contrast to the performance in February last year, which was supported by the Chinese New Year holiday peak, the Changi Airshow and the additional day in the leap year.

The airline said it will continue to monitor traffic movements and make the adjustments to its route network where necessary to match capacity to demand.

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2) Public transport cheaper now
(ST April 1, 2009)

SBS Transit operations staff member Tan Kian Guan (left) and Land Transport Authority fare system engineer Ng Wee Hong checking on the systems software in SBS Transit buses to prepare for the new fares. -- ST PHOTO: MUGILAN RAJASEGERAN

COMMUTERS will save more on public transport from today, as lower fares kicked in this morning.

They will now pay two cents less on each bus or train trip. And due to a more generous transfer rebate, those who make transfers will save more, starting at 14 cents for a journey with one transfer.

To prepare for the new fares, thousands of buses and hundreds of MRT fare gates went through a final round of checks last night.

Tests were also carried out overnight at MRT computer control rooms to verify that the new fares were in place. The final round of checks follows weeks of testing of the fare systems to ensure that there are no glitches today.
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3) Monitoring use of fuel
(ST, 1 April 2009)

Motorists are more conscious about fuel consumption these days. -- ST PHOTO: SHAHRIYA YAHAYA

MOTORISTS are more conscious about fuel consumption these days than two years ago - and more aware of how to squeeze more mileage from every litre.

This finding came from a survey by oil company Shell, which polled 300 motorists here in January and the same number in each of five other economies - the Netherlands, Germany, Hong Kong, the Philippines and Malaysia.

Three quarters of all respondents said they were more conscious about using fuel efficiently in the last 12 months than in 2007, when only a quarter said so.

The survey was not done last year.

Among Singapore motorists, 77 per cent said they were taking note of the number of kilometres their cars were getting out of each litre of fuel.

Two years ago, only 59 per cent did so.

The 77-per-cent figure made Singapore motorists the most aware of fuel efficiency among the drivers polled. Dutch motorists were next with 75 per cent.

Shell's Fuels Technology Manager in the Asia Pacific Eric Holthusen said he had no doubt the economy and higher fuel prices last year played a big part in motorists wanting to save on fuel.

Motorists here who were polled were also asked what they did to save fuel.

On average, they could name eight fuel-saving tactics this year, up from just 2.5 when the poll was last done in 2007.

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4) Singaporeans rise to bait of good travel deals

Fri, Mar 27, 2009 The Straits Times

People visiting the travel fairs at Suntec City on Mar 22, 2009

By Lim Wei Chean

TRAVEL agents are still milking the travel market in Singapore by holding even more travel fairs.

This is despite the recent successful run of fairs, including the granddaddy of them all for the first half of the year, namely the National Association of Travel Agents Singapore (Natas) event.

Last Sunday, ASA Holidays booked a hall at Suntec Singapore Convention and Exhibition Centre for a travel fair.
Three of its rivals - CTC Holidays, Dynasty Travel and Singxpress - followed suit with booths at the Suntec City Mall. Their targeted customers: Those who have yet to book holidays.

Travel agents said competition for the consumer dollar has become stiffer, with the recession biting. So, they are willing to stage travel fairs even after the Natas one.

The Straits Times understands that the cost of staging a one-day fair in Suntec starts at $500,000. Smaller events like the one by CTC Holidays cost $100,000.

CTC Holidays spokesman Alicia Seah explained: "We cannot sit still and do nothing. Our competitors are here, so it's convenient to be here, too, to catch the crowds."

So, are Singaporeans still rising to the bait of good travel deals? It seems they are - as long as the deals are good.

Mr William Goh, 49, who owns his own sub-contracting business, bought himself and his wife an eight-day trip to Japan and Shanghai for $2,400.

He said: "Now that the economy is no good, I think the offers should be good."

Mr Goh has had little time to travel in the past. But with the construction business scene quieter, he can now do so.

Banking analyst Dennis Tan, 30, who missed the recent travel fairs, was out yesterday, sniffing out the best deal for a mid-year European tour with his wife.

He said: "We still need to travel because Singapore is so small. It's not like in the United States, where you can travel from one state to the next for a holiday."

The response to last Sunday's fairs was not as overwhelming as before and during the Natas event. Still, ASA spokesman Louisa Ng said she was "moderately satisfied" with the bookings the company secured. Most were for short-haul trips to China and elsewhere in Asia.

CTC Holidays, which hoped to make about $4 million in the two-day fair, conceded that reaching this goal would be tough. The other travel agents declined to reveal sales targets or figures.

With the news that the economy may take longer than expected to turn around, Dynasty Travel general manager Juliana Gan is worried it will hit travellers' spending power in the latter half of the year.

For now, travel agents are keeping their sights firmly on the competition - how they are pricing their packages and when they are staging events.
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5) HDB resale flat prices fall

Thu, Apr 2, 2009 The Straits Times

First-quarter dip is first since 2006 and points to end of record run

PRICES of HDB resale flats fell in the first quarter of this year - the first decline since 2006 and a sign that the two-year run of record-breaking gains has ended.

Flash estimates yesterday showed that prices dropped by 0.6 per cent for the first three months, compared with the fourth quarter of last year.

Prices in the fourth quarter had increased by 1.4 per cent over the previous period and helped drive resale flat prices up by a hefty 31.2 per cent over the past two years.

The latest numbers caught industry experts by surprise and underline how the worsening recession has hit the Housing Board (HDB) market sooner than expected.

Many analysts had predicted further increases in resale prices with a decline becoming apparent only later in the year.

Agency chiefs from both PropNex and ERA Asia Pacific had recently forecast that HDB resale prices could rise by a further 3 per cent to 5 per cent this year.

But yesterday's numbers have altered expectations overnight, with analysts now predicting a decline of anything from 2 per cent to 10 per cent this year.

Tell-tale signs in the market signalled that prices have started heading southwards, in tandem with private property prices, which plunged 13.8 per cent for the first quarter of this year, said Prop- Nex chief executive Mohamed Ismail.

'The gloomy outlook for the past few months, coupled with more retrenchments, have hit home, and even the HDB market is feeling it,' said Mr Ismail.

PropNex and ERA have reported buyer resistance to flats above $500,000, with five-room and executive flats feeling the brunt of the price slide.

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6) Private Property Market

Private home prices take double-digit dive (ST, 2 April 2009)

(SINGAPORE) Private home prices plunged 13.8 per cent in the first three months of this year - a record quarterly drop as developers and other market players slashed their expectations.

It was the third quarterly fall in prices - and much steeper than the 6.1 per cent drop in the preceding Q4 2008, according to advance estimates released by the Urban Redevelopment Authority (URA) yesterday. Private home prices dipped 1.8 per cent in Q3 2008 after 17 straight quarters of growth.

Analysts were expecting a significant drop in private home prices, but the actual fall was bigger than thought. In recent months, developers have cut the selling prices of new homes and sellers of secondary properties have also trimmed their asking prices.

'The fall is not surprising as a lot of developers have reduced prices to move new units, and in the resale market, people are now asking for more reasonable prices,' said DTZ's senior director Chua Chor Hoon.

DMG & Partners Securities' analyst Brandon Lee said that new projects and units in previously launched but unsold projects, were being launched or relaunched at 10-30 per cent discounts to the original intended selling prices. Also, there were distressed sales in the secondary market. (read more)

Related: Channel U's Moneyweek Programme 财经追击 - in Mandarin - on July 2008

Factors that influence the demand for and supply of a product or service (10)

2009-03-28T23:29:00.004+08:00

List of products/services:

polytechnic education
fast food
restaurant meal
iphone/pda phones
holiday trips
foreign maid
private tuition
[a fashionable product]
[a fashionable service]
steel
spa treatment
air travel
loans from banks
soft drinks
computer games
internet services/broadband service
health supplements
oil
taxi service
LCD TVs
rice
laptop
public transport

Common mistakes

APPLICATION: Failure to apply to real life - The MOST RELEVANT FACTORS need to be identified and then RANKED IN TERMS OF IMPORTANCE, e.g. Think! Is the factor of changes in interest rate, or taxes, or government policies, or weather/climate, or even technology always relevant??

APPLICATION: Fail to show evidence of research and knowledge of context in terms of good/service; specific place, e.g. Singapore, worldwide; or time, e.g. last year, this year, recent years - Go beyond theory, do not just show theoretical possibilities, e.g. If income rises, then dd rises; however if income falls, then dd falls - Instead, consider "Current recession in US leads to falling income due to rising unemployment, pay cuts. Hence purchasing power would have fallen, leading to fall in dd for normal goods such as ....., ceteris paribus." Need to ELABORATE sufficiently - do not expect examiner to READ YOUR MIND!

ANALYSIS: Lacks elaboration and detail (as mentioned above) - e.g. NOT ENOUGH to say that "Since the price has been falling, according to law of demand, quantity demanded will rise" - you need to explain WHY price could have fallen, e.g. due to rising competition, or technology etc.. ; or "Technological advancement leads to rising supply" - you need to explain WHAT kind of technology is relevant for the good/service mentioned (requires some knowledge of product/service).. HOWEVER, DO NOT RAMBLE, i.e. repeat the same point again and again in different ways - WASTE of TIME!

ANALYSIS: Lacks accuracy, i.e. showing conceptual errors or errors of theory, e.g. unable to distinguish Dd and Qty Dd, Ss and Qty Ss - usually reflect as a "X" in the feedback or for really serious errors: "??"

ANALYSIS: Unclear writing, vague expressions - usually will be reflected as "?" or "What do you mean?", or "How so?" in the remarks/feedback given

ANALYSIS: Too informal - explanation does not use economics terms and expressions, e.g. "Because people have more money so they buy more", instead write "With higher income, consumers have higher purchasing power hence they are able to afford..."

STRUCTURE: Overall essay is hard to follow, for e.g. due to essay moving from demand to supply and then back to demand factors, or unimportant factors put first followed by more important factors (as mentioned earlier); or candidate repeating one demand factor repeatedly, e.g. Income rises and falls, then next paragraph talks about recession as a factor, and then another paragraph considers the impact of a change in income tax (which also affects the consumer income level!) - put all the points together!

Article - China risks deflation

2009-02-24T12:12:00.003+08:00

Feb 24, 2009 (ST)

China's producer price index (PPI), a measure of inflation at the factory level, decelerated sharply to an annual rise of 2 percent in November. It was the slowest pace for the PPI since May 2006

SHANGHAI - CHINA is facing deflationary risks due to overcapacity in many industries amid a sharp downturn in demand, the central bank said in a report issued late Monday.

'Against the backdrop of shrinking general demand, the power to push up prices is weak and that for driving down prices is strong,' the People's Bank of China said in its report on fourth quarter 2008 monetary policy.

'There exists a big risk of deflation,' said the report posted on the central bank's Web site.

While falling prices might seem a welcome trend, a long spell of deflation can lead to destructive declines in wages, stocks and property prices, sapping corporate profits and prompting businesses to cut jobs and investment.

China's consumer price index, which had spiked last year to 12-year high of 8.7 per cent, has eased to 1 per cent in January.

Meanwhile, wholesale prices fell 3.3 per cent, the second straight month of decline, as costs for oil and other raw materials eased.

Such a fall in wholesale prices, which measures the cost of goods as they leave the factory, can indicate an impending decline in consumer prices.

The central bank's comments underscore China's challenge in balancing policy to suit fast-changing global and domestic pressures.

Until July, it noted, the prevailing concern was with surging inflation. But a sharp decline in demand for many products that began in the autumn has left many industries with excess inventory and too much production capacity - a chronic problem even before the downturn.

China's torrid economic growth slowed to a seven-year low of 9 per cent in 2008.

But the central bank also warned of potential longer-term risks from inflation due to the worldwide effort to expand credit and increase liquidity in the global financial system. -- AP

Questions

From the article, what are the causes of deflation in China?
Why would the Central Bank be concerned about deflation?
Explain why credit expansion and increased liquidity globally may lead to inflation in the future

Recommended Textbooks - 2 options

2009-02-23T10:20:00.008+08:00

IB Economics Course Companion: International Baccalaureate Diploma Programme (Paperback)by Ian Dorton (Author), Jocelyn Blink (Author) - S$53 (Popular Bookshop price = S$85)

Click for more info on Ian Dorton's book

"Description: Developed in collaboration with the International Baccalaureate Organization, Oxford's Course Companions provide extra support for students taking IB Diploma Programme courses. They present a whole-course approach with a wide range of resources, and encourage a deep understanding of each subject by making connections to wider issues and providing opportunities for critical thinking. Providing clear and inviting instruction and guidance, this Companion supports students through their Economics course. It includes cross-curricular materials and activities as well as advice and guidance for the portfolio of four commentaries. Examples, features, and case studies drawn from around the world encourage students to develop an international perspective. · Includes a section of Development and International Economics · Written by experienced authors and teachers, who are both deputy chief examiners · Activities and features provide opportunities for learning and discussion around core and wider issues · Exam, portfolio, and Extended Essay advice is provided"

2. Principles of Economics by O'Sullivan, 1st Edition (an adaptation of O’Sullivan, Economics, 4th Edition) - S$39

Click for more info on O'Sullivan's book

From the web: "For Introductory courses in economics principles, offered in Economics departments. It is the only economics principles textbook written with the local Singaporean economics student in mind. It is the only economics principles textbook that helps students understand concepts within the context of familiar Singaporean and Asian examples and vignettes. In addition, the textbook matches the topics covered in the current Cambridge-Singapore GCE A-Level Economics H1 and H2 Syllabi."

CHECK OUT THE BOOKS IN THE LIBRARY THIS WEEK!

Why buy a textbook when you already have your lecture notes?

Extra examples help you to clarify on your understanding of concepts. Examples are also useful to help in your explanation when you write essays
Extra exercises (short questions, data response and essay questions) allow more practice
(Possibly) a slightly different way of explaining a concept or idea, which may help in your understanding

You can try to share a book (2 to a book) if you find it a financial burden; or use the copies in the library.

Note: $20 deposit is required for each book ordered and this is non-refundable as the supplier needs to place an order for the shipment of books from abroad. The books will arrive in about 1 month's time.

Orders must be given by end of this week to your tutors.

Budget 2009 - If I Were the Finance Minister Game

2009-02-23T08:57:00.002+08:00

Ever wondered what it would be like to be the Finance Minister?
Play this newly-improved online game and explore the challenges of
budgeting and fiscal policy-making!

A great way to learn how economic decisions are made at the Government level!

Click

Related websites

Singapore Budget 2009 Website

Opportunity Cost (in Cantonese)

2009-02-07T01:45:00.002+08:00

conceptually correct, albeit a little lame... hahaha... apologies to those who cannot understand Cantonese.. do get a friend to explain to you..

Is Economics a "Science"?

2009-02-06T23:54:00.004+08:00

Science refers to a system of acquiring knowledge. This system uses observation and experimentation to describe and explain physical, natural, and societal phenomena.

The methodology employed by economists has a lot in common with that employed by natural scientists. Both attempt to construct theories or models which can then be used to explain and predict.

The scientific approach involves the 4 following steps:

Observation
Reasoning
Formulation of Theory
Testing

In the video shown below from the movie "A Beautiful Mind", you can see part of this scientific approach in use: The scene is set in a bar in which John Nash (played by Russell Crowe) rebutted Adam Smith's idea that, 'the best result comes from everyone in the group doing what's best for himself'. Adam Smith had said: "In competition, individual ambition serves the common good."

But John Nash took an opposing view.

In the movie, he observed what was going on in the bar, in which it was clear that all his friends had the same idea.. to go straight for a pretty blond girl who had just walked into the place with her other pretty (but not quite as pretty) friends. He related to his friends how they could all score if they all didn't go for the blonde but for her friends instead... He told them that, 'the best result will come where everyone in the group does what is best for himself ... and the group.' He envisioned a scenario -- a bargaining strategy -- in which nobody loses.. Watch how the idea (which was later developed into a theory) was conceived after he carefully observed the scene...

In case you missed the dialogue, here's the transcript:

Nash : Adam Smith needs revision.

Hansen : What are you talking about?

Nash : If we all go for the blonde...we block each other. Not a single one of us is gonna get her. So then we go for her friends, but they will all give us the cold shoulder because nobody likes to be second choice. Well, what if no one goes for the blonde?
We don't get in each other's way, and we don't insult the other girls.
That's the only way we win.
(Laughs)
Adam Smith said the best result comes from everyone in the group doing what's best for himself, right? That's what he said, right?

Others : Right.

Nash : Incomplete.
Incomplete, okay?
Because the best result will come...from everyone in the group doing what's best for himself...and the group.

Hansen : Nash, if this is some way for you to get the blonde on your own, you can go to hell.

Nash: Governing dynamics gentlemen. Governing dynamics. Adam Smith...was wrong.

Nash leaves the bar.

However, unlike natural sciences, economics lacks the ability to make precise predictions with accuracy due to the problems of:

Impossible to conduct controlled experiments - Unlike physical and natural scientists who can actually hold other factors constant (in a lab setting) while changing a particular variable, economists deal with a constantly changing environment and complex interactions between individuals, groups and instituitions, etc, resulting in a need to make simplifying assumptions that will frequently not hold true (e.g. assuming "other things remain constant")

Human behaviour is unpredictable -although people behave in broadly similar ways under similar conditions (e.g. when price falls, quantity demanded tends to increase), it is impossible to predict this behaviour with any accuracy. For example, factors such as consumer and business confidence are almost impossible to predict with any degree of accuracy.

Opportunity Cost of George W. Bush

2009-02-06T18:22:00.000+08:00

Opportunity Cost of George W. Bush and 10 Trillion Dollars

View more presentations or upload your own. (tags: opportunitycost economics)

Is this a fair assessment of the choice of George W. Bush as the 43rd President of the United States? Share your views!

Global Recession – Singaporeans’ Perspective (PAYM Forum)

2009-02-05T02:37:00.004+08:00

Click image to enlarge

Singapore slumped into a technical recession following the crash of the monetary market in October last year (see news). Although there are many uncertainties in the economy, our nation is confident that the job market will gradually pick up this year. Our Trade and Industry Minister, Mr Lim Hng Kiang, reassured the nation that more than 30,000 jobs will be created this year, enough to absorb the pool of fresh graduates and new job seekers in a recent speech.

How will our economy fare in the near future?
What is the impact of the recession on the job labour market?
Will the employment opportunities increase?
What should Singaporeans do?
What are some of the government's initiatives/policies that will aid in cushioning the impact of the recession?

Join the PAYM Policy Forum @ West Coast GRC to discuss the topic, Global Recession - Singaporeans' perspectives, with Guest-of-Honour Mr Cedric Foo, Member of Parliament for West Coast GRC and Adviser to Pioneer GROs.

