Singapore Table of Contents
Singapore had an exceptionally open economy. Fundamentally strong, the currency reflected a sound balance of payments position, large reserves, and the authorities' conservative attitude. From 1967 until June 1973, the Singapore dollar was tied to the United States dollar, and thereafter the currency was allowed to float.
The Monetary Authority of Singapore, the country's quasicentral bank, pursued a policy of intervention both domestically and in foreign exchange markets to maintain a strong currency. This multifaceted strategy was designed to promote Singapore's development as a financial center by attracting funds, while inducing low inflation by preventing the erosion of the large Central Provident Fund balances. Furthermore, the strong currency complemented the high wage industrial strategy, forcing long-term quality rather than short-term prices to be the basis for export competition.
Given Singapore's dependency on imports, however, setting an exchange rate always generated controversy. The 1986 Report of the Economic Committee did not clarify official thinking. It recommended that the exchange rate should "continue to be set by market forces, but its impact on [Singapore's] export competitiveness and tourist costs should be taken into account. The [Singapore] dollar should, as far as possible, be allowed to find its own appropriate level, reflecting fundamental economic trends."
After 1978, when the government abolished all currency exchange controls, Singaporean residents (individuals and corporations) were free to move funds, import capital, or repatriate profits without restriction. Likewise, trade regulations were minimal. Import duties applied only to a few items (automobiles, alcohol, petroleum, and tobacco), and licenses were required only for imports originating from a few Eastern bloc countries. There were no export duties. As the government played an active part in promoting exports, there was an extensive system of supports including an export insurance plan.
The government promoted investment vigorously through a whole range of tax and investment allowances and soft loans aimed at attracting new investment or at helping existing businesses upgrade or expand. There was no capital gains tax. Special incentives existed for foreigners, including concessionary tax arrangements for some nonresidents, relief from double taxation, and permission to buy commercial and certain residential property. In 1985 extensive tax reductions were introduced to reduce business costs.
Data as of December 1989