8. International ﬁnance and growth Between 1965 and the mid 1980s Singapore achieved rapid export-led growth and industrialization without encountering any signiﬁcant balance of payments problems. The current account was in persistent deﬁcit over this period but was more than covered by a high level of national savings and a continuous inﬂow of productive export-oriented foreign direct investment. Exchange rate policy has also been remarkably successful in the last two decades in delivering fast growth, low and stable price inﬂation, and a strong external position without the need for a deliberate weakening of the currency. At the same time, despite a small domestic resource base, Singapore has become a major foreign exchange and international banking centre and the location for the Asian Dollar Market (ADM), one of the largest oﬀshore money markets in the world. Yet Singapore still exhibits some of the features of an underdeveloped economy insofar as capital markets are relatively immature in terms of ﬁxed income assets, equities and the fund management industry, and the impotence of conventional monetary and ﬁscal policy in such an open economy has limited the options available to the government to implement macro-stabilization policies. These features, together with the characteristics discussed in the previous chapter of extreme openness to trade and factor ﬂows, ‘dependence’ on foreign resources, and vulnerability to external shocks, has provided the rationale for a development strategy based on high levels of forced saving through the CPF, high levels of centrally directed investment, a...
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