Date: 21 February 2009 (Saturday)

Time: 2.00pm - 4.30pm
Tea reception will be provided at the end of the forum.

Venue: Jurong West Community Library @ The Frontier CC
(Opposite Jurong Point)
Programme Room, Level 1
60 Jurong West Central 3, Singapore 648346

Inform your tutors/lecturers if you are interested to sign up!

Video: Singapore debates legal organ trade -- 27 August 2008

2009-01-14T11:47:00.008+08:00

According to the video above, just for kidneys alone, there are more than 600 people in Singapore waiting for one. Many would die before a donor is found.

Instead of waiting for organs through HOTA, which may very well occur in a very small numbers as compared to those on the organ transplant waiting list, why don’t we legalise organ trade which means that “sellers” are willing, informed and consenting and more importantly fairly treated parties? After all, granting others (the buyers, to be exact) a new lease of life is the greatest gift that one can give to another.

Take the example of Salim, a 22 year old Indonesian, who sold 7 centimetres of his liver. He became a rich man, buying cows and goats. We can safely assume that with the aforementioned, his family benefited along with the monetary gain from the transaction.

Evidently, both buyers and sellers seem to have nothing to lose, only benefits to reap. So why are there hesitations?

If Dr Arthur Lim, the ex-president of Medical Association sees no issue on legalising organ trading, why should we even think twice about it?

For kidneys, we may have two but we only require one to function and as in the case of liver, severing just a few centimetres of it can bring life upon someone else. Does this seemingly exhibit potential of setting up a Donation Drive like we have for The Blood Bank?

Are we degrading the value of lives by attaching a monetary value?

The question clearly is not whether there CAN be a "market" for organs but whether there SHOULD be...

The recent case involving Tang Wee Sung, executive director of the CK Tang Department Store pleaded guilty for arranging to pay middlemen S$300,000 and S$20,000 to the Indonesian donor of a kidney.

The services of middlemen are more than 10 times the amount to be paid for a kidney. By stating these figures, do you start tabulating how much you are worth “inside of you”? Make that S$40,000 for both kidneys, S$30,000 for the liver, S$60,000 for the heart which total up to S$130,000 for your 4 organs. Unfortunately, it is still undervalued as compared to the services of the middlemen.

We are alive and healthy simply because our organs are functioning well. Should organ trade be legalised, to state it bluntly, would it mean that if we are able to fork out that certain amount of money for particular organs which we are in need of, we can purchase “a life” for our loved ones? Would you do that for your loved ones?

By legalising organ trade, would that be our first step onto The Slippery Slope?

In Iran, the practice of selling one’s kidneys for profit is legal.

In the context of Singapore, if we were to regulate organ trading as in Iran, having a state agency oversee the legal procedures and paperwork to be done, does it mean that we are in no risk of suffering from the onset of The Slippery Slope?

Let's look at it from another perspective...

Iranian Kidney Bargain Sale trailer @ Yahoo! Video

After being presented appeals based on Dr Lim’s point of view, the facts presented for the number of people on the waiting list and of their impending death and your emotions gathered through both videos, are you for or against legalizing organ trading in Singapore?

Place your comments below!

Quotes for Life

2008-11-27T14:49:00.000+08:00

Inspirational Quotes

View SlideShare presentation or Upload your own.

2008 'A' Level Paper 2 Questions

2008-11-12T23:17:00.010+08:00

Some notes:

Imperfect information and market failure

Both consumers and producers require complete information if they are to make efficient choices and decisions about what to buy and what to supply to the market.

Information failure occurs when people have inaccurate, incomplete, uncertain or misunderstood data and so make potentially ‘wrong’ choices. Sources include:

Consumers do not have adequate technical knowledge
Advertising can mislead or mis-inform
Producers unaware of all opportunities
Producers cannot accurately measure productivity
Decisions often based on past experience rather than future knowledge

Merit/Demerit Goods and Market Failure

Merit goods	Demerit goods
Goods that society values and judges that everyone should have whether the individual wants them or not.	Goods that society values and judges to be bad for and individual
Underconsumed due to imperfect information – individuals are unaware of long-term benefits and positive externalities	Overconsumed due to imperfect information – individuals are unaware of long-term detriments and negative externalities
Consumption of merit goods is believed to generate positive externalities (MSB exceeds MPB)	Consumption of demerit goods leads to a fall in social welfare (MPB exceeds MSB)
Healthcare, education, public libraries	Alcohol, cigarettes, drugs, addiction to gambling

Merit goods provide positive externalities but if left wholly to the private sector, it is likely that merit goods will be under-consumed because individuals do not understand or appreciate the social benefits that can result from consumption of education and health services to name just two examples.

The argument concerning imperfect information is an important one. Parents with relatively poor educational qualifications may be unaware of the full longer-term benefits that their children might derive from a proper education.

Because the knowledge of these private benefits is an ongoing learning process, children themselves will tend to underestimate the long term gains from a proper education. Education is a long-term investment decision. The private costs must be paid now but the private benefits (including higher earnings potential over one’s working life) take time to emerge.

Immobility of factors of production and market failure
Factor immobility may be due to:

Occupational immobility – this occurs when there are barriers of mobility between different jobs and different industries
Geographical immobility exists when there are barriers to people of moving to different locations

Occupational Immobility

Occupational immobility occurs when there are barriers to the mobility of factors of production between different industries and occupations. This can lead to people remaining unemployed, or being used in ways that are not economically efficient. Land and Capital: Some capital inputs are occupationally mobile - a computer can be put to productive use in many different industries. Commercial buildings can be altered to provide a base for many businesses. However some units of capital are specific to the industry they have been designed for.

Labour as a factor of production often experiences occupational immobility. For example, workers made redundant in the sheet metal industry may possess job-specific skills that are not necessarily transferable to the growing industries in the economy. This implies that there is a mismatch between the skills on offer from the unemployed and those required by employers looking for extra workers. This is also called structural unemployment and is a major reason why there is a core of workers in the UK who find it difficult to find paid work. Clearly this leads to a waste of scarce resources and represents market failure - because social welfare is not being maximised.

Geographical immobility

There are good reasons why geographical immobility might exist:

Family and other social ties
Costs involved in moving home
Regional variations in house prices
Differences in the general cost of living between regions

The growing regional divide in house prices is a major contributor to geographical immobility. For example, the widening gap in average property prices between the north and south the UK can make it virtually impossible for people from the North to consider moving south because they cannot afford to maintain their standard of living in the South East.

Policies to Improve Mobility of Labour

To reduce occupational immobility the government might: Invest in increased provision of training schemes for the unemployed - particularly those workers experiencing structural unemployment. An example of such an active labour market policy is the New Deal : subsidise the provision of industrial training by private sector firms either through grant assistance or through tax relief . Raise total spending on education and move towards increased investment in vocational training for students

To reduce geographical immobility the government or appointed agencies might introduce reforms to the housing market designed to improve the supply and reduce the cost of rented properties. Another option is to offer specific subsidies for people moving into areas where there are shortages of labour

3 Tips for Your Final Push towards an 'A' in Econs!!

2008-11-06T08:20:00.004+08:00

Time management! Don't spend an excessive amount of time on any single question (whether it is essay or case study). Allocate your time according to the mark weightage (Essay - 10m (16mins) & 15m (24mins); Case Study - about 2 mins per mark). REMEMBER: THE MORE MARKS, OBVIOUSLY THE MORE TIME YOU NEED (likely to be a question expecting a higher level of response, e.g. evaluation-type question - in a case study, the last qn is usually an 8 to 10m qn - give yourself enough time to plan out a proper answer!)

Answer the Question! Answer the question that is ASKED, not what you IMAGINE the question to be asking. The WORST answers are those that reveal that you are merely trying to FORCE-FIT a pre-prepared answer to the question! You need to spend at least 2 minutes of your time examining the question carefully, both for the content needed (i.e. topic coverage, context (industry, economy, time frame (last 5 years, recent), scope) and the skills tested (i.e. Application, Analysis or Evaluation - look at command word!). Then plan an answer (at least another 3 minutes) that is able to ADDRESS THE QUESTION! Answer the question DIRECTLY and CLEARLY - REMEMBER: DO NOT MAKE YOUR EXAMINER SEARCH FOR YOUR ANSWER!

Impress the Examiner!!

Display the skills of Application, Analysis and Evaluation as required!

Application - e.g. not just showing you have knowledge about Singapore ("Singapore is an export-oriented, imported dependent country"..) but actually applying to Singapore ("Since Singapore is an export-oriented, imported dependent country, a change in ER will have a significant impact on the economy....") - SEE THE DIFFERENCE??
Analysis - Accuracy, Detail .... Make reference to well-drawn diagrams to support your explanation!
Evaluation - Show that you have given thought to the answer!! Consider limitations, assumptions, the circumstances or situations considered, time frame, etc!! SUPPORT your evaluation with GOOD ANALYSIS!

Begin each paragraph with a topic sentence that gives the reader an idea of what the paragraph is going to be about.

The supporting sentences need to be about the idea presented in the topic sentence. Do not digress or ramble. Write sufficiently but do not ramble.

*********ALL THE BEST, EVERYONE!! :)**********

A Stronger Yuan - a benefit for some

2008-10-30T00:21:00.004+08:00

Oct 29 2008 (TodayOnline)

Businesses with contracts in yuan see boost in earnings

THE stronger yuan has shut down some Chinese exporters but several companies in Singapore are benefiting from the rise in the value of China’s currency.

Business owners are earning more — even with the same level of sales — as the stronger yuan is worth more in Singapore dollars.

Mr Fong Kah Kuen, chief operating officer from Xpress Holdings, said that the impact from the weaker exchange rate is positive, as about 55 per cent of his company revenue comes from China.

Mr Fong explained that business contracts in China are often denominated in yuan and when converted back to the weaker Singapore dollar, earnings will be more. Mr Fong said about 80 per cent of his printing business comes from China.

Another company benefiting is Qian Hu Corporation, which exports ornamental fish to various countries, including Malaysia and Thailand as well.

Managing director Kenny Yap said: “It is to our advantage, as we export more to China than import from there, and the weaker Singapore dollar means that our products become more attractive to the Chinese buyers.”

But not all businesses have benefited. In fact, some Singapore firms have been hurt by the currency fluctuation.

Ms Lynn Ho-Tan, sales and marketing director from Bodynits International, said that the cost of products has increased due to the softening Singapore dollar, which has led to a narrower margin.

But the impact has been softened because of a diversification in trading currencies such as US dollars, which has strengthened over the past few weeks.

For several months, small- and medium-sized companies in China have been reported to be cutting back their operations because of the high cost of materials, issues of refinancing and the rapid appreciation of the Chinese currency.

High productions costs and the expensive yuan make exports less competitive and this has led to a domino effect, with thousands of such companies shutting down.

On the tourism front, travel agencies are seeing a fall in tourists visiting China, but the weak exchange rate is not the main reason for the dip.

“Travellers to China has been affected the past few months, not solely due to the Singapore dollar weakening against the yuan but also due to other factors such as spiked hotel rates in Beijing during the Olympic Games, the Sichuan earthquake and continuing aftershocks, and the latest melamine scare. We have seen an overall dip in volume of travellers to China for the past three months by roughly 20 per cent,” said Ms Jane Chang at Chan Brothers Travel.

It might be assumed that Chinese nationals working here, earning in Singapore dollars and sending money back home, might be feeling the pinch – but this is not true for all.

Ms Liu Xinyi, a banking executive, told TODAY that she does not feel any impact because “things are still affordable back home”. However she said that it might be wiser to hold US dollars in future, in the expectation of the yuan depreciating against it.

Mr James Ye, a stockbroker working here since 2007, said that he sees no great difference in the exchange rates, although many of his friends have gone back to China because of inflation here.

But for blue-collar workers such as Mr Ma Wuxing, the weaker Singapore dollar means less money is remitted back home. “Now that the exchange rate has fallen so drastically, I am getting paid the equivalent amount when I am working back in China for a less tedious job,” said the construction worker.

Boost in R&D spending

2008-10-20T23:31:00.004+08:00

Oct 17, 2008 ST
RESEARCH and development (R&D) in Singapore is hotting up. The industry is getting more money and more manpower.

Some $6 billion was spent on R&D last year, with the private sector pumping in two thirds of this money.

This is a jump of 26 per cent from the $5 billion spent in 2006 and is the highest annual increase since Singapore's economic engine in R&D kickstarted in 2000.

It represented 2.61 per cent of Singapore's gross domestic product, and the target is to raise it to 3 per cent by 2010.

Prime Minister Lee Hsien Loong revealed the latest figures on Friday when he opened the latest in Singapore's R&D stable - Fusionopolis, which is the country's second major hub for R&D in physical sciences, engineering and interactive media.

More than 400 international leaders in science, technology and business attended the the opening of the futuristic 30-hectare Fusionopolis, which will be developed over six phases.

Located just 600m from its big sister Biopolis - the hub of biomedical sciences research which opened five years ago - Fusionopolis brings together the major areas of R&D Singapore has earmarked as a new economic engine.

Home to public sector research institutes and corporate labs, it is specially designed to break down the barriers in organisations and allow multidisciplinary teams from both national and corporate laboratories to flourish. This is critical to achieving breakthroughs in the face of highly-complex, large scale societal challenges confronting society today.

The opening of Fusionopolis was marked by a performance by the world's first robotic lion developed by A*STAR researchers in a traditional ceremony to usher good fortune.

Altogether, there will be 800 scientists, engineers and game developers working in Phase 1 of Fusionopolis. This number will increase to 2,400 by 2012 when Phase 2 of the development is ready.

The University of Illinois at Urbana-Champaign will also open its first overseas research centre at Fusionopolis Phase 1.

Called the Advanced Digital Sciences Centre, it is an extension of two of UIUC's most successful multidisciplinary, information technology focused research units, namely the Coordinated Science Laboratory (CSL) and the Information Trust Institute (ITI).

Singapore slides into recession

2008-10-19T21:35:00.007+08:00

Oct 9, 2008
SINGAPORE (AFP) — Singapore's trade-sensitive economy has declined for a second straight quarter, the government said Friday, meaning the city-state has entered a recession for the first time in six years.

On a seasonally adjusted quarter-on-quarter annualised basis, real GDP declined by 6.3 percent in the third quarter after contracting 5.7 percent in the previous quarter, estimates from the Ministry of Trade and Industry said.

It did not describe the economy as being in recession, but a technical recession is generally defined as two consecutive quarters of quarter-on-quarter contractions in economic output.

Economists polled by Dow Jones Newswires had forecast a 0.3 percent quarter-on-quarter rise in gross domestic product (GDP), the value of goods and services produced in the economy.

Singapore's last technical recession occurred in 2002, and the most recent full-scale recession was in 2001 when the economy contracted 2.4 percent during the year.

-----------------------------

Angela Balakrishnan
Friday October 10 2008 11.35 BST

Economy heavily dependent on exports to developed world is one of the first in Asia to be hit by global slowdown

Singapore officially slid into recession today after falling consumer demand from the US and Europe hammered its manufacturing exports.

The south-east Asian country's economy contracted by 6.3% in the third quarter, on an annualised seasonally adjusted basis, having shrunk by 5.7% in the second quarter of 2008. This forced the government to cut its growth forecast for this year from 4%-5% to 3%. Analysts had expected a small rise in GDP.

"There's no question that growth will continue to slow down," said Yuwa Hedrick-Wong, economic adviser in Asia for MasterCard Worldwide. "2009 will likely be a very difficult year."

Singapore's economy, which is heavily dependent on exports to the developed world, is one of the first in Asia to be hit by a global economic slowdown. Following the rampant growth of China and India, many analysts believed Asia was well positioned to weather the storm.

But Asia relies on the west for trade, so slowing US and UK economies hit growth.

Along with markets worldwide, Singapore also experienced the gloom of Black Friday with stocks closing 8% lower earlier today

Singaporean manufacturing sector shrank by a hefty 11.5% in the third quarter, driven by a slump in pharmaceuticals. Construction and services activity maintained steady growth.

Prime minister Lee Hsien Loong said Asian economies faced slowing growth for at least the next year and will not be spared in this global crisis.

"The problems facing financial institutions in the US and Europe are complex and grave," he said in a speech. "Asian countries cannot avoid the impact of weakening US, European and Japanese economies."

"The world is caught up in a financial storm, and dark clouds fill our immediate horizon. The fear and panic gripping financial markets everywhere will take time to subside."

Singapore's central bank, known as the Monetary Authority, today shifted its foreign exchange rate policy to a "zero per cent appreciation" of the Singapore dollar from a "modest and gradual appreciation" in a bid to boost the competitiveness of the country's exports.

The government said last month that non-oil exports plummeted 14% in August after a 5.8% fall in July.

"A strong Singapore dollar has been quite detrimental to growth, especially manufacturing," Hedrick-Wong said. "It's much better to take a risk with inflation and deal with growth by making the Singapore dollar weaker and support exports."

Last month Ireland became the first member of the eurozone to fall into recession.

guardian.co.uk © Guardian News and Media Limited 2008

More on Yahoo News: Recession looms for Singapore: economists

MAS U-turn after four years of strong Singapore dollar policy

2008-10-19T20:20:00.007+08:00

Chart 1
Nominal Effective Exchange Rate (S$NEER)

The Monetary Authority of Singapore (MAS) is abandoning its strong dollar policy and is switching to a "zero-percent appreciation" policy to keep the Singapore dollar at current levels and not let it rise higher.

It's a complete U-turn for MAS, though it doesn't say so, abandoning a policy it has followed since April 2004, letting the Singapore dollar grow stronger, and there have been no recessions during that period. Singapore's last recession was in 2002.

The MAS Monetary Policy Statement does not give any other reason for the new policy except that inflation has peaked and that "the outlook for the global economy has deteriorated". But news agencies from Reuters to Bloomberg have been quick to note that the new policy will help Singapore exporters.

The strong dollar was used to fight inflation, which reached a 26-year high of 7.5 percent in April as food, housing and transportation costs soared, reported Channel NewsAsia.

Reuters recalls only six months ago, on April 10, "The central bank (MAS) unexpectedly tightened policy by moving up the centre of the band in which the Singapore dollar trades, the most aggressive tightening move available, analysts said."

But that was before the Wall Street meltdown. And now MAS is following central banks in Europe and America in loosening monetary policy. That's what Reuters and Bloomberg say.

Reuters gives the following chronology of MAS monetary policy measures. S$NEER stands for the Singapore dollar nominal effective exchange rate at which it trades against a basket of currencies.

