Liberalization of Financial and Capital Markets - Singapore Is Almost There!

By Lall, Ashish; Liu, Ming-Hua | Law and Policy in International Business, Spring 1997 | Go to article overview
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Liberalization of Financial and Capital Markets - Singapore Is Almost There!

Lall, Ashish, Liu, Ming-Hua, Law and Policy in International Business

I. Introduction

This paper provides an overview of financial and capital markets and

institutions in Singapore. A major financial center in Asia, Singapore

has well developed institutions, instruments, and policies and a very

open economy with few restrictions on the movement of goods and

capital. This openness is also evident in the financial sector; thus, there

are few remaining "liberalization issues" concerning capital markets.(1)

In Part II the economic and political systems in Singapore are briefly

discussed, followed by a description of the various financial institutions

in Singapore in Part III. Part IV discusses financial markets. Parts V and

VI discuss the nature of regulation and monetary and fiscal policies,

respectively. Part VII provides examples of the influence of international

institutions on the development and regulation of financial

markets in Singapore.

II. Singapore: Politics and Economics

The Republic of Singapore is a parliamentary democracy with

universal suffrage and compulsory voting. However, for all practical purposes,

Singapore is a one-party state. The current party in power, People's

Action Party or PAP, has been at the helm since 1959, with no

opposition in Parliament from 1969-1980.(2)

Linda Low has described the PAP government's philosophy as being

relentless in any political struggle to maintain power -- to the point of

sacrificing liberal democratic principles, if required.(3) The

government's top-down style of leadership emphasizes meritocracy, elitism,

and government by example, with a genuine desire to improve the

well-being of the people.(4) Low has identified the following elements of

the PAP government's political philosophy:

* a balanced budget;

* an open, competitive system;

* a lack of unnecessary interference with the conduct of


* a policy that the government will do everything necessary

to support growth, the provision of an infrastructure, and

efficient public administration, and

* the policy rationale that good government is crucial since

the country has no natural resources.(5)

In accordance with its political and economic philosophy,

Singapore's government has a noticeable presence in the economy through

government-linked companies. This involvement allows the

government to control strategically important industries, to assume a

leadership role in sectors that it deems important yet where the private sector

has not taken any initiatives, and to direct the economy based on its

assessment of future economic developments. At the same time, the

government interferes only minimally with government-linked

companies, as they are run on corporate principles and established to make


The government has also created an economic environment that

allows the free market to function and encourages foreign investment.

While there are some restrictions on foreign ownership in such sectors

as local banking, airlines, shipping, public utilities and the defense

industry, for the most part, Singapore has a free market economy with

most industries open to foreign investors. However, relevant

government departments or statutory boards must approve all foreign

investments. This process serves to direct investment to the appropriate

sectors rather than to limit foreign capital. The government further

provides tax incentives to attract local and foreign investment without

differentiating between the two sources of capital. Singapore imposes

no capital gains tax. The country's two main sources of revenue are

income taxes (personal and corporate) and the recently-introduced

three percent goods and services tax.

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