The focus of this chapter is on the conduct of macro-economic policy in Singapore, especially during the eighties. An attempt will be made to identify the instruments used and the targets at which they are aimed. A number of writers have already discussed the practice of macro-economic policy in Singapore in the seventies. For example, such writers as Branson, Hewson and Kapur in the Monetary Authority of Singapore (MAS) Anniversary Volume (1981) focused on exchange rate/monetary policy. So long as there is an exchange rate target, given the high degree of capital mobility, there is little room, if at all, for independence of the money supply; it is determined endogenously by money demand. Lee (1987) discusses the reasons for the unique experience of high growth accompanied by low inflation during the seventies. Corden (1984), in his paper on macro-economic targets and instruments, suggests that exchange rate policy be used to achieve price stability, and wage policy, full employment. Much of this literature was written while Singapore's record of rapid growth was still unmarred. The downturn since late 1984, however, coupled with the current policy debate and the policy attempts to aid recovery have uncovered features of macroeconomic management which were not sufficiently highlighted before. The objective of this chapter, therefore, is not to cover old ground, but to build on the current literature, focusing in particular on the experience of the eighties in a fresh evaluation of macro-economic policy.

Instruments and Targets

There are five main policies which affect the macro-economy: (i) the exchange rate/monetary policy; (ii) the Central Provident Fund and public-sector surpluses; (Hi) public-sector construction; (iv) other fiscal instruments, such as various taxes; and (v) labour policy, comprising foreign labour and wage policies. The two main goals of macro-economic policy are continued high growth and price stability. Although a distinction can be made between raising the trend rate of growth in the medium to long run and minimizing fluctuations around a given trend rate in the short run, the macroeconomic policies mentioned above can have consequences for both the short and the medium run.