Oct 10, 2008 - The central bank said it was shifting to a zero appreciation or neutral bias for the trade-weighted Singapore dollar, from a policy that allowed for gradual appreciation. It said there would be no change to the width or centre of the secret band.
Apr 9, 2008 - The central bank unexpectedly tightened policy by moving up the centre of the band in which the Singapore dollar trades, the most aggressive tightening move available, analysts said.
Oct 10, 2007 - The central bank said it would slightly increase the slope of its policy band but added it would maintain its policy of a 'gradual and modest appreciation' in the Singapore dollar.
Apr 10, 2007 - As expected, the MAS maintains its policy of a gradual and modest appreciation in the currency.
Oct 10, 2006 - As expected, the MAS maintains its modest appreciation policy of the trade-weighted Singapore dollar's nominal effective exchange rate (S$NEER).
Apr 11, 2006 - The MAS surprises markets when it leaves its monetary policy unchanged. Analysts had expected the central bank to give the Singapore dollar room to appreciate further.
Oct 11, 2005 - Maintains 18-month-old policy of allowing modest and gradual appreciation of the Singapore dollar. No change in the slope or width of the band.
Apr 12, 2005 - Maintains year-old tightening stance of allowing a stronger currency to curb inflation risks.
Oct 11, 2004 - Maintains tightening stance of modest and gradual appreciation to curb inflation risks.
Apr 12, 2004 - Tightens policy by allowing a modest and gradual appreciation of the S$NEER. The width of the band in which the currency is managed remains unchanged.

Nobel Prize for Economics 2008 - Paul Krugman

2008-10-14T22:37:00.006+08:00

The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2008 "for his analysis of trade patterns and location of economic activity"

Summary: The Nobel committee gave Krugman the prize for work growing out of a model, on increasing returns to trade, which he introduced in a paper in the Journal of International Economics in 1979. Krugman's approach is based on the premise that many goods and services can be produced more cheaply in long series, a concept generally known as economies of scale. Meanwhile, consumers demand a varied supply of goods. As a result, small-scale production for a local market is replaced by large-scale production for the world market, where firms with similar products compete with one another.

Background:

Until the end of the 1970s, the Heckscher-Ohlin theory for which Bertil Ohlin won the prize--Eli Heckscher died before the Nobel Prize in economics was instituted--dominated the field. This theory explained well why labor-abundant countries such as South Korea and Taiwan would export labor-intensive products such apparel, toys and footwear and capital-abundant countries such as the United States would export machinery and aircraft.

But it could not satisfactorily explain the two-way trade that was widely known to exist: Many countries exported automobiles and televisions, but they also imported them. The Heckscher-Ohlin theory also did not adequately explain why rich entities such as Europe and the United States, which had very similar endowments of capital and labor, traded more intensively than those with very dissimilar endowments. While descriptive explanations of these phenomena existed, a tight theory explaining them was lacking.

Starting in 1979, Krugman published a series of papers that successfully tackled these and many other related questions. He postulated that consumers like variety in what they consume. For the same expenditure, their satisfaction is greater if they have a larger variety of products available. This creates the incentive for firms to produce a large variety of products. But the production of a new variety has setup costs. This leads to declining per-unit costs as a larger quantity of the variety is produced and places a limit on the number of varieties the market can profitably supply. A firm produces a new variety only if it can capture a large enough market to allow profitable sales.

This seemingly simple structure gives rise to a tight theory that leads to rich implications: Countries gain from trade not only because larger market allows them to better exploit scale economies, but also because consumers can access a larger variety of products. And even identical economies can gain from trade through scale economies and a larger variety of products. The theory also brought imperfect competition into a formal trade model.

In subsequent work, Krugman combined this simple model of product differentiation and scale economies with transport costs. Scale economies push toward production in one location to minimize costs and then shipping the product to the locations where consumers are. But transport costs push toward locating production near consumers. These opposing forces give rise to large concentrations of populations such as those along the East Coast corridor of the United States.

Detail: Product Diversity and Monopolistically Competitive Trade

The traditional theory of international trade began with David Ricardo, and reached its peak in the mid-1960s. This theory explained trade in terms of comparative advantage: each country would export the good that it could produce at lower relative cost in autarky (definition: a policy of national self-sufficiency and nonreliance on imports or economic aid). Comparative advantage in turn was explained in terms of differences among countries. The Heckscher-Ohlin model, based on relative differences of primary factor endowments, came to dominate textbooks as well as research papers. Here each country had comparative advantage in the good that used relatively more intensively its relatively more abundant factor.

This theory had several further implications.

First, we should see the largest volume of trade between countries that are most different in their endowments, for example industrialized and less developed countries.

Second, the opening or liberalization of trade should lead to conflict between the owners of different factors of production. Since exporting a capital-intensive good to import a labor-intensive good is like exporting capital-and importing labor by proxy, trade indirectly faces domestic labor with greater market competition and laborers end up losers.

Finally, a group of countries stand to gain most in the aggregate by forming a bloc with more liberal trade within it (such as a free trade area or a customs union) if they are complementary in their factor endowments, so they can produce different commodities when trade expanded.

Just as the dominance of the Heckscher-Ohlin model became complete, disquieting observations contrary to all of these implications began to accumulate.

Since the second world war, the fastest growing component of trade was between industrial countries with very similar factor endowments. The European Common Market brought together countries that were not complementary in their factor endowments. Much of this trade expansion seemed to occur with relatively little distributive conflict within each country. Finally, in many emerging industries, one could not point to a clear comparative advantage for any country. Many patterns of production and trade seemed matters of chance; in fact there was a lot of two-way trade in very similar products such as automobiles.

Many different explanations for these facts were offered, and new ones are still being attempted. But the approach that Krugman helped pioneer in a pathbreaking series of papers (16], [17] and (18] was the most drastic departure from Ricardian tradition.

The new view in fact went back to an even older tradition, namely Adam Smith's idea that division of labor lowers unit costs. Scale economies internal to firms are incompatible with the perfect competition that was assumed in all traditional models. Many economists throughout the history of the subject had mentioned scale economies as a cause of trade, but they did not have, and could not develop, the tools that would implement this view in models that could yield its logical implications. Krugman found the necessary techniques, and wielded them with such skill and finesse that led not just to a new paradigm, but to a synthesis of the old and the new views of trade.

The scale economies were internal to firms, but sufficiently moderate to ensure the survival of a large number of firms in the free-entry equilibrium of a group producing close but not perfect substitute products. Thus the market structure was that of Chamberlinian monopolistic competition.

When such a sector expands, it does so through some combination of an increase in the number of firms (greater product variety) and the size of each firm (greater scale economies).

Suppose all the products in the group require the same factor proportions. Let there be another sector, operating under constant returns to scale and perfect competition. When two such countries start to trade, their inter-industry trade (exports of the competitive sector against net imports of the Chamberlinian sector) are still governed by the factor endowment differences as in Heckscher-Ohlin.

But when we examine the Chamberlinian sect or more closely, we see that the two countries produce disjoint sets of varieties; the choice of which ones are produced in which country is arbitrary. Each supplies the whole world's demand for the ones it produces, so we get two-way intra-industry trade. If the countries have identical factor endowments, there is no inter-industry trade (each produces an amount of the competitive good equal to its own consumption of it), but lots of intra-industry trade. All these results fit very well with the observations on the growing pattern of trade among industrial European countries cited above.

Even more remarkable is the implication for gains from trade.

The availability of greater variety of goods in the Chamberlinian sector at lower unit costs is a benefit to all income-earners. This can be enough to outweigh the conflict over incomes (factor prices) themselves. Then trade liberalization can command general consent. This is more likely the more similar the economies. This again squares with the observation that the formation of the European Economic Community in its initial stage, when the members were very similar economies, generated much less distributional conflict. A similar more recent observation is that the US-Canada free trade agreement produced only minor local complaints of a distributive nature, whereas the expansion of that agreement to include Mexico is proving more controversial.

In all, Krugman's contribution to the development of the monopolistic competition model of intra-industry trade was a remarkable achievement for one so young.

Preparing for the 'A' levels... What next?

2008-10-09T22:45:00.003+08:00

Paper 1

Constantly review the skills you need to do well in Case Studies. Awareness of what will impress the examiner in this part of the exam is critical!!

Firstly, having an appreciation of the central or general theme/issue/s being presented in the particular case study will put you in an excellent position to answer the questions in a way that impresses the examiner. For an economics case study, it is not enough just to identify the right data to answer various questions. You need to know WHAT the issue is!
Secondly, an attempt at making reference to a wide range of the available data is expected, especially for the higher-level response questions that tend to carry more marks (e.g. 8 to 10 marks). This is the case whenever it is not indicated specifically which part of the data you need to focus on. By this, we mean making use of ALL the charts, tables, figures and extracts, i.e. whatever is relevant to answering the question, making cross references where necessary. It is after all a CASE STUDY (i.e. study of a case!). While bringing in your own knowledge of the context is possible, it MUST NOT be the focus of your answer.
Thirdly, as most of you should know by now, referring to the data goes beyond just quoting, lifting, "cutting and pasting" or even paraphrasing! When a piece of information is taken from the case study, the examiners expect the candidate to display the skills of knowledge, comprehension, analysis, and evaluation to process and present the information, skills that any 'A' level candidate should possess! If you treat the case study as a mere comprehension passage, failing to display the "sound economic reasoning and analysis and theoretical framework" that is expected of you, you CANNOT expect to do well.
Lastly, responding to the command word, e.g. discuss, explain, compare is very important! It is critical that the examiner can see that you understand what skill is being asked of you and respond appropriately and sufficiently.

Learn from the past - as part of your revision, do make sure you give some time to go through the questions and answers for ALL the case studies you have done in the past, including looking through the suggested answers you have downloaded from Litespeed. These should include:

Those from your tutorials, tests & exams (2007 to 2008)
2008 Prelim Paper 1 Case Study 1 (Car and beer market) and 2 (India Economy)
2007 GCE 'A' Level paper 1 Case Study 1 (Brazil, Russia & China) and 2 (Supermarketization)
2007 Prelim Case Studies of AJC, SAJC, NJC and IJC that were put up before your Prelim exams for your self-timed practice - Complete them before you look at the answers!! The more you practice, the better!
2008 June Holiday Assignment (Case Study 2 and 3)
2006 Case Study 2 (Water shortage)
2008 Mock Prelim Case Study 1 (Airline Deregulation) and 2 (Vietnam Economy)
2007 Specimen Paper Case Study 1 (Market for Air Tickets) & 2 (The China Effect)

Thirdly, PRACTICE MORE - the 2008 Prelim Paper 1 Questions of 6 other colleges have been put in the printshop - Practice to gain some confidence if you need to. Prelim 2008 papers of individual JCs are also available in Library for reference.

Paper 2

Constantly review the skills you need to do well in the essay part of the paper too!

In this case, the "Revision Packages" you were given for the various topics will be very useful in giving you an idea what are considered "good" essays. DO NOT TRY TO MEMORISE THESE ESSAYS!! The same questions are unlikely to come out again and if you merely reproduce everything from one essay into another, it is HIGHLY UNLIKELY that you will do well!!
Instead use the essays as a resource to understand what is needed to score well:

Answering the question - see how the essays attempt to address the requirement of the questions, ensuring sufficiently scope (width) and presenting accurate and relevant economic analysis (depth), as well as how they try to show application to the given context (recent years? Singapore?).

Displaying the skills of knowledge, comprehension, application, analysis, and evaluation - look through the Revision packages to see how this has been done in each essay! The suggested answers are certainly not perfect but can give you an idea what an attempt at answering the question will usually entail. It is perfectly alright (and in fact strongly encouraged) for you to question the answers that are given!

Secondly, as part of your revision, again you need to give time to go through the questions and answers for the many essays you have done in the past, including looking through the suggested answers you may have downloaded from Litespeed. These should include:

Those from your tutorials, tests & exams (2007 to 2008)

2008 Mock Prelim Paper 2 Essays 1 to 6
2008 Prelim Paper 2 Essays 1 to 6

2007 GCE 'A' Level Paper 2 Essays 1 to 6

2008 June Holiday Assignments (Essays 1 to 5)

Thirdly, PRACTICE PRACTICE PRACTICE - You would have been given the 2008 Prelim Paper 2 Questions of Other Colleges - Use them to practice doing essay outlines (as well as to review your economic analysis) before checking that your answers are on the right track. The more you try out other questions, the better you will be at handling some of the more challenging questions from the 'A' levels!

Dumping (in trade)

2008-10-09T22:40:00.004+08:00

Definition
The practice of selling goods abroad below the price charged for the same goods in the domestic market or at a price below the cost of production, usually with the aim of driving competitors out of the market.

Dumping is considered to be an unfair trade practice and, as such, is prohibited under many national trade laws.

Dumping

View SlideShare presentation or Upload your own. (tags: economics)

Types of dumping:

Sporadic Dumping: Occasional sale of a commodity at below cost in order to unload an unforeseen and temporary surplus of the commodity without having to reduce domestic prices.

Predatory Dumping: Temporary sale of a commodity at below cost or a lower price abroad in order to derive foreign producers out of business, after which prices are raised to take advantage of the monopoly power abroad.

Persistent Dumping: Continuous tendency of a domestic monopolist to maximize total profits by selling the commodity at a higher price in the domestic market than internationally (to meet the competition of foreign rivals). For international price discrimination to take place, conditions must be met:

Domestic and foreign markets must be separated.
Demand elasticity of the product must be different in two markets. The good can be sold with a lower price where the demand elasticity is high; and with a higher price where demand elasticity is low.

from Wikipedia:
In economics, "dumping" can refer to any kind of predatory pricing. However, the word is now generally used only in the context of international trade law, where dumping is defined as the act of a manufacturer in one country exporting a product to another country at a price which is either below the price it charges in its home market or is below its costs of production. The term has a negative connotation, but advocates of free markets see "dumping" as beneficial for consumers and believe that protectionism to prevent it would have net negative consequences. Advocates for workers and laborers however, believe that safeguarding businesses against predatory practices, such as dumping, help alleviate some of the harsher consequences of free trade between economies at different stages of development

Remedies and penalties
In United States, domestic firms can file an antidumping petition under the regulations determined by the Department of Commerce, which determines "less than fair value" and the International Trade Commission, which determined "injury". These proceedings operate on a timetable governed by U.S. law. The Department of Commerce has regularly found that products have been sold at less than fair value in U.S. markets. If the domestic industry is able to establish that it is being injured by the dumping, then antidumping duties are imposed on goods imported from the dumpers' country at a percentage rate calculated to counteract the dumping margin.

Related articles:
- These shoes were made for dumping (BBC NEWS 24 Feb 2006)
- China slams EU anti-dumping charges on shoes (China Daily 24 Feb 2006)
- The Fallacies of Shrimp Protectionism

Fiscal Policy - Singapore

2008-10-09T21:54:00.004+08:00

from Inland Revenue Authority of Singapore (IRAS) website

In Singapore, the long-term objectives of government budgetary policy are:

to promote and support sustained, non-inflationary economic growth;
to maintain a balanced budget, i.e. to finance total operating and development expenditures from operating revenue over the course of the business cycle; and
to focus government expenditure on delivering essential public goods and services, e.g. education, healthcare, infrastructure, housing and programmes to protect the environment.

Underlying the above objectives are the recognition of market forces in driving the economy, financial prudence and emphasis on human & infrastructure investment.

Tax Policy

Tax policy is an integral part of fiscal policy. The main objectives of tax policy in Singapore are:

Revenue Raising
This is the traditional aim of tax policy. Tax revenue is a substantial source of funding for government operations.
Promotion of Economic and Social Goals
Tax has been used to influence behaviour towards desirable social and economic goals. For instance, to encourage mechanisation and automation, the government allows accelerated capital allowance for most assets used for business purposes. To encourage Singaporeans to have more children, tax rebates are given for the first to fourth child(ren).

The fundamental tenet of Singapore's tax policy is to keep tax rates competitive both for corporations as well as individuals. Keeping our corporate rate competitive will help us to continue to attract a good share of foreign investment. Keeping our individual rates low will encourage our people to work hard. It will also make risk-taking worthwhile and encourage entrepreneurship.

To increase the resilience of taxes as a source of government revenue, Goods & Services Tax (GST) was introduced in 1994. This balanced mix of tax on consumption and income reduces the vulnerability of revenue intake to adverse changes in economic conditions and strengthens the resilience of Singapore's fiscal position.

Taxes are used to develop Singapore into a stronger community, a better environment and a more vibrant economy, a place that Singaporeans can be proud to call home.

Taxes go towards the funding of government expenditure. In FY06, the Security & External Relations sector took up the largest share (51%) of total operating expenditure. The second largest sector is Social Development, making up 41% of the total Government Operating Expenditure. The Economic Development and Government Administration sectors make up approximately 4% each of the total expenditure.

Collection by Tax Type

The following pie chart gives a breakdown of the total tax collection by tax type for FY2006/07. Corporate Tax is the largest source of tax revenue, contributing a total of $8.5 billion. Individual Income Tax is next, at $4.7 billion. The Goods and Services Tax contributed $4 billion and Stamp Duty and Property Tax $2 billion each.

from Singapore Government Securities (SGS) website

Fiscal policy in Singapore is directed primarily at promoting long-term economic growth, rather than cyclical adjustment or distributing income. To meet its objective, the Singapore Government is guided by the following principles in its conduct of fiscal policy in Singapore:

the private sector is the engine of growth, and the government's role is to provide a stable and conducive environment for the private sector to thrive;
tax and expenditure policies should be justified on microeconomic grounds and focus on supply-side issues, i.e. incentives for saving, investment and enterprise;
the counter-cyclical role of fiscal policy is limited, due to high import leakages.

The success of Singapore's fiscal policy over the years lies in the government's prudent expenditure patterns and conducive taxation policies that have complemented monetary policy in promoting sustained and non-inflationary economic growth.

The main focus of the Government's expenditure is on the delivery of essential public goods and services to Singaporeans. The government spends to assure the nation of a secure future. Therefore, key areas of expenditure are on education, public housing, health care and national security. The Government is also committed to building and maintaining world-class economic infrastructure and services. This is evidenced by the fact that development expenditure accounted for around one-third of government expenditure on average over the last three decades.

Singapore's tax policies, although providing the main source of funding for the government, seek to enhance its economic competitiveness and attract foreign investments to Singapore.

This combination of fair tax policies and prudent expenditure programmes, augmented by high economic growth has enabled Singapore to enjoy consistent budget surpluses over the years. Such a prudent fiscal policy has also contributed to Singapore's high savings rate and allows it to achieve one of the highest investment rates in the world without having to incur foreign debt. High domestic savings have, in turn, contributed to Singapore's high level of foreign reserves, which has served to boost investor confidence and provided a buffer against adverse economic shocks.

With this ethos of fiscal rectitude, which extends throughout the public sector, the MAS has been able to focus on its primary goal of ensuring price stability and preserving confidence in the domestic currency through the appropriate management of the S$ exchange rate, without needing to balance this against the requirements of deficit financing.

