ST : 'Govt watches out for bubbles'

Oct 16, 2010

'Govt watches out for bubbles'

Direct, targeted actions are effective: SM Goh

By Zakir Hussain

THE Government is always looking out for potential bubbles, especially in property, said Senior Minister Goh Chok Tong.

'We periodically act pre-emptively to let some air out of property bubbles before they burst with a bang,' he told alumni at his alma mater Williams College in Massachusetts on Thursday.

And what has proven effective in cooling the property markets are direct and targeted measures, he added.

These include reducing the maximum loan for buying a second residential property and imposing stamp duty on owners who sell their properties within three years of buying them.

But, he added: 'Broad monetary policy actions may not be best suited since they can be blunt, and if applied too aggressively, can have unintended negative effects on the entire economy.'

Mr Goh made these points in a speech at a panel discussion, during which Williams College graduates from several countries discussed the lessons the United States can draw from developing countries in the recent global financial crisis.

His remarks come two months after the Government announced sweeping measures to take some heat out of the booming property market, the third cooling measure in a one-year period.

Mr Goh, however, stressed that he would hesitate to draw lessons from the way Singapore and China handled the financial crisis for the US.

The nature of the problems the US and various countries faced was vastly different, and 'the firestorm was in the US while the Asian economies felt only the heat'.

But, he said, he wanted to make the point that growth in the property sector and stock markets must be based on underlying economic fundamentals. 'Regulators must be vigilant of short-term speculative bubbles leveraged off cheap liquid funds,' he said.

Asia learnt its lesson from the property and stock market bubble during the Asian financial crisis in 1997, he added.

Mr Goh, who got a master's degree in development economics from Williams in 1967, is on a private visit to the US where he attended the 50th anniversary celebrations of the university's Centre for Development Economics.

In his speech, he outlined briefly how China and Singapore had managed the impact of the latest financial crisis.

Singapore's approach of cutting costs to save jobs rather than cutting jobs to save costs in the measures it adopted - Jobs Credit and skills upgrading - worked, he added.

It helped companies ramp up production to meet the surge in demand when the global economy recovered, enabling the economy to rebound.

But he indicated a similar approach may not be possible in the US because of the size of its economy and its free market philosophy.

Mr Goh also cautioned against innovative activity carried to extremes, such as creative credit instruments, which can have far-reaching risks.

He also argued that globalisation is beneficial to all countries and that governments cannot turn their backs on it, political pressure notwithstanding.

Mr Goh believes Asia will remain open and growing in the next decade and hold much economic opportunity for the US.

It was therefore better for Asian economies to stay coupled with the US, he said.

zakirh@sph.com.sg