Fiscal Policy - Fiscal Policy as a Supply-side Tool

2008-10-09T08:55:00.004+08:00

Supply-side policies are policies that aim to increase the capacity of the economy to produce (i.e. shift AS).

Fiscal policy usually acts on the level of demand in the economy, such as deflationary and reflationary policies, often known as demand-side policies. However, it is also possible for fiscal policy to act on the level of supply as well.

Income tax will always have an effect on people's incentives to work. This will be true at most income levels. If income tax at low income levels is too high, people may choose not to work but to remain on benefits instead. If income tax on high levels of income is too high, people may choose not to work so hard and take risks. Ultimately they may even choose to leave the country if taxes elsewhere are much lower (a "brain drain").

Supply-side fiscal policies could therefore include:

Cutting the lower and basic rates of tax to open up the gap between earnings in and out of work and ensure people have an incentive to work
Increasing the level of personal allowances for the same reason
Reducing the top rate of tax to encourage enterprise, risk-taking and the incentive to work hard

Taxation and Work Incentives

Can changes in income tax affect the incentive to work? This remains a controversial subject in the economic literature.

Consider the impact of an increase in the basic rate of income tax or an increase in the standard rate of national insurance contributions. The rise in direct tax has the effect of reducing the post-tax income of those in work. For each hour of work taken the total net income is now lower. This might encourage the individual to work more hours to maintain his/her target income.

Conversely, the effect might be to encourage less work since the tax might act as a disincentive to work. Of course many workers have little flexibility in the hours that they work. They will be contracted to work a certain number of hours, and changes in direct tax rates will not alter that.

The government has introduced a lower starting rate of income tax for lower income earners. This is designed to provide an incentive for people to work extra hours and keep more of what they earn. Changes to the tax and benefit system seek to reduce the risk of the poverty trap – whereby households on low incomes see little net benefit from supplying extra hours of labour in their work.

If tax and benefit reforms can improve work incentives and lead to an increase in the labour supply, this will help to reduce further the equilibrium rate of unemployment, and thereby increase the economy’s non-inflationary growth rate.

Taxation and Labour Productivity

Some economists argue that taxes can have a significant effect on the intensity with which people work and their overall efficiency and productivity. But there is little substantive empirical evidence to support this view. Many factors contribute to improving productivity – tax changes can play a role, but isolating the impact of tax cuts on productivity is extremely difficult.

Taxation – Investment and Long Run Aggregate Supply

Lower rates of corporation tax and other business taxes can stimulate an increase in business fixed capital investment spending. If planned investment increases, the nation’s capital stock can rise and the capital stock per worker employed can rise.

The government might also use tax allowances to stimulate increases in research and development and encourage an increase in the rate of small business start-ups. A favourable tax regime could also be attractive to inflows of foreign direct investment – a stimulus to the economy that might benefit both aggregate demand and supply.

Investment can also be seen beyond purchase of new machines.

Changes to the tax system and specific areas of government spending might also be used to stimulate investment in technology, innovation, the skills of the labour force and social infrastructure. A good example of this might be a substantial increase in real government spending on the transport infrastructure. Improvements in our transport system would add directly to aggregate demand, but would also provide a boost to productivity and competitiveness.

from tutor2u and Biz/ed

INFLATION GONE WILD!!

2008-10-08T23:45:00.003+08:00

July 20, 2008

This is not funny, anymore.

Zimbabwe’s central bank recently issued $100 Billion banknotes in a desperate bid to ease the recurrent cash shortages plaguing the inflation-ravaged economy. The 100B$ bill still can’t buy a loaf of bread, but can instead buy only four oranges. It’s equal to just one U.S. dollar!!! Zimbabwe has seen an vicious economic meltdown since its independence in 1980, with the official inflation rate now at a staggering 2.2 million percent.

IMPACT OF INTEREST RATES ON INFLATION:

Changes in Federal interest rates influences interest rates charged for overdrafts, mortgages, loans and savings accounts. This change then affects the price of financial assets such as bonds and shares as well as the exchange rate of the currency. This in turn affects the consumer and business demand and thereby the output. This then impacts the employment levels and wage costs - which finally influence producer and consumer prices and thus the CPI and PPI.

Contributors:

A change in interest rates changes the cost of borrowing and thereby affects spending decisions. Interest rates impact the attractiveness of spending today versus spending tomorrow, as mentioned earlier. An increase in interest rates makes saving more attractive and borrowing less, which reduces spending, by both consumers and producers. Conversely, a reduction in interest rates increases spending by both consumers and producers.

A change in interest rates impacts consumers’ and producers’ cash flow or the amount of cash at hand. For savers, a rise in interest rates increases the money received from interest on their saving. But it will also imply higher interest payments for those with loans as they end up paying variable interest rates (as opposed to fixed rates which do not change). These fluctuations in cash flow affect spending.

A change in interest rates affects the value of certain investments, such as homes and stocks. Higher interest rates increases the return on savings, thereby encouraging people to invest less in property and stocks. A fall in demand for these reduces their prices, thereby eroding the wealth of investors. This, in turn, influences them to spend less.

A rise in interest rates in the US relative to other countries increases the amount of funds flowing into the US, as investors are attracted to the returns on a higher dollar rate of interest. This appreciates the exchange rate of the dollar against other currencies. In reality, the exchange rate is set by expectations about future interest rates and any unexpected changes in interest rates, as when investors expect interest rates to rise, they increase the amount they invest in a currency before interest rates actually rise. An increase in the value of the $ reduces the price of imports and, because many imported goods are included in the CPI, this has a direct influence on inflation. Also, a stronger dollar reduces the global demand for US goods and services. This reduces the exports which then reduces the output, and shifts domestic spending to imported goods.

Is China heading for a hard landing?

2008-10-07T14:36:00.011+08:00

Oct 31, 2005 (From MoneyWeek)

China has raised interest rates for the first time in nine years to cool the economy. Will it work? asks Simon Nixon.

Is China over-heating?
Most economists agree it is growing too fast. In the first nine months of the year, it grew 9.5%, far above the 7% that analysts consider to be a sustainable. Growth has been driven in part by a huge surge of foreign investment totalling some $53bn already this year - up 30% on the year before. This has helped drive up prices in China. In the third quarter, inflation hit a seven-year high of 5.2%.

But the most worrying evidence that the Chinese economy is over-heating is in the property and construction sector. House prices in 35 of China’s biggest cities surged 9.9% in the third quarter and the price of land was up 11.6% on a year ago.

Why is this a problem?
Because the longer the boom continues unchecked, the greater the risk that the economy experiences a major bust. The fear is that too much money is flowing into speculative property ventures, just as it did in the Asian crises in the mid-1990s, and that sooner or later the bubble will burst.

A “hard landing” for the Chinese economy would be a disaster for everyone given that last year China accounted for a third of global growth.

What has China done to cool the economy?
Earlier this year, it tried to restrict bank lending by increasing bank capital requirements. It has also imposed administrative measures to cool investment in certain sectors, including tougher rules on converting farmland to industrial use.

These measures have had some success in cooling the boom. Investment growth fell from 48% in the first quarter to 26% in the third quarter and growth in steel production capacity fell from 100% in the first quarter of 2003 to 20% in July this year. Moreover, rising oil and commodity prices have checked the pace of growth. But many economists still fear that China is heading for a hard landing. Hence the People’s Bank of China (PBOC) decision last week to raise interest rates for the first time in nine years.

Will higher interest rates help?
The main aim of the rate rise was to put a further break on the booming construction sector, while helping to rebuild bank deposits. The problem is that, with inflation above 5%, real interest rates are negative. Under the circumstances, the PBOC fears savers will be reluctant to put cash on deposit and will instead do what English and US investors would do in the same position: borrow money to buy property. The last thing the rickety Chinese banking system needs is a combination of falling deposits and increasing property loans. A hard landing for the economy could lead to the collapse of many of these speculative property investments, putting immense strain on China’s fragile financial system.

Why were rates left so low?
Because the PBOC was worried that a rate rise would trigger an even greater influx of foreign funds into China, which would put further pressure on the exchange rate. The yuan is pegged to the US dollar and many think it’s very undervalued against the dollar. For the most part, this arrangement suits both China and the US. The weak yuan underpins China’s position as a low-cost manufacturing hub, while the US benefits from cheap imports, allowing Americans a higher standard of living. Moreover, China recycles its giant trade surplus with America into dollar assets, thus enabling the US to fund its vast current account deficit and to live well beyond its means.

Is this state of affairs sustainable?
Probably not. The US deficit is now running at an annual rate of $600bn or 5.5% of GDP and is predicted to rise to 7.8% in 2008. No other country could get away with a current account deficit on this scale. The US only succeeds because the dollar’s status as the world’s reserve currency provides it with a degree of protection from the normal disciplines of the markets. But this cannot continue indefinitely. The dollar has already fallen sharply against the euro, but this has made little difference to the deficit since the eurozone does not have a significant trade surplus with the US. To lower the deficit, the dollar needs to fall against those Asian currencies that are pegged to it - above all the yuan. But so far the Chinese have refused to devalue.

Will the Chinese revalue?
A revaluation seems inevitable, but the Chinese won’t be rushed. They fear that if the currency peg was removed, there could be a run on China’s rotten banks, triggering a financial crisis. Besides, the world has much to fear from a sudden yuan appreciation. Faced with higher import prices, America would have to tighten its belt and raise interest rates to hold off inflation. Both US and Chinese growth would slow, plunging the global economy into recession.

What is the risk of a hard landing in China?(24 Apr 2008)
China's central bank to seek policy balance between fighting inflation, boosting economy (15 Aug 2008)
Chinese official: curbing inflation a priority after Games (27 Aug 2008)
SMEs to get benefit package soon (12 Sep 2008)
China's railway investment hits $19.6 bln in first 7 months (8 Sep 2008)
Tibet plans huge industrial investment (5 Sep 2008)
China's central bank to make credit easier (1 Sep 2008)
China curbs its boom with fine tuning and supply bottlenecks (2 Oct 2004)
The China Effect:Assessing the Impact on the US Economy of Trade and Investment with China (by the Chinese Business Forum) (Jan 2006); also Summary
The China Effect (CEP,LSE)(Autumn 2006)
Is the China effect over? (17 Apr 2007)

Vietnam's Troubled Economy

2008-10-06T23:39:00.001+08:00

From Time.com

A year ago, Vietnam was being hailed as the next Asian miracle, a success story to match the rise of the Asian tigers of the 1990s and more recently the stunning growth of China and India.

Thanks to economic reforms, the communist country was attracting record amounts of foreign investment. The economy expanded by 8.5% last year—among the fastest rates in the region—and housing prices doubled and tripled, driven up in part by frantic buyers who stood in line to snap up condos before they had even been built. The country's nascent stock market was minting millionaires. In Hanoi and Ho Chi Minh City, their flashy new cars clogged roads better suited for bicycles.

But a funny thing happened on the way to prosperity. Halfway through 2008, Vietnam's authoritarian government finds itself grappling with soaring prices, collapsing markets and an increasingly restive workforce. Inflation, now running at an annual rate of 25%, is eating up much of the gains made by citizens over the last several years. Vietnam's stock market, which has fallen 58.5% since January, currently holds the unhappy title of being the worst-performing in the world in the last 30 days.

Citing the government's difficulty in reining in inflation, Moody's, which grades creditworthiness, lowered Vietnam's ratings outlook last week to negative from positive. Poor ratings signal that banks may have trouble meeting their financial obligations, undermining investors' confidence in the country.

In a nutshell, the economy overheated and the government was too slow to respond, says Jonathan Pincus, chief economist for the United Nations Development Program in Vietnam. "It's how we got into this problem," he says.

Read whole article

Virtual Water Trade

2008-10-05T14:34:00.006+08:00

Virtual water trade refers to the idea that when goods and services are exchanged, so is virtual water. When a country imports one tonne of wheat instead of producing it domestically, it is saving about 1,300 cubic meters of real indigenous water. If this country is water-scarce, the water that is 'saved' can be used towards other ends. If the exporting country is
water-scarce, however, it has exported 1,300 cubic meters of virtual water since the real water used to grow the wheat will no longer be available for other purposes.

Daniel Zimmer, Director of the World Water Council, in his presentation at the session on "virtual water trade and geopolitics" at the 2003 World Water Forum in Kyoto:

"The contrast in water use can be noticed between continents. In Asia, people consume an average of 1,400 litres of virtual water a day, while in Europe and North America, people consume about 4,000 litres. About 70 per cent of all water used by humans goes into food production. [...]

"Among the biggest net exporter countries of virtual water are the U.S., Canada, Thailand, Argentina, India, Vietnam, France and Brazil. Some of the largest net import countries are Sri Lanka, Japan, the Netherlands, South Korea, China, Spain, Egypt, Germany and Italy."

Water-scarce countries like Israel discourage the export of oranges (relatively heavy water guzzlers) precisely to prevent large quantities of water being exported to different parts of the world.

Food prices are soaring around the world, triggering hunger, hoarding and a crisis in the world food trade. There have been pasta panics in Italy, tortilla wars in Mexico, bread riots from Haiti to Cairo and rice shortages from Bangladesh to the Philippines. Some blame this on biofuels. But the real culprit is water.

Once, countries largely grew their own food, but an increasing number no longer do. And for many, particularly in the arid Middle East, the prime reason is a shortage of water. They can only feed themselves through imports of thirsty food crops. Economists call the water it takes to grow these crops "virtual water."

As water shortages emerge around the world--due to climate change and the sheer demand for the stuff--the exporting countries are going to become increasingly unable, or unwilling, to export their virtual water.

That will threaten the world food trade; some say it already has.

We don't realize it as we sit down to a meal, but most crops require huge volumes of water to grow: 65 gallons to grow a pound of potatoes; 650 gallons for a pound of rice.

Often, food supplies are only maintained at the expense of literally emptying some of the world's great rivers, such as the Indus in Pakistan, the Yellow River in China and the Nile in Egypt. Elsewhere, underground reserves are being pumped dry.

But increasingly, countries are giving up on trying to feed their populations from their own resources and are switching to food imports. That means they are also importing the water embodied in the crops, or virtual water. Every ton of wheat arriving at a dockside carries with it, in virtual form, the thousand tons of water needed to grow it.

Only this trade in virtual water--bound up in grains and vegetable oil, sugar and cotton, meat and dairy products from animals raised on fodder crops--has kept the world fed. Its total volume is estimated at 20 times the annual flow of the world's longest river, the Nile.

Two-thirds of all the water abstracted from nature by humans is used to grow crops, mostly food. And nearly a tenth of all the water used in growing crops is traded internationally. More and more, the entire international food trade looks like a trade between the water haves and water have-nots.....

Read more: Whole article from Forbes
Related article: Starbucks attacked over water waste

Call to up tax on snack foods (A case of market failure?)

2008-10-01T17:05:00.004+08:00

From Straits Times 1 Oct 2008

A parliamentary report released Tuesday has 70 proposals for fighting obesity, one of it being increasing taxes on snack foods.

PARIS - FRENCH lawmakers want to increase taxes on snack foods and cut taxes on fruits and vegetables to fight growing child obesity.

The health minister, however, says she doesn't like the idea.

A parliamentary report released Tuesday has 70 proposals for fighting obesity. One would hike taxes from 5.5 per cent to 19.6 percent on chocolate bars, chips and other 'snack foods.'

Taxes would be reduced from 5.5 per cent to 2 per cent on fruits and vegetables.

Health Minister Roselyne Bachelot says on Canal Plus television that obesity-fighting efforts 'should not go in that direction' and that such a tax would hit poor households at a time of economic downturn.

The report, which is not binding, also suggests banning transfats. -- AP

See also: Related article: Snack tax to combat obesity? ; and a detailed study by the USDA

Questions:

Using economic analysis, explain why the government wants to intervene in the market for snack foods and vegetables.
Evaluate the effectiveness of such a measure in solving the problem you identify in Qn 1.

On Liberalisation & De-regulation in Singapore

2008-09-27T14:05:00.011+08:00

Define: Privatisation, Deregulation and Liberalisation

Privatisation (alternately"denationalisation") is the transfer of ownership from the public sector (government) to the private sector (business). A transfer in the opposite direction could be referred to the nationalisation of some property or responsibility.

One of the main arguments for the privatization of publicly owned operations is the estimated increases in efficiency that can result from private ownership. The increased efficiency is thought to come from the greater importance private owners tend to place on profit maximization as compared to government, which tends to be less concerned about profits. Proponents of privatization argue that whereas government producers have no incentive to hold down production costs, private producers who contract with the government to provide the service have more at stake, thus encouraging them to perform at a higher level for lower cost. The lower the cost incurred by the firm in satisfying the contract, the greater profit it makes. On the other hand, the absence of competition and profit incentives in the public sector is not likely to result in cost minimization.

Click to read "Overview of Privatisation in Singapore - A 10 year process"

In many countries, privatisation of state-owned entities was followed by deregulation and liberalisation of the industries to open up the market further to enhance competition.

Deregulation is the process by which governments remove, reduce, or simplify restrictions on business and individuals with the intent of encouraging the efficient operation of markets. The stated rationale for deregulation is often that fewer and simpler regulations will lead to a raised level of competitiveness, therefore higher productivity, more efficiency and lower prices overall.

Economic liberalization is a broad term that usually refers to less government regulations and restrictions in the economy in exchange for greater participation of private entities. The arguments for economic liberalization include greater efficiency and effectiveness that would translate to a "bigger pie" for everybody.

In developing countries, economic liberalization refers more to liberalization or further "opening up" of their respective economies to foreign capital and investments. Three of the fastest growing developing economies today; China, Brazil and India, have achieved rapid economic growth in the past several years or decades after they have "liberalized" their economies to foreign capital. Many countries nowadays, particularly those in the third world, arguably have no choice but to also "liberalize" their economies in order to remain competitive in attracting and retaining both their domestic and foreign investments.

Deregulation is different from liberalization because a liberalized market, while often having less and simpler regulations, can also have regulations in order to increase efficiency and protect consumer's rights, one example being anti-trust legislation (to control monopoly power). However, the terms are often used interchangeably within deregulated/liberalised industries.

Market Liberalisation in Singapore

Some forces that drive liberalisation:

efficiency gains from introduction of new technology and entry of new players new
technological changes renders less significant certain natural monopoly elements in network industries
globalisation

In Singapore, the telecommunication, power and mass media sectors were liberalised in phases. Other industries that have been liberalised includes: banking and finance, transport and postal sectors.

Deregulation of Telecommunications Industry
In 1989 the government of Singapore started eliminating restrictions on the sale of telecom consumer goods to make businesses more competitive. In recent years the government of Singapore has realized that technological advances in the areas of telecommunications have made deregulation and liberalization almost impossible to avoid and have taken a number of steps to open the market. The government is working to deregulate the telecommunications market in order to attract new competitors, lower prices, and provide a larger range of services and products to the citizens.

Along with the efforts to deregulate the industry, barriers to market penetration have been lowered and at the present time, Singapore does not have any barriers to imported telecom equipment. As a result of the current trend towards deregulation, the telecommunications market is becoming a fast growing sector of the Singapore economy due to its openness. This deregulation has also started to provide numerous opportunities for companies to get into the telecommunications market.

Read "The Liberalisation and Privatisation of Telecommunications in Singapore by Mr Lim Chuan Poh, Director-General of Telecommunication Authority of Singapore (TAS); and article from IHT: Analysts Split on Deregulation's Impact : For Singapore Telecom, Battle on Home Front

Deregulation of Electricity Retail Market
The Singapore electricity retail market is being liberalised to facilitate competition and to allow consumers to buy electricity from retailers of their choice. Companies that operate in the competitive parts of the industry have been separated from those that operate the natural monopolies at the ownership level. To further enhance competition and market efficiency, a new electricity market has been developed to replace the existing Singapore Electricity Pool which has facilitated wholesale trading of electricity since April 1998.

The deregulation of the electricity market was aimed at introducing competition to achieve a more efficient market. The deregulated market has so far benefited customers through more competitive electricity prices and electricity package choices. Under the deregulated market, contestable customers are free to choose independent electricity retailers, such as Tuas Power Supply and the type of contract that will best meet their business needs.

Read more: SINGAPORE’S ELECTRICITY AND GAS SECTOR: The Competitive Market Moves Forward; and slides

Liberalisation of Singapore media market
MediaCorp has held a virtualised monopoly in the television broadcasting market, and most of the radio broadcasting market for a substantial amount of years. In June 2006, the Singapore government announced a liberalisation of the Singapore media market to introduce competition in the broadcast and newspaper industry. With the liberalisation of Singapore media in January 1,2001, SPH MediaWorks, a division of Singapore Press Holdings entered the market, transmitting 2 new free-to-air terrestrial television channels, Channel U and TV Works, broadcasting in Mandarin Chinese and English respectively. The process of establishing the 2 new channels entailed one of the largest staff crossovers in Singapore. A significant number of MediaCorp’s employees moved to SPH MediaWorks, including renowned producers, celebrated artistes and notably the media veteran, Man Shu Sum, one of the pioneers in the local broadcasting industry.

However, losses by both companies due to competition led to a merger, and as of 1 January 2005, MediaCorp once again became the monopoly in the mass market free-to-air terrestrial television provider. At present, MediaCorp runs 6 television channels and 14 radio channels, making MediaCorp the largest media broadcaster and provider in Singapore.

Liberalisation of Singapore's Gas Market
The Government deregulated Singapore's gas market on 14 February 2008. The amended Gas Act will cover technical and operational aspects of rules for gas installations to the licensing of gas service workers. The Act will allow both gas importers and retailers to have open, competitive access to Singapore's gas pipeline grid. This includes the upcoming liquefied natural gas (LNG) terminal on Jurong Island. Under the changes, all natural gas imports will eventually be accessible to all industry players from a common gas pipeline grid. This will prevent any power outages caused by a cut in gas supply from a single source, an expensive problem for industry and businesses.

Singapore's Postal Sector Fully Liberalised
In 1 April 2007, Singapore's postal sector was fully liberalised. The Government decided to open the Basic Mail Services market, which includes the collection and delivery of letters and postcards, within, into and out of Singapore, after a 15-year monopoly by Singapore Post Ltd (SingPost). With this, new players will be allowed in both domestic and international mail services. This adds greater competition to Singapore's postal sector, which has seen the liberalisation of other segments such as Express Letter Services as early as 1995. The decision will further the Government's commitment towards building an open economy and strengthening Singapore's position as a regional business hub. Liberalisation is expected to generate cost savings of S$8 million to S$25 million per year over the next two to three years, to largely benefit businesses. Today, businesses account for almost 95 per cent of Singapore's total domestic mail.

Liberalisation of Commercial Banking Sector
MAS announced on 17 May 1999 a programme to liberalise commercial banking in Singapore. This was aimed at promoting a more open and competitive environment and to spur the development and upgrading of local banks. The programme included a package of new banking privileges and licences for foreign banks, to be granted over 3 years (1999-2001).

One of Singapore's core strengths, built up over the 1980s, has been its financial centre status. It is intimately linked to Singapore's status as a trading and regional business hub, given the importance of financing and credit to business. Fairness, efficiency, liquidity and transparency are all key attributes for a top banking system, and these have all been key features driving Singapore's rise as a financial centre. As a follow-through to the dominant late-twentieth century trends of globalisation, deregulation and liberalisation, and to drive the next phase of growth, the government recognised the need for Singapore's banking sector to open up to foreign competition.

MAS issued full qualifying banking licences to six foreign banks (Citibank, ABN Amro, Maybank, HSBC, BNP, Stanchart) through 1999-2002, the most privileged status for foreign banks that allows them to open new branches locally and to develop their ATM network (even Citibank's expansion of its presence into the heartlands). At the same time new wholesale licences (the next most privileged status) were given to banks from Switzerland, Japan, France, Australia etc. The number of branches that these banks can open, and the number of ATMs that they can operate, both key measures of permitted penetration into the local commercial banking sector, are set to rise further.

The local banks have responded to the coming foreign competition by a process of consolidation to achieve the necessary operational scale: DBS with POSB, UOB with OUB, OCBC with Keppel-Tat Lee. On the investment banking side, there are the less-publicised acquisitions of Vickers Ballas by DBS and Kay Hian by UOB. The three main local banks were also required by the government to dispose of non-core assets by 2006: a measure probably designed to prevent conflicts of interest and abuses of the great power bankers wield over their clients, and presumably also to give greater focus to the core banking business. Additionally, there was a wave of expansion overseas: DBS bought Dao Heng Bank in Hong Kong to establish a Northeast-Asia presence, UOB established a strong presence in Malaysia (long-standing) and Thailand (through Bank of Asia), while OCBC built on its traditional presence in Malaysia. Clearly, the banks were diversifying their revenue sources and risks in view of the coming foreign threat onto local shores.

Read more: "MAS ANNOUNCES PROGRAMME TO LIBERALISE COMMERCIAL BANKING AND UPGRADE LOCAL BANKS"

Click here to read related article on the trend of deregulation, privatisation and market liberalisation in Asian markets, including Singapore: Regulatory Environment: Creating Stable and Expanding Markets - Remarks by Yong Ying-I, CEO, Infocomm Development Authority (IDA) -

Brazil, Russia, India and China - BRIC

2008-09-25T08:03:00.003+08:00

What does 'BRIC' Mean?

An acronym for the economies of Brazil, Russia, India and China combined. The general consensus is that the term was first prominently used in a Goldman Sachs report from 2003, which speculated that by 2050 these four economies would be wealthier than most of the current major economic powers.

The BRIC research findings:
If things go right, the firm’s economists argued that, given sound political decision-making and good luck, the BRIC economies together could become larger than those of the world’s six most developed countries in less than 40 years. i.e BRIC economies of Brazil, Russia, India and China together would be larger than G6 (G7 excluding Canada) in USD in less than 40 years. Of the current G6, only the US and Japan may be among the six largest economies in US dollar terms in 2050

Investopedia Says...

The BRIC thesis posits that China and India will become the world's dominant suppliers of manufactured goods and services, respectively, while Brazil and Russia will become similarly dominant as suppliers of raw materials. It's important to note that the Goldman Sachs thesis isn't that these countries are a political alliance (like the European Union) or a formal trading association - but they have the potential to form a powerful economic bloc.

BRIC is now also used as a more generic marketing term to refer to these four large emerging economies.

Wikipedia Says...

BRIC or BRICs are terms used in economics to refer to the combination of Brazil, Russia, India, and China. The acronym was first coined in 2001 and prominently used in a thesis of the Goldman Sachs investment bank. The main point of these papers was to argue that the economies of the BRICs are rapidly developing and by 2050 will eclipse most of the current richest countries of the world. The Goldman Sachs thesis proposed something like an economic bloc, or a formal trading association, like the European Union.

However, there are strong indications that the "four BRIC countries have been seeking to form a political club" or "alliance", and thereby converting "their growing economic power into greater geopolitical clout". One of the recent indications was from a BRIC Summit meeting in 2008, in the Russian city of Yekaterinburg between the foreign ministers from the BRIC countries.

Click here for the detailed study of BRICs by Goldman Sachs - look especially at the research report called “Dreaming with BRICs: The Path to 2050″ and here for the world map of where they are.

The Prospects Ahead for the World Economy

2008-09-20T01:22:00.034+08:00

The following slides illustrate the history and predictions on the global economy through 2050 [Presented by Spiegel Online with data sourced from Madison, IMF, and Goldman Sachs].

In 2005 - China has risen to the ranks of a global economic power and sets out on a course to surpass other nations in terms of economic might. Russia lags, India starts to develop, even if only gradually.

The World in 2050 - The investment bank Goldman Sachs peers into the time machine: China has soared above the United States. Europe, once the motor of industrialization, has fallen markedly behind -- even India is ahead. Resource rich Russia has reestablished itself as a global player.

Article: World May Face `Japan-Like' Economic Stagnation, GIC's Tan Says by Shamim Adam

Sept. 15 (Bloomberg) -- The world may face ``Japan-like'' economic stagnation as turmoil in financial markets weighs on growth and challenges the ability of policy makers to manage the crisis, Government of Singapore Investment Corp. said.

Global growth will probably be weak in the next few years, and protectionist and populist policies are likely to emerge, said Tony Tan, deputy chairman of GIC, in a speech in Geneva yesterday. The sovereign fund, which oversees more than $100 billion, has pumped billions into UBS AG and Citigroup Inc. after they posted writedowns linked to U.S. subprime mortgages.

``Policy responses so far have tried to minimize the likelihood of a Japan-like deflationary spiral but the adjustment could take a couple of years and be very painful,'' Tan said. ``Over the near term, debt deflation and deleveraging in the U.S. and other major developed economies will exert downward pressure on growth in many economies.''

An asset-price bubble in Japan burst in the early 1990s, triggering a property and stock market collapse that heralded a decade of stagnation in the world's second-largest economy. Financial institutions worldwide have reported more than $500 billion in losses and writedowns since the beginning of 2007 and the credit-market collapse erased $11 trillion from global stocks in the past year.

The worst U.S. housing slump since the 1930s is showing little sign of abating and more than 10 lenders in the world's largest economy have collapsed this year. The U.S. Treasury Department and the Federal Housing Finance Agency this month seized control of Fannie Mae and Freddie Mac after the biggest surge in mortgage defaults in at least three decades threatened to topple the companies.

`More Severe'

``If house-price declines are significantly greater than expected, larger financial institutions could become insolvent, the credit crunch would be more severe and economic growth could weaken considerably,'' Tan said. ``A vicious deflationary cycle with falling house prices, failing financial institutions and weaker growth could then ensue.''

Lehman Brothers Holdings Inc. is preparing to file for bankruptcy after Barclays Plc and Bank of America Corp. abandoned talks to buy the U.S. securities firm, according to a person with direct knowledge of the firm's plans.

Goldman Sachs Group Inc. last month estimated that half of the world economy already faces recession, with richer nations faring the worst as emerging markets continue to expand. The global economy faces a 25 percent chance of recession in the next year, according to UBS AG economists.

Emerging Markets

Japan's economy shrank 3 percent last quarter, the steepest decline since 2001, while the euro-area economy contracted 0.2 percent in the same period. The U.S. economy, which expanded at a 3.3 percent annual pace in the second quarter, has lost 605,000 jobs in the first eight months of the year.

Emerging markets will account for more than half of the world's growth in the next decade, from about a fifth in 2000, Tan predicts.

``Growth in emerging markets can be expected to remain relatively robust,'' he said. ``Emerging economies will displace the G-7 as the world's largest economies over the next two to three decades.''

A rising ``middle-class'' in emerging markets will also increase demand for commodities and increase supply constraints that may spur competition for resources, he said.

Natural Resources

``International tensions could rise as countries compete for natural resources, especially food, energy and water,'' Tan said. ``Commodity-producing countries are likely to exert stronger control over their natural resources, potentially exacerbating supply concerns. Countries that are reliant on imports of commodities could be more aggressive in their pursuit of supplies.''

Weaker employment and income growth could lead to a rise in protectionist policies, especially in the U.S. and Europe, Tan said. Governments need to increase conflict-resolution mechanisms and boost cooperation to solve issues amid the emergence of new major economies, he said, citing the World Trade Organization Doha Round of talks as an example.

Trade ministers have tried and failed to reach a breakthrough in the so-called Doha Round talks in each of the past three years. A nine-day summit at the WTO in Geneva collapsed on July 29 after India and the U.S. disagreed over how poor nations could increase duties to protect their economies from surging farm imports.

``Significant stagnation as well as inflation risks suggest that challenges and potential conflicts arising from both protectionism as well as resource nationalism could seriously jeopardize globalization of production and markets,'' Tan said.

Cheap? Yes — but now China has quality issue (China's Exports faces problems)

2008-09-20T01:22:00.027+08:00

Extract from article (NY times) - An Export Boom Suddenly Facing a Quality Crisis

SHANGHAI, May 17 2007 — Weeks after tainted Chinese pet food ingredients killed and sickened thousands of dogs and cats in the United States, this country is facing growing international pressure to prove that its food exports are safe to eat.

But simmering beneath the surface is a thornier problem that worries Chinese officials: how to assure the world that this is not a nation of counterfeits and that “Made in China” means well made.

Already, the contamination has produced one of the largest pet food recalls in American history, heightening global fears about the quality and safety of China’s agricultural products. And evidence has also shown that China exported fake drug ingredients, threatening to undermine the credibility of another booming export.

“This isn’t an international crisis yet, but if they don’t do something about it quickly, it will be,” said David Zweig, a China specialist who teaches at the Hong Kong University of Science and Technology. “The question is whether it spills over and ‘Made in China’ becomes known as ‘Buyer Beware.’ ”

[read more]

Related articles:

(Latest) China tries to calm jitters about milk exports (Reuters 18 Sep 2008)
Problems raise concerns as country shifts to cars, other high-end goods (MSNBC July 25 2007)
China export tax rebate reductions: “quality not quantity” (May 1 2008)

Dubai - Reducing the dependence on Oil (A quick look at an economy's successful diversification)

2008-09-20T01:22:00.023+08:00

The UAE controls roughly 10 percent of the world's oil supply and nearly 5 percent of the world's proven natural gas reserves. Oil and gas production provides about one-third of the GDP ($57.7 billion - 2003 est.)

Although the UAE's economy has been based mainly on the export of oil and gas, nevertheless the UAE government has been implementing several plans as means of diversifying the economy. The new industries which have been created as part of this plan include: Construction, Information Technology, Finance, Manufacture of consumer goods, Tourism.

Another industry which has been part of the government's diversification strategy has been the establishment of re-export centres and Free Trade Zones. Such areas offer various incentives to investors such as the right to 100% foreign ownership and the absence of taxes and absence of import and export duties. As a result the UAE government has managed to make this industry into another major source of income for the country. Other smaller industries include Agriculture and Fisheries.

At the same time UAE is making serious headway in its plans to become a major financial centre in the region through the creation of the "Dubai International Finance Centre - DIFC". The UAE government hopes that the DIFC's size and reputation will rival those of London and New York. Evidence of strong international confidence in the DIFC's future came with the recent decision by the Al Salam Group, a Saudi Arabian development company, to invest 550 million dirhams ($150 USD million) in purchase and construction of the DIFC. This is thought to be one of the largest foreign direct investment of its type in the Middle East.

The results of the diversification plan show that the government has been successful as the country's dependency on oil and gas has been reduced from a figure of 70% to estimates ranging from 30 - 50%.

UAE's main export commodities (crude oil, natural gas, reexports, dried fish, dates) are sold to exporting destinations such as: Japan, South Korea, Iran. UAE's main import commodities (machinery and transport equipment, chemicals, food) are imported mainly from: China, Japan, Germany, US, and France.

Most of UAE's economic development has been concentrated in the two richest and most powerful of the seven Emirates which are Abu Dhabi and Dubai. In comparison the remaining five Emirates are relatively underdeveloped.

UAE continues to play a role in the Petroleum market as a member of the OPEC, as well as a member of the GCC Customs and tariffs Union. The country's strategic position on the shores of the Persian Gulf and its proximity to the straight of Hormuz have placed it on the map of many shipping companies as well as trading organisations as an important trading point. UAE's important position in the region is likely to continue owing to its economic strength.

Related websites:

Burj Dubai - The World's Tallest Building
The Palm Trilogy - 'The Eighth Wonder of the World'
Dubai Wonders - Dubai's World Beating Buildings
Dubai plans city of 'wonders of the world' - life-sized replicas of the 7 wonders of the world

Doing Business in UAE - Step by Step Guide (Show some key factors attracting FDI to UAE)
UAE to spend US$ 15billion on ICT (Information and Communications Technology) by 2011
The Slump Hits the Gulf: No More Palm Islands? (17 Sept 08 - The Gulf isn't immune to the global crisis)
Dubai develops its meetings, incentives, conferences and exhibitions (Mice) segment as a driver of growth (19 Sept 08)
Charting a new course for the UAE (19 Sep 2008) - Dubai's development leads to concerns about cultural identity, and not environmental problems
IMF article - GCC Countries: From Oil Dependence to Diversification (2003)

Politician wants to treat unemployed like cattle (Uemployment in Australia - Consequences & Govt Measures??)

2008-09-20T01:22:00.016+08:00

How do you motivate employees to work? An Australian politician suggests you use a cattle prod.

Newly elected Senator John Williams, in his first speech in the Australian parliament, called for unemployed idlers to be stung on the backside with cattle prods to get them to work.

Nationals Senator John Williams made the remarks in the Senate this evening, telling the chamber about his views on people receiving welfare payments.

"The family farm cannot afford to pay wages when the person never shows up for work," Senator Williams said.

"So too as a nation, I believe that if you are in good health and are capable of working, then you should work."

Senator Williams said he has seen many who are "determined not to work".

"They are simply getting a free ride on behalf of tax payers of Australia and it is about time they received a touch on the backside with a cattle prodder to get them off their butts and actually do some work," he said.

If people were in good health and youth was on their side, they should not receive a dole cheque unless they contribute to the nation, he said.

"However I do believe that the genuine unemployed should have a safety net and should be helped through their tough times until they find employment."

Controversy over the production of Tata 'NANO'- The Word's Cheapest Car

2008-09-19T10:22:00.000+08:00

Tata offered alternative site for Nano plant
By Joe Leahy in Mumbai: September 19 2008

Tata Motors of India has received one of its strongest offers yet to move its controversial plant to make the world's cheapest car, the Nano, from West Bengal.

The offer from southern Karnataka state for a 1,000-acre plot comes ahead of an important moment today in the stand-off in West Bengal, with the opposition party that is protesting against the project set to meet the state governor.

"We are watching the situation and actively looking at alternatives," said Ravi Kant, Tata Motors managing director, after a meeting with BS Yediyurappa, the Karnataka chief minister who is based in Bangalore, the state capital.

At least 13 rival state governments have flocked to Tata with offers of land for the embattled Nano project after the group was forced to suspend work at its partially built plant in Singur, near Calcutta.(Well, as they say, one man's loss is another man's gain.. while West Bengal loses, it still remains to be seen who will get the much coveted investment..)

The opposition Trinamool Congress wants the Tata group to return part of the 1,000-acre factory site it says was forcibly taken from farmers by West Bengal's state government to make way for the plant. [read whole article]

Related article - Tata seeking new sites for Nano

See Tata 'NANO'- The People's Car (aka 'The World's Cheapest Car at $2500); Exclusive look at the Tata Nano (with video)

Singapore still tops for business (A boost for MEC!)

2008-09-15T16:06:00.001+08:00

It retains No. 1 World Bank ranking for third year, thanks to key reforms

IT’S a hat-trick.

For the third year running, Singapore has been ranked as the world’s easiest place to do business by the World Bank.

Around the globe, a record 239 reforms were introduced in 113 economies in the last year.

But it was two important reforms - shortening the time periods needed to start a business and to obtain a construction permit - that kept Singapore narrowly above New Zealand in the World Bank’s latest Doing Business rankings.

Making full use of the Internet was the key to Singapore’s success. An online one-stop shop helped slash the time it takes to issue a construction permit from 102 days to just 38 days.

Singapore also simplified the online process for starting a business - slicing a day off the already rapid procedure. It now takes only four days and $365 to start up a business here.

The news was welcomed by Singapore’s trade associations, the Singapore Business Federation and the Association of Small and Medium Enterprises. They noted that easing regulations for firms had certainly helped to offset the rising costs of doing business.

Programme manager for the report Sylvia Solf said enforcing contracts was one area in which Singapore could improve. It takes one month more than it did the previous year to enforce a contract, and the cost of taking a case to court is about a quarter of the claim value.

Ms Solf said the top 10 economies remained almost unchanged - a reflection of the continuous commitment of richer nations to simplify regulations. Any country that stops reforming will lose its position in the competition, she said.

The annual report, now in its sixth year, is put up by the World Bank and its private lending arm, the International Finance Corp (IFC). It ranks 181 economies according to 10 indicators of business regulation - from starting a business to paying taxes and closing a business.

The aim is to show how simplifying procedures encourages investment, creates jobs and spurs growth. The top 10 are all high-income economies.

East Asia and the Pacific had the greatest momentum of reform among all the regions with 63 reforms made in the past year, up from 46 the year before, the report noted. Leading the charge was Thailand, which recorded four big improvements to climb from 19th to 13th place.

Ms Dahlia Khalifa, a co-author of the report, said that countries recognised the need for regulatory reform to make them more competitive and are ‘clearly committed to reform agendas’.

Overall, Azerbaijan was deemed the top reformer, after upgrading in seven areas. It leapt 64 places from 97 to 33. The Central Asian and Eastern European region recorded the most number of reforms in the world, with 26 of the 28 countries implementing a total of 69 reforms.

World Bank/IFC vice-president for financial and private sector development Michael Klein said that having ‘good rules is a better basis for healthy business than ‘who you know’.’

Source : Straits Times - 11 Sep 2008

OPEC Surprises With Output Cut;

2008-09-15T15:15:00.001+08:00

Wednesday, September 10, 2008 (AP)

July 10: Secretary General of the Organization of the Petroleum Exporting Countries, OPEC, Abdalla Salem El-Badri in Vienna.

The news sparked a rebound in oil prices. Light, sweet crude for October delivery rose $1.00 to $104.26 a barrel in electronic trading on the New York Mercantile Exchange, but later fell back to its original price near $103.

The OPEC announcement reflected OPEC efforts to cover all bases in an oil market that saw prices spike to a record high just short of $150 a barrel in July, only to shed nearly 30 percent off those peaks in subsequent months.

VIENNA, Austria — OPEC oil ministers agreed Wednesday to trim overall output by more than 500,000 barrels a day in a compromise meant to avoid new turmoil in crude markets while seeking to bolster falling prices.

The news sparked a rebound in oil prices. Light, sweet crude for October delivery rose $1.00 to $104.26 a barrel in electronic trading on the New York Mercantile Exchange, but later fell back to its original price near $103.

The OPEC announcement reflected OPEC efforts to cover all bases in an oil market that saw prices spike to a record high just short of $150 a barrel in July, only to shed nearly 30 percent off those peaks in subsequent months.

Oil prices had lost more ground Tuesday ahead of the OPEC decision, falling $3.08 to settle at $103.26 on the Nymex, the lowest settlement price since April 1.

An OPEC statement issued after oil ministers ended their meeting early Wednesday said the organization agreed to produce 28.8 million barrels a day. OPEC President Chakib Khelil said that quota in effect meant that member countries had agreed to cut back 520,000 barrels a day in production over the established quota.

Saudi Arabia alone accounts for more than that amount of output over its official quota — all members of the 13-nation OPEC have such formal production limits allotted to them except violence-torn Iraq. But Khelil said that the cutbacks in overproduction would apply proportionally to all OPEC members bound by quotas.

OPEC overall regularly churns out oil above the organization's overall quota, last set in November at 27.3 million barrels a day, and it remained unclear whether group members would abide by the decision to keep to their limits.

Still, the decision could have the psychological effect of steadying eroding prices at or above the $100 mark — the red line for many OPEC nations concerned about their rapid loss of revenue in recent months.

While the new production limit of 28.8 million barrels a day is above that set in November, the statement said it reflected adjustments to include new members Angola and Ecuador and excluding Iraq, as well as Indonesia, which used the Vienna meeting to announce it was suspending its full membership.

The statement noted that "prices had dropped significantly in recent weeks driven by a weakening world economy ... with its concomitant lower oil demand growth, coupled with higher crude supply, a strengthening of the U.S. dollar and an easing of geopolitical tensions." And it warned of the possibility of further price erosion, forecasting a possible "shift in market sentiment, causing downside risks to the global oil market outlook."

But analysts said several factors could stem any further slide in prices over the next few months.

"There are good reasons ahead for prices to turn toward the upside," said Johannes Benigni, managing director of JBC Energy in Vienna. "Take the next hurricane," he said, alluding to the chances that — after a few near misses in recent weeks — further storms could savage oil installations in the Gulf of Mexico.

He also warned against expectations that non-OPEC suppliers could make up for any added demand for crude in the traditionally high-use Western Hemisphere winter season, saying "OPEC will have to step in to fill the gap" if other suppliers come up short.

Others said that OPEC's concerns were well founded.

Oil analyst Cornelia Meyer said she expected OPEC to "wait and see what is happening to the global economy and depending on whether China and India are (also) affected, we will see them do a cut" in December.

Oil demand from China's and India's booming economies have helped fuel oil demand and drive up prices.

Ehsan ul-Haq, head of research at JBC Energy, also said it that OPEC "might have to cut production below its set target." He mentioned a further downturn in the U.S. economy and the possibility of a mild winter as possibly depressing the world's appetite for crude by year's end.

Khelil said the request to curb overproduction was effective immediately with a 40-day window for it to take effect. And he suggested bigger cuts may be in the offing if prices continue to slide, telling reporters that OPEC would "swiftly respond to energy developments which may threaten oil (market) stability."

At the next OPEC meeting Dec. 17, in Oran, Algeria, the organization would "reassess the market situation," he added.

Since crude surged to a record $147.27 a barrel on July 11, it has tumbled by over $40, or more than 27 percent. Still, prices remain close to 14 percent higher this year than in 2007, and a barrel of benchmark crude still fetches four times what it did five years ago.

As G-8 meets, free trade under fire

2008-09-15T14:25:00.002+08:00

Recent economic woes are raising new doubts about the benefits of globalization.

By Mark Trumbull | Staff writer of The Christian Science Monitor

from the July 7, 2008 edition

The long trend toward open trade and global markets is under new stress as problems from food shortages to climate change test its staying power.

The march toward economic globalization is not shifting into reverse gear, but it shows signs of deceleration as leaders of the developed world meet in Japan this week for their annual summit.

They'll be focusing on issues of immediate concern – from how to tame the alarming inflation levels to non economic concerns such as delicate nuclear diplomacy with North Korea. But their agenda also includes a more general problem: how to maintain expansion of global commerce, which has helped many countries reach new levels of prosperity but has costs as well as benefits for workers.

This problem isn't new, but it has greater urgency this year because of a slowing economy that has dampened consumer confidence worldwide. The rising clout of emerging economies adds another challenge – balancing the interests of rich countries against those of developing nations.

Finding the right path forward is tricky.

"There's real risk here, and the stakes are pretty high" says Michael Spence, an economist who recently chaired a commission on global development. "The main thing that's enabled the high growth where it's occurred ... is really access to the global economy."

The trials of 2008 – soaring food and energy prices and a downturn in the vital US economy – are just the sort of environment in which doubts about free trade often increase. But this environment may also represent an opportunity, a nudge for world leaders to make sure that the benefits of economic policies are shared as widely as possible.

"Part of the problem here is that we've had too little attention ... to the distributional issues," says Mr. Spence, a senior fellow at the Hoover Institution in Stanford, Calif.

That concern came through loudly in an international poll released early this year.

The majority of the public in 27 out of 34 countries surveyed said the benefits and burdens of economic change are not being shared fairly.

Still, most people around the world don't wish to backtrack entirely on globalization. It's more that they want to see the process better managed, according to the BBC poll, which was conducted by Globescan and the University of Maryland's Program on International Policy Attitudes. Half of those surveyed said trade and global investment are growing too quickly, while 35 percent said "too slowly."

[read more]

China overtakes U.S. to become Singapore's 3rd largest trade partner

2008-08-05T11:35:00.001+08:00

SINGAPORE, Jan. 17 2008 Kyodo

China overtook the United States to become Singapore's third largest trading partner in 2007 amid sluggish growth in the U.S. economy, according to official data released Thursday.

China ranked third after Malaysia and the European Union, leaving the United States in the fourth position, International Enterprise Singapore, the national trade promotion agency, said at a news conference.

Indonesia ranked fifth and Japan sixth, it said.

''This is the first time China has overtaken the U.S.'' in Singapore's external trade, an IE Singapore official said.

The main factors included a slower U.S. economy and an increase in Singapore's exports to China that involved refined oil and petrochemicals.

Singapore's total external trade increased 4.5 percent to S$847 billion (US$259 billion) in 2007 after expanding 13 percent in 2006. The slower growth, below the 5-7 percent projected by the agency, was mainly due to weaker demand for electronics, one of Singapore's main exports.

Trade with China grew 7.4 percent to S$92 billion while trade with the United States declined 2.4 percent to S$88 billion.

Singapore's trade with the United States dropped in the second half of last year in line with a worsening U.S. economy and officials expressed concern over the possibility of a protracted U.S. economic recession this year.

''If there is a recession in the United States, Singapore would be affected, our trade figures will be affected,'' another IE Singapore official said. ''The U.S. market is still very important to us even though China has overtaken the United States.''

The agency is forecasting the country's external trade to grow between 6 to 8 percent this year due to optimism of strong demand from Asian countries such as China and India and the Southeast Asian region.

However, officials said the projection could be revised in the second half of this year if an expected recession in the United States is prolonged.

Besides refined oil and other petrochemical products due to Singapore's position as the world's third largest oil refinery, the city-state's other main exports are electronic products such as integrated circuits and disk drives and pharmaceuticals.

COPYRIGHT 2008 Kyodo News International, Inc.
COPYRIGHT 2008 Gale, Cengage Learning

Anger over £1bn Centrica profits (A case of consumer exploitation? Or just the incentive needed for more energy investments?)

2008-08-03T20:23:00.005+08:00

from bbcworldservice.com

A report for Centrica warns prices may rise even more

Consumer groups have expressed anger as British Gas owner Centrica revealed £5m-per-day profits, after announcing a record price hike on Wednesday.

Centrica defended the price rise, and pointed to the high wholesale gas costs that had cut its profits by 20% to £992m during the first half of 2008.

Energywatch said the size of Centrica's profits and the 35% price increase by British Gas would outrage consumers.

Age Concern warned that many pensioners would be unable to pay for winter fuel.

'Populist card'

The earnings report and anger at the planned price increase comes at a time when the UK is having to rethink the whole of its energy strategy.

Falling North Sea oil and gas production, coupled with record wholesale prices, have increased pressures on policymakers, companies and consumers.

Energy Minister Malcolm Wicks told the BBC that Centrica's results needed to be seen in context.

"I know as energy minister, we need massive investment in new energy infrastructure, power stations," he said.

"I'm not going to play a populist card saying profits are wrong when I know that profits are needed to invest in energy in the future to keep our lights on".

Fuel poverty

A committee of MPs recently warned that higher gas and electricity bills would have serious consequences for millions of households.

The committee was worried that the UK's energy markets were not functioning "as efficiently as they should".

After Centrica's results, a group of council leaders said energy suppliers should be subjected to a £500m annual charge to beat fuel poverty and cut carbon emissions.

Paul Bettision, chairman of the Local Government Association's environment board, said: "Energy companies are making massive profits at the expense of hard working families."

Centrica's move to increase prices on Wednesday came after EDF Energy raised prices last week. Analysts say other firms are likely to follow suit.

'Staggered'

Adam Scorer, Energywatch's campaigns director, said households would be "staggered" at Centrica's profits.

He added that customers would be outraged "to learn that while they ponder how to make ends meet, Centrica's shareholders are enjoying an increase in their dividends".

Schwarzenegger Cuts 22,000 State Jobs Amid California's Fiscal Crisis (A wise move? Or a foolhardy one in these tough times?)

2008-08-03T20:12:00.006+08:00

California Governor Arnold Schwarzenegger sets down the pen after signing an executive order eliminating 22,000 part-time and temporary positions and ordered that 200,000 state workers receive the federal minimum wage during a news conference at the Capitol in Sacramento, Calif., on Thursday, July 31, 2008. At the right is Director of California Department of Personnel Administration David Gilb..(AP Photo/Steve Yeater)

SACRAMENTO, Calif. — With California's cash dwindling and legislators still debating a new budget, Gov. Arnold Schwarzenegger eliminated thousands of part-time and temporary state jobs Thursday and ordered that 200,000 state workers receive the federal minimum wage.

His move had been expected since last week but starkly illustrated the cash problem facing the nation's most populous state. Schwarzenegger apologized to state workers but said he had no choice.

"Today I am exercising my executive authority to avoid a full-blown crisis and keep our state moving forward," Schwarzenegger said. "This is not an action I take lightly."

The moves could save hundreds of millions of dollars a month, but whether full-time employees' paychecks will be cut is in doubt because the state controller, who cuts the checks, has said he will not comply with it.

Lawmakers have yet to agree on a spending plan a month after the state's fiscal year began.

Democratic and Republican lawmakers are divided over how to close a $15.2 billion deficit, with Democrats favoring $8.2 billion in new taxes on corporations and the wealthiest residents. Republicans want a spending cap and oppose tax increases.

Adding to the crisis was an unprecedented wildfire outbreak that cost far more for emergency response than the state had budgeted.

As of June, more than 30 states faced deficits totaling a projected $40 billion, or more than triple the gap of the previous year, according to the National Conference of State Legislatures.

Schwarzenegger's executive order eliminating jobs covers 22,000 retired state employees who work under contract, temporary and part-time workers such as those who fill in at the Department of Motor Vehicles, seasonal employees and student assistants. But Schwarzenegger's finance team said just 10,300 would receive pink slips immediately. The others might be exempted because their jobs are deemed crucial to public safety.

Question

Assess the economic impact of Gov. Arnold Schwarzenegger's move to cut 22,000 jobs from the public sector and to reduce the pay of 200,000 state workers.

World trade talks end in collapse

2008-07-30T10:07:00.004+08:00

Marathon talks in Geneva aimed at liberalising global trade have collapsed, the head of the World Trade Organisation has said.

Pascal Lamy confirmed the failure, which officials have blamed on China, India and the US failing to agree on import rules.

EU Trade Commissioner Peter Mandelson said the result was "heartbreaking".

The talks were launched in 2001 in Doha and were seen as providing a cornerstone for future global trade.

The main stumbling block was farm import rules, which allow countries to protect poor farmers by imposing a tariff on certain goods in the event of a drop in prices or a surge in imports.

India, China and the US could not agree on the tariff threshold for such an event.

Washington said that the "safeguard clause" protecting developing nations from unrestricted imports had been set too low.

Possible solution?

The negotiations floundered as trade officials gathered for a ninth day.

"There's no use beating around the bush, this meeting has collapsed," Mr Lamy said.

"Members have simply not been able to bridge their differences."

He added that time was needed to determine "if and how" WTO members could end the stalemate.

The Doha development round of trade talks initially started in 2001 with the aim of remedying inequality so that the developing world could benefit more from freer trade.

However, the talks have repeatedly collapsed as developed countries failed to agree with developing nations on terms of access to each others' markets.

The US and the European Union want greater access to provide services to fast-growing emerging countries, including China and India.

Meanwhile, developing countries want greater access for their agricultural products in Europe and the US.

Recent complications

Analysts have said that the collapse of the Doha talks could symbolise an end to multilateral trade agreements.

Instead, nations may pursue dual agreements with partner nations, preferring to focus on their own requirements rather than a more common negotiating goal.

The talks in Geneva were complicated by recent increases in the price of food and fuel.

Higher prices have prompted protests in both developed and developing nations, making it harder for negotiators to reach a compromise on opening up their markets to greater competition, analysts said.

Mr Mandelson, the EU trade commissioner, blamed the collapse on a "collective failure" but warned that the "consequences would not be equal", predicting that it would be countries that most needed help that would be hit hardest.

"They [the consequences] will fall disproportionately on those who are most vulnerable in the global economy, those who needed the chances, the opportunities most from a successful trade round." he said.

'Protecting livelihoods'

Trade officials had struck an optimistic tone on Friday, but this evaporated over the weekend amid acrimonious exchanges with the US accusing India and China of blocking progress.

The US said they were being overly protective towards their own farmers and are failing to do enough to open their markets, with US trade representative Susan Schwab calling the stance "blatant protectionism".

"In the face of the global food price crisis, it is ironic that the debate came down to how much and how fast could nations raise their barriers to imports of food," she said.

But India's trade minister, Kamal Nath, who had been criticised by a number of countries for his intransigence said the US demands were unreasonable.

"It's unfortunate in a development round we couldn't run the last mile because of an issue concerning livelihood security," Mr Nath said.

Govt defers projects worth $1.7b (A good example of reduction of crowding out effect?)

2008-07-25T14:33:00.004+08:00

Move to ease pressure on building costs
(ST 23 July 2008, by Joyce Teo, Property Correspondent)

THE Government is deferring another $1.7 billion of public sector construction projects to ease pressure on red-hot building costs in the next two years.

This is the third time since November that public projects have been postponed amid high demand for building contractors and materials.

A total of $4.7 billion of public sector projects will now be pushed back to 2010 and beyond, the Building and Construction Authority (BCA) said in a statement.

'That's good news,' said the chief executive of property firm Overseas Union Enterprise, Mr Thio Gim Hock. 'Construction costs have more than doubled in the past year. It's hard to find contractors to bid for a job. When I tender, a lot of them decline because they are too busy.'

The latest move means projects such as the Jurong General Hospital will be deferred to 2010, although the hospital will still be ready and open as scheduled by 2015.

Other delayed projects include less urgent improvement works, but public housing and upgrading programmes will not be affected.

Public projects put on hold
Some of the $1.7 billion worth of projects to be postponed:

Jurong General Hospital
Improvement works to selected schools
Upgrading of sports facilities in some educational institutions

Earlier projects postponed include:

National Art Gallery
National Addiction Management Centre
A section of Changi Prison Complex
Several institutional projects such as student hostels and hawker centres
Extensions to the Asian Civilisations Museum and the Peranakan Museum, and the
Communicable Disease Centre

The move will allow construction resources to be used to ensure the timely delivery of big projects such as the integrated resorts, Marina Bay Financial Centre and the Downtown MRT line. Most should be finished by late next year.

The BCA also said that the resources freed up then can be used later for the deferred projects, ensuring a better spread of construction resources beyond next year.

Market experts said on average, costs have risen 20 to 35 per cent in the past year.

Mr Seah Choo Meng, executive chairman of construction consultancy Davis Langdon & Seah, was upbeat about the latest move. 'It will not bring costs down but it will lessen the pressure on existing resources.'

Singapore could now be among the world's most expensive nations in terms of construction costs, though this is not likely to last, said Mr Jackson Yap, CEO of developer cum construction firm United Engineers.

The total value of construction projects here is forecast at $23 billion to $27 billion this year, compared to $24.5 billion last year, and is set to stay high next year, BCA said. It is a far cry from 2003 and 2004, when the figure was just $10 billion.

Last November, the Government took what was then a rare step of deferring $2 billion worth of projects. Then in February, it deferred another $1 billion worth of projects.

Dr Chua Hak Bin, Asian strategist at Deutsche Bank Private Wealth Management, is not convinced the latest deferment is needed as building growth has eased.

'Construction orders will likely continue coming off, given a softening residential and commercial property market,' he said, adding that the Government may need to consider bringing forward deferred projects in a slowdown.

Some private projects, particularly residential, may also be delayed, said Mr Seah. 'While this year's rate of escalation in construction costs is expected to be in the double digits, it may be affected by the potentially weaker economic outlook in the region.'

S'pore, India to double bilateral trade

2008-07-07T22:21:00.001+08:00

By Ravi Velloor, India Bureau Chief

NEW DELHI - SINGAPORE and India agreed yesterday to double bilateral trade to S$48 billion by 2012, counting on the gains both nations are seeing from a landmark trade and investment treaty they signed three years ago.

Their trade ministers also agreed to launch new areas of cooperation, beginning with science and technology, intellectual property rights and the media.

The enhanced trade target was the highlight of talks here yesterday between visiting Singapore Trade Minister Lim Hng Kiang and his Indian counterpart, Commerce and Industry Minister Kamal Nath.

Much of the impetus for the ever-expanding commercial contacts has come since the two signed their Comprehensive Economic Cooperation Agreement (Ceca) in June 2005.

According to Mr Nath, Singapore is now India's fifth largest trading partner and fourth largest export market for goods.

Last year, trade between the two economies amounted to S$24 billion. Singapore and India now plan to launch a full review of the Ceca early next year to intensify their relationship.

India has of late emerged as a key destination for global capital. Some US$25 billion (S$34.3 billion) of foreign direct investment poured into India in the year to March 31.

Mr Nath said Singapore is the fourth largest investor in India, with US$4.7 billion of cumulative foreign direct investments since economic reforms began in 1991.

Malaysia is leading Asean's negotiations with New Delhi on an Asean-India free trade agreement.

The FTA has suffered several delays because of India's sensitivities on various commodities, including palm oil. Mr Lim said Indonesia and Malaysia had moved considerably to remove the obstacles to clinching the deal.

India hopes to announce the conclusion of the FTA negotiations at the Asean economic ministers meeting in August, Mr Nath said.

Link: Singapore and India explore ways to boost multiple links (7 May 2008)
Link: India - Singapore Economic and Commercial Relations (Look at nature of exports and imports)
Link: Singapore and Free Trade Agreements

Question
1. Discuss the factors that have led to the success of the trade and investment treaty signed between Singapore and India.

2. Suggest possible areas (in terms of investment and trade) in which Singapore could cooperate with India.

3. Why would a similar agreement between India and Asean (including Malaysia) be harder to reach, than that between India and Singapore?

Q&A: Record oil prices

2008-07-03T19:56:00.000+08:00

from bbcworldservice.com

Oil prices have hit record highs above $145 a barrel and have more than doubled in less than a year.

There have been calls for oil producers to increase supply.

However, they blame the high prices on speculators and the weakening US dollar, which makes oil a more attractive investment.

Why are oil prices so high?

Economists will tell you that prices are set by supply and demand and, indeed, at the heart of the rise in oil prices are what are known as the fundamentals.

Demand for oil has been growing as Asia's power-house economies such as China and India fuel their rapid economic expansion.

There are many factors that influence the price of oil

At the same time, there are all sorts of worries about the supply of oil.

A lot of the world's oil comes from somewhat unstable countries, so every time oil workers are attacked in Nigeria or Iraqi oil facilities are damaged, people get concerned about the supply of oil.

So fundamentally, people are worried that demand may be growing faster than supply, and oil is such an important commodity that they are prepared to pay more and more for it if they are worried.

That all sounds pretty simple then

Well it would be if everybody had exact figures for the fundamentals that influence oil prices.

The problem is that nobody knows exactly how much oil there is in the ground, many producers are a bit cagey about admitting how much they have taken out and we do not know how much oil is in tankers being shipped around the world.

On top of that, we do not have reliable figures for how much oil most countries have squirreled away in case of emergencies or indeed exactly how much oil is being consumed.

So what determines prices is not the fundamentals but everybody's perceptions of the fundamentals.

That means that when proper figures, such as the weekly US inventories figures, are released, undue weight is placed on them because few countries are so transparent.

But other than that it's just like any other commodity?

Unfortunately not.

First of all there is the Organisation of Petroleum Exporting Countries (Opec), which controls 55% of the world's oil exports.

The idea is that its members only raise or lower their production when all the other members do.

It does not always work, but it certainly means that oil is not a free market.

Also, there is a finite amount of oil in the world.

The oil that has been taken out of the ground first is the easiest, and therefore cheapest, to access.

As oil prices rise, it becomes financial viable to spend more to extract oil that is in trickier places to mine.

But as the available oil is depleted, the price will naturally rise because it is harder to find and more expensive to mine.

In addition, when there is talk about supply being threatened by unrest in the Middle East or storms in the Gulf of Mexico, how much of a problem these factors will actually be is generally a guess.

So is it unfair to blame the speculators?

The speculators certainly have a part to play in all this.

To an increasing extent, financial institutions are trading in oil as an investment like shares or currencies.

Should North Korean rocket testing really have affected oil prices?

They buy oil contracts in the hope that their value will go up before they sell them.

Alternatively, if they think the price will fall, they may sell oil contracts they do not have and buy them later, in time to settle the deal.

Even those who believe that the market is based on fundamentals accept that the participation of speculators has created greater volatility in the market.

Factors that in the past might have moved the price by a few cents could now move it by more than a dollar.

It has also given sudden relevance to factors that in the past would not have moved oil prices at all.

What sort of factors?

Events such as rocket testing in North Korea have been cited as reasons for the rising price of oil.

But it is hard to imagine how it could have any direct effect on its supply or demand.

In a market with such a serious shortage of reliable information, as long as enough people believe that a factor will affect the oil price, it will.

And in some cases the effect of factors have been reversed.

How can that happen?

Up until less than a year ago, a weakening US dollar would have been seen as a sign of weakness in the US economy, which would have meant that demand for oil was likely to fall and so the oil price would fall.

But recently, many traders have believed that some people are treating oil and the dollar as alternative investments.

So, if they think the dollar is falling they will buy oil instead and if they think oil is falling they will buy dollars instead.

Because people believe this to be the case, a negative relationship has built up between the oil price and the dollar.

Whether people are actually treating the two as alternative investments is no longer important - what matters is that people believe that they do.

But a market based on so little concrete information and so much belief is vulnerable to people changing their minds.

Related article: What is driving oil prices so high?

World Bank Article - Globalization and International Trade

2008-06-24T17:05:00.004+08:00

A must read for key issues within the topic of Globalisation and International Trade.

(Click to download pdf file)

Extracts:

'Globalization” refers to the growing interdependence of countries resulting from the increasing integration of trade, finance, people, and ideas in one global marketplace. International trade and cross-border investment flows are the main elements of this integration.

Globalization started after World War II but has accelerated considerably since the mid-1980s, driven by two main factors. One involves technological advances that have lowered the costs of transportation, communication, and computation to the extent that it is often economically feasible for a firm to locate different phases of production in different countries. The other factor has to do with the increasing liberalization of trade and capital markets: more and more governments are refusing to protect their economies from foreign competition or influence through import tariffs and nontariff barriers such as import quotas, export restraints, and legal prohibitions.

and

Geography and Composition of Global Trade (IMPT!!)

Over the past 10 years patterns of international trade have been changing in favor of trade between developed and developing countries. Developed countries still trade mostly among themselves, but the share of their exports going to developing countries grew from 20 percent in 1985 to 22 percent in 1995. At the same time, developing countries have increased trade among themselves. Still, developed countries remain their main trading partners, the best markets for their exports, and the main source of their imports.

Most developing countries’ terms of trade deteriorated in the 1980s and 1990s because prices of primary goods—which used to make up the largest share of developing country exports—have fallen relative to prices of manufactured goods. For example, between 1980 and 1995 real prices of oil dropped almost fourfold, prices of cocoa almost threefold, and prices of coffee about twofold. There is still debate about whether this relative decline in commodity prices is permanent or transitory, but developing countries that depend on these exports have already suffered heavy economic losses that have slowed their economic growth and development.

In response to these changes in their terms of trade, many developing countries are increasing the share of manufactured goods in their exports, including exports to developed countries (Figure 12.2). The most dynamic categories of their manufactured exports are labor-intensive, low-knowledge products (clothes, carpets, some manually assembled products) that allow these countries to create more jobs and make better use of their abundant labor resources.

By contrast, developing countries’ imports from developed countries are mostly capital- and knowledge-intensive manufactured goods—primarily machinery and transport equipment—in which developed countries retain their comparative advantage.

Comparative Advantage & Its Sources

2008-06-23T22:38:00.005+08:00

A country has a comparative advantage in producing a good if the opportunity cost of producing the good is lower for that country than for other countries.

There are 3 main sources of comparative advantage:

(a) Differences in climate
(b) Differences in factor endowment (factors of production such as land, labour and capital are of different levels of abundance in different countries)
(c) Differences in technology

The causes of differences in technology are somewhat mysterious. Sometimes they seem to be based on knowledge accumulated through experience. Sometimes, they are a result of set of innovations that for some reason occur in one country but not in others.

Note: Technological advancement is also often transitory. For example, Europe's aircraft industry has closed the gap with that of the US. China's level of technology is also advancing rapidly as a result of technological transfer from the large volume of foreign direct investments into the country, as well as huge funding for R&D from the government as well as private enterprise. At any given point in time, differences in technology are a major source of comparative advantage for any country.

Differences in factor endowment (through differences in the distribution of resources, both quantity and quality) will also affect the cost of production, hence accounting for the differences in opportunity costs. For example, China's abundance of labour, both skilled and unskilled, have allowed her to produce at lower opportunity costs due to the cheap labour, hence giving China a comparative advantage in the labour-intensive industries.

Lastly, climatic differences between countries can play a major role in determining the costs at which different countries produce a good, specifically agricultural produce. For example, certain regions of France have climatic conditions that are highly favourable to the growing of grapes for producing champagne, giving these regions a comparative advantage in production of champagne. On the other hand, the arid climate in many parts of the Australian continent does not favour the growing of agricultural goods such as rice, which requires a lot of water for the paddy fields. In order to supply sufficient water to these crops, complex irrigation networks have been set up and maintained at high cost, which reflects that Australia clearly does not have a comparative advantage in the production of rice.

(Link: Ricegrowers' Association of Australia - Australia's rice is more highly priced; NY Times Article: A Drought in Australia, a Global Shortage of Rice & Article: The Australian Rice Industry and Water)

High cost of living? Buy cheaper products, says minister

2008-05-22T16:58:00.006+08:00

Article from: Nov 2007

Recent price hikes have prompted several members of Parliament to voice their concern about increasing cost of living, especially with respect to basic necessities.

In the third quarter of 2007, the consumer price index (CPI) rose by 2.7% year-on-year, compared to 1.0% in the second quarter and 0.5% in the first quarter. Inflation is projected to hit a record 5% by 2008.

Yesterday in Parliament, Mr Lim Hng Kiang, Minister of Trade and Industry admitted that these were due to a ‘one off effect of GST hikes’ and mainly higher food prices.

In his response to MPs questions today, he also had this advice for families hit by higher prices: "Whether there is an increase in the cost of living for a particular household depends on that household’s spending patterns. Switching to cheaper products can reduce the cost of living despite a rise in the CPI."

Question
What are the limitations of the Minister's advice? Suggest and evaluate other measures that could be more effective.

e.g. did you know we have a Price Control Act?

you may also want to download: Rising Prices - How Singaporeans Can Cope: A good pictorial summary of the causes of the recent inflation and what the government has been doing to help Singaporeans cope.

NWC calls for one-off payment to help workers cope with inflation, sustainable wage hikes

2008-05-21T10:21:00.003+08:00

The National Wages Council (NWC), chaired by Professor Lim Pin

Weekend • May 17, 2008

IT was something unionists had been quietly hoping for. Even so, Ms Diana Chia was surprised when the National Wages Council (NWC) called for a one-off bonus from employers on Friday to help workers cope with high inflation.

"We did not know if it was going to happen," said the general secretary of the Healthcare Services Employees' Union.

In what has been called an "innovative" measure unprecedented in recent times — a response to inflation that has hit a 26-year high — the council urged companies to consider giving a "one-off special lump sum payment" to its rank-and-file workers, "with a heavier weightage for low-wage workers".

What some pundits are already terming the "inflation bonus" should take into account the company's ability to pay and the Government's recent $3 billion in assistance measures for Singaporeans, said the NWC. At the same time, the council repeated its call, which has become a familiar refrain in recent years, to keep wage hikes sustainable.

Built-in increases ought to commensurate with performance and business outlook; companies should make greater use of variable payment to reward workers, taking into account the total wage increase, said council chairman Lim Pin.

And as before, companies that have done "exceptionally well" should consider a higher variable payment.

Economists call the special bonus an unusual one, born out of a unique confluence of economic factors. While the council has recommended one-off payments before — such as in 1998, 2004 and last year — these were more closely linked to economic and individual corporate performance.

"We have not seen such inflation in a very long time and it comes during a sharp slowdown in the United States, and record energy and food prices," said Ms Selena Ling, an economist with OCBC.

Calling it a "sensible compromise", economist Chua Hak Bin, chief Asian strategist with Deutsche Bank, said the special bonus means workers are rewarded justly given the higher costs of living, without "fanning the inflation fire with large permanent wage adjustments (which) could be self-defeating".

In coming up with its recommendations this year, the NWC said it had taken two special considerations, among others, into account: The global economic uncertainty and high inflation this year.

Even as it noted low-wage workers' worries about the cost of living, it was also mindful that simply pushing wages up would undermine competitiveness – a concern fed by falling productivity and rising unit labour costs (i.e. labour cost per unit of output).

While the Government has accepted the NWC guidelines for 2008/2009 -- which apply to all private and public sector employees – questions and challenges remain.

For one, it remains to be seen if employers embrace the one-time payout idea. While the Singapore National Employers Federation (SNEF) and the Singapore Business Federation believe it would be welcomed, economists are more sceptical.

"Frankly, I suspect not all employers will necessarily follow this recommendation because NWC guidelines are non-binding," said Kit Wei Zheng, Citigroup's chief economist.

In theory, these recommendations are sensible and good, he added, but the tight economic situation also begets the question if companies "have enough space" to implement them.

But NTUC assistant secretary general Halimah Yacob said, employers should not see this as a "Santa Claus gesture". In the past, workers had accepted CPF contribution cuts and flexible wages in lieu of high fixed-wage increments – so, she said, it was time for employers to "reciprocate" in these difficult times.

As to how much the payout could be, Mdm Halimah said it was best left for unions and employers to negotiate.

But estimates from economists and unionists indicate a range of figures. Mr Kit proposed a modest 5 per cent of annual wages "to offset the erosion of purchasing power caused by inflation".

Mr Fang Chin Poh, general secretary of the National Transport Workers' Union, said they would likely negotiate for 10 per cent of monthly salary for those earning $2,300 and below.

Dr Chua thought a 1.5-month to 2.5-month payout, on top of the usual annual bonus, to be "a fair quantum given the steep rise in living costs and tight labour markets".

And as wage negotiations begin, Mr Alexander Melchers, SNEF council member and secretary of the Singapore-German Chamber of Commerce, advises companies: "Sit down, think about what you are going to do, about the impact of inflation on your lower wage workers. Determine the amount that you can afford and be forthcoming."

See related article: NWC wants feedback on wage guidelines
Question
Analyse the challenges faced by firms and the government in deciding whether, and how much, to award to workers in the one-off "inflation bonus" suggested by the NWC.

Same brand of rice, very different prices (A real life example of price discrimination? Or the effects of inflation?)

2008-05-16T11:29:00.004+08:00

TODAY Online (15 May 2008)

YOU could be paying up to 50 per cent more for the same bag of rice depending on where you buy it from, a survey by the Consumers Association of Singapore (Case) has found.

Checking on the regular price — before any discounts — of fragrant rice at supermarkets/hypermarts over May 6 and 7, the consumer watchdog found some huge price differences.

The biggest disparity was for a 10kg bag of Golden Phoenix Fragrant Rice, which cost $18.80 at Prime but $28 at Sheng Siong.

Among the 5kg packs, Golden Peony Fragrant Rice was $9 at Cold Storage but $12.80 at Prime, Mustafa and Carrefour.

In all, 10 brands of fragrant rice were examined across eight randomly-chosen retailers: Carrefour at Plaza Singapura, Cold Storage at Harbourfront Centre, Giant at Vivocity, Mustafa at Little India, NTUC FairPrice at Clementi Central, Prime at Hougang Ave 1, Sheng Siong at Ten Mile Junction and Shop 'N' Save at Toa Payoh Central.

"We were quite surprised by the big differences," said Case's executive director Seah Seng Choon. "But it is the commercial decision of the supermarkets. They have different cost structures, different target customers and ... different locations."

Sheng Siong's managing director Lim Hock Chee, whose Ten Mile Junction outlet had the highest prices for most of the brands surveyed, said perhaps other supermarkets were selling rice from older stock, which would have been cheaper.

"Our stock of rice is new, so we are using the latest prices," he said. "Our stock sells fast because we don't order a lot. We need to keep warehouse space for our house brands."

Its Royal Golden Grain Premium Fragrant Rice retails for $12.30 and its Nang Rum Thai Fragrant Rice for $9.30, for a 5kg bag.

Mr Lim also noted that while Case had listed Sheng Siong as selling a 5kg bag of Golden Phoenix Fragrant Rice at $15, the price was actually $13.20.

Prices at retailers may have changed since the survey was done. For instance, when Today visited Giant yesterday, the regular prices of a 5kg and 10kg bag of Golden Pineapple Fragrant Rice were $10.70 and $21.20, respectively. Case had listed the prices as $9.64 and 19.40.

House brands continue to be cheaper, the survey found. FairPrice Thai Fragrant Rice (5kg) was the cheapest at $6.60, while First Choice Fragrant Rice (5kg) at Shop 'N' Save and Cold Storage was the priciest, at $9.10.

NTUC FairPrice has touted its house brands as being at least 10-per-cent cheaper than comparable national brands. And last week, Today reported how the supermarket, to keep rice prices low, has been advising customers to buy no more than five 10kg bags of rice each.

While consumers were shocked at the huge price differences, those Today spoke to would not change their choice of supermarket.

Housewife Pooja Dutt, 31, gets her rice from Giant as it is convenient. She said: "It is too much a hassle to go elsewhere ... petrol and time still makes up for it at the end."

Customer service officer Audrey Koh, 28, said: "The fluctuating prices are so confusing that I don't really keep track anymore. I am surprised such basic staple like rice does not have a fixed price control system."

But the consumer watchdog will not go beyond surveying prices — Case will not interfere with a commercial decision, Mr Seah said. "We leave it to consumers to decide."

Case will continue to periodically conduct surveys on individual items.

Early this month, it released a survey of the prices of budget items at eight supermarkets.

Question
Explain why prices for the same brand of rice may vary between different locations; and consider what effect this may have on consumers.

Updates: Case checks on rice price: right or wrong?

Old gas pumps can't handle ever-rising prices (A real life case of menu costs due to inflation?)

2008-05-15T12:30:00.004+08:00

The Associated Press
Chip Colville, owner of Colville's, Inc., checks the mechanical meters on a diesel fuel dispenser at his Chevron service station, Friday, April 25, 2008, in Reardan, Wash. The meters on the 30 plus-year-old dispensers stop at $3.999 per gallon. (AP Photo/Jeff T. Green)

REARDAN, Wash. (AP) — Mom-and-pop service stations are running into a problem as gasoline marches toward $4 a gallon: Thousands of old-fashioned pumps can't register more than $3.99 on their spinning mechanical dials.

The pumps, throwbacks to a bygone era on the American road, are difficult and expensive to upgrade, and replacing them is often out of the question for station owners who are still just scraping by.

Many of the same pumps can only count up to $99.99 for the total sale, preventing owners of some SUVs, vans, trucks and tractor-trailers to fill their tanks all the way.

As many as 8,500 of the nation's 170,000 service stations have old-style meters that need to be fixed — about 17,000 individual pumps, said Bob Renkes, executive vice president of the Petroleum Equipment Institute of Tulsa, Okla.

At Chip Colville's Chevron station in this eastern Washington town, where men in the family have pumped gas since 1919, three stubby, gray pumps were installed when gas was less than $1 a gallon. They top out at $3.999, only 30 cents above the price of regular gas at Colville's station.

"In small towns, where you don't have the volume, there's no way you can afford to pay for the replacements for these old pumps," Colville said. "It's just not economically feasible."

The problem is worse in extremely rural areas, where "this might be the only pump in town that people can access," said Mike Rud, director of the North Dakota Petroleum Marketers Association.

Demand for replacements has caused a months-long backlog for companies that make or rebuild the mechanical meters — and that's just for stations that can afford the upgrade.

For many station owners — who, because of relatively small profit margin on gas, aren't raking in money even though gas prices are marching higher — replacing the pumps altogether with electronic ones is just not an option.

"The new ones run between $10,000 and $15,000 apiece," Colville said. "It's an expense that's not worth it."

Mechanical meters can be retrofitted with higher numbers when pump prices climb another dollar. The last time that happened was in late 2005, when gas went over $3 a gallon, and owners of the older pumps installed kits that went to $3.999.

This time around, owners of the old pumps will need to install another kit that can handle prices up to $4.999, and possibly higher. Industry experts say those changes could cost as much as $650 per pump.

It costs less to change the meter to raise the maximum price from $2.99 to $3.99 a gallon, but that option raises the risk of a breakdown, said said Pete Turner, chief operating officer for APS Petroleum Equipment Inc. of Anniston, Ala.

"The computer that they're upgrading was not designed to go any more than what it's going now, and if you do it, they don't last long enough," Turner said. "They run so fast that the gears are wearing out."

The price of fixing the meters jumped in the past three years because old pumps are being phased out for new electronic pumps and demand for refurbished meters is down, Al Eichorn, vice president of PMP Corp., which makes the mechanical meters.

The Avon, Conn., company has hired extra employees who are working overtime but still has a 14-week backlog of orders, Eichorn said.

To deal with the problem, some state regulators are allowing half-pricing — displaying the price for a half-gallon of gas, then doubling the price shown on the meter.

In North Dakota, regulators recently told service stations their mechanical pumps could use half-pricing, provided they use signs to alert costumers and find a permanent solution by April 2009.

What You MUST KNOW for the Mid-Year Exams (if you don't already know them…)

2008-05-13T01:25:00.001+08:00

Topic 1 (NIA)

:SOL

- Definition of SOL: Qualitative & Quantitative Aspects

- Measurement of SOL: Qualitative - using Real GDP/GNP per capita (Explain how & why); Quantitative - using indicators such as literacy rate, life expectancy, pollution index, crime rate etc (Explain how & why)

- Limitations of using NY statistics (e.g. Real GDP/GNP per capita) to measure SOL: Measurement & Conceptual Problems - distinguish comparison 'over time' and 'over space' - explain using examples

Topic 2 (NID):

:Factors affecting components of AD/AE

- Consumption: Income, Wealth, Tax rates, Expectation of higher future income (optimism/pessimism), Expectation of higher future prices, Interest rate etc (Apply & Explain + Evaluate relative importance of factor)

- Investment: Interest rate & MEC (affected by business optimism/pessimism (i.e. Keyne's 'animal spirits'), political stability, infrastructure, quality of workforce, cost of production, tax rates & incentives, etc) (Apply & Explain + Evaluate relative importance of factor)

- Government Expenditure (Topic 8): Expansionary or Contractionary Fiscal Policy (To resolve macroeconomic problems, e.g. recession, cyclical unemployment, dd-pull inflation, BOP diseqm) or Supply-side FP (to develop infrastructure or subsidise R&D or labour upgrading & retraining etc)

- Net Exports (Topic 6: BOP): Competitiveness of Exports (affected by price of exports - in turn affected by Inflation rates, COP, ER,etc; and non-price factors (e.g. changing consumer tastes, better marketing/quality of goods); and Level of Imports (affected by protectionist measures such as tariffs, rising NY in domestic economy etc)

:Multiplier

- Explain the multiplier process (see answer given for the policy essay presentations): How does a rise in AD/AE lead to a multiple change in NY?

- What affects the size of the multiplier (Tut 2 Essay 1)

:Circular flow of income

- How do injections and withdrawals affect the circular flow of income in a 4-sector economy?

- Use of the Circular Flow diagram (and Y=AE diagram) to explain how changes in AD/AE affect NY

Topic 6 (BOP)

:Components of BOP

- Current Account (BOT, Invisibles, Unilateral Transfers) & Capital Account (ST vs. LT K flows): See Tut 7 DRQ

:Causes of BOP deficit

- As above under Net Exports and consider other factors affecting Capital Account (both LT & ST K flows - e.g. FDI, interest rate differentials etc).

:Consequences of (Large & Persistent) BOP deficit

- As in your lecture notes (Explain & evaluate)

Topic 7

:Macroeconomic Objectives

- Benefits (link to consequences of Macroeconomic Problems)

- Conflicts between macroeconomic objectives (e.g. Consider what other macroeconomic problems can arise in the pursuit of a particular macroeconomic goal - See Tut 5 Essay 1, Tut 6 Essay 1b, Tut 7 Essay 1

Topic 8-10

(also Topic 3 to 5 - Causes of Macroecon

Problems)

:Policies to solve macroeconomic problems (Topic 10 (II): Summary)

- Need to be familiar with the causes of the macroeconomic problems (i.e. demand pull inflation, cost-push inflation, cyclical unemployment, structural unemployment, slow & stagnant actual & potential growth, BOP deficit)

- Identify, explain & evaluate appropriate policies to solve specific macroeconomic problems - Consider effectiveness of policies in the context of various economies, e.g. Singapore.

China officials hike wages, threatening boost to inflation

2008-05-07T17:43:00.003+08:00

May 7, 2008 (AFP)

BEIJING - SOUTH China's Guangdong province is the latest area in the nation to unveil plans to raise wages, state media said on Wednesday, a move economists worry runs counter to efforts to rein in inflation.

Guangdong provincial labour authorities said in a 2008 plan that they aimed to establish a regular salary increase system and raise wages of all employees in the region by 12 per cent or more this year, the China Youth Daily reported.

Other areas in China have announced similar polices, including the financial hub of Shanghai, where a salary rise guideline for this year has called on companies to lift employee wages by five to 16 per cent.

This is meant to help households, especially low-income families, cope with the country's surging inflation, which has fuelled government fears of potential social unrest.

China's consumer price index rose 8.0 per cent in the first quarter of the year. In February, it climbed to 8.7 per cent, the highest in nearly 12 years, before easing slightly to 8.3 per cent in March.

But analysts have voiced concern that salary hikes risk exacerbating the inflation problem that they are supposed to alleviate.

'Salary rises are certainly contributing to inflation,' said Mr Chen Xingdong, an economist with BNP Paribas in Beijing.

If companies are told to pay higher wages, they may have to raise their prices to stay out of the red, the economists argued, warning this could be the beginning of a vicious cycle.

'The problem will get worse if salaries and price rises take turns,' said Ma Qing, a Beijing-based analyst with the think tank CEB Monitor Group.

They argued that it could also add an extra burden on companies that are already under big pressure of soaring upstream raw material prices and might even put them out of business.

'If the requirement goes beyond what companies can afford and therefore forces them to cut jobs or stop production, then the losses may be bigger than the gains,' said Shen Minggao with Citigroup.

The Chinese government has signalled growing concern about the ways in which rising prices might adversely affect the poorest in society.

Since January, it has resorted to freezing price hikes on key consumer items like grain, edible oil, meat, milk and liquefied petroleum gas in order to keep them affordable for most families.

Wage rises may be meant to do the same, but economists warned they could actually lead to more social tensions by widening income disparities.

This is because wage rises by decree are likely to benefit mainly government employees, while blue-collar workers in private companies may get left behind.

'I doubt who will benefit from a policy where the government directs salary increases,' CEB Monitor Group's Ma said.

'In the final analysis, I think it will only raise government employees' wages. This is what happened in 2006 and 2007.' -- AFP

Read also: Chinese Cities - Trading Places (30 April 2008) and China's export economy is crumbling (2 May 2008)

US government begins tax rebates to stimulate economy

2008-05-07T00:53:00.011+08:00

AFP (28 April 2008)

The US government began giving out tax rebates Monday in hopes the instant cash will spark consumer spending to revive an economy many analysts believe is in recession.

The Internal Revenue Service (IRS) said it had begun to transfer economic stimulus payments to "millions of Americans," some of whom would see payments in their bank accounts the same day. [read more]

How effective will this be? Read also:

Wall Street watches for where rebates go (May 7 2008)
What Uncle Sam Gives in Rebates, OPEC Takes, Stalling Economy (May 5 2008)
Only 30 percent of Bush tax rebates to be spent: Survey (May 2 2008)
US tax rebates to push gadget sales (May 1 2008)
Can the US economy be revived? (Analysis) by Steve Schifferes - BBC News economics reporter (April 30 2008)

Do smoke and drink tax rises work?

2008-05-07T00:39:00.001+08:00

By Nigel Pankhurst
BBC News

UK Chancellor Alistair Darling announced big increases in the tax on alcohol in his first Budget as the government looks to tackle problems associated with a binge-drinking culture.

The increase in the tax on alcohol was the biggest since the 1970s. The increase, 6% above inflation, will put 4p on a pint of beer, 14p on a bottle of wine and 55p on spirits.

Do moves to increase tax on items such as alcohol and cigarettes have any effect, or will people carry on smoking and drinking regardless?

[Read more]

Interesting Articles related to Singapore - May 2008

2008-05-05T00:58:00.004+08:00

Do we really need more people? - A city's size alone does not seem to result in economic growth or leadership (by Richard Hartung)

The bets are on U: Economists - Events such as the Grand Prix are new growth drivers to help cushion the slowdown: Analysts (by Cheow Xin Yi)

As storm clouds loom... Slowdown could stretch to 2009; Singaporeans should be prepared, says PM Lee (by Loh Chee Kong)

Sources : Today - 2 and 3 May 2008

OPEC-style rice cartel proposed

2008-05-05T00:42:00.010+08:00

Friday, 2 May 2008 19:52

The Prime Minister of Thailand has revived the idea of an OPEC-style Southeast Asia rice cartel.

However, analysts said the plan will not work due to the inability of governments to co-operate with each other and control output from their farmers.

The proposal by Samak Sundaravej the Thai PM, who also happens to be a TV chef, threatens to add to global food supply fears amid record high rice prices.

But it failed to gain traction seven years ago when it was first floated by Bangkok and most see little chance it will fare better this time around.

The five mainland Southeast Asian nations (Thailand, Laos, Myanmar, Cambodia and Vietnam) produce a combined 60 million tonnes of milled rice each year, about 14% of world output.

But only Thailand, the world's number one rice exporter, and Vietnam have major surpluses, last year accounting for about 47% of world wheat trade.

Mr Samak held talks with visiting Burmese Prime Minister Thein Sein and afterwards said they had agreed in principle to the idea.

Burma has resumed limited rice exports this year, mainly to South Asia, after several years off the market.

The proposed group, which includes two democracies, two Communist-led governments and a military dictatorship, appears in no hurry to hammer out the details.

Agriculture ministers will discuss the proposal in September at a meeting of the 10-nation ASEAN regional group in Vietnam.

Story from RTÉ News: http://www.rte.ie/news/2008/0502/food.html

Another article from AP: Thailand floats idea of OPEC-style rice cartel

Questions (with the help of both articles)

What are some of the factors determining the success of the rice cartel?
Assess the short and long term impacts of the rice cartel on producers, consumers and society as a whole, in a rice exporting country as compared to a rice importing country.

and have a look at this very current local example of suspected price fixing...

The Competition Commission of Singapore("CCS") investigates possible price fixing again

- The CCS is currently investigating a suspected breach of the Competition Act (Cap. 50B) by four Singaporean suppliers of a traditional Chinese confectionery commonly used for prayers (发糕 - see pic) [read more]

S'pore inflation to stay high, cool in 2nd half year

2008-04-29T15:14:00.006+08:00

Straits Times 28/4/08

SINGAPORE'S central bank said on Tuesday inflation would cool to an average 4 per cent in the second half of 2008, after it hit a 26-year high above 6 per cent in the first six months of the year.

In its twice-yearly Macroeconomic Review, the Monetary Authority of Singapore said its economic growth target of 4 to 6 per cent this year was intact and was based on a gentle downturn in the United States' economy.

But it warned trade-dependent Singapore could be considerably hit by a more widespread slowdown.

'Inflation will stay high in 2008 due to a confluence of external and domestic factors, although it should moderate somewhat in the second half,' it said.

'However, there are upside risks to global oil and food prices. Even if these prices were to level off, upward pressure on wages and rentals, reflecting domestic capacity constraints, are likely to remain.'

Reacting to the inflation threat, Singapore's central bank earlier this month tightened monetary policy by allowing a rise in the Singapore dollar, its main policy tool.

The market is looking for clues on whether policy could be tightened yet again at the next review in October. The Singapore dollar has risen 5.4 per cent against the US dollar since the start of the year.

'The April monetary policy decision provides affirmation that the exchange rate path is consistent with the prevailing macroeconomic conditions in the economy,' the MAS said in its review on Tuesday.

It also said that gross domestic product growth would likely weaken over the next two to three quarters.

'This baseline forecast is predicated on a mild US downturn for 2008. However, if there is a more widespread decline in global and regional economic activity, Singapore's GDP growth will be more significantly affected.'

First-quarter GDP growth came in unexpectedly strong, running at an annualised seasonally adjusted rate of 16.9 per cent, and economists said the data had calmed fears that the weakness of the US economy would drag on Singapore, giving the central bank room to tighten policy.

Manufacturing accounts for about a quarter of economic output and the city-state would be hit by any global economic downturn because of its heavy reliance on exports to Europe and the United States.

The MAS also pointed out that the cost of doing business in Singapore, a base for international companies and their families in Asia, had risen.

It said the unit business cost index for the manufacturing sector - which measures changes in the cost of producing one unit of manufacturing output after accounting for productivity changes - rose 4.5 per cent in the fourth quarter from a year ago, the seventh straight quarter of growth and the most rapid rate of increase since the fourth quarter of 2001.

This mainly reflected a sharp rise in unit labour costs as well as government rates and fees.

Questions

Explain the domestic and external factors currently affecting the rate of inflation in Singapore.
In view of the current global economic climate, comment on the impact on the Singapore economy of rising domestic costs.