Finance Minister Heng says another financial crisis unavoidable

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Finance Minister says S'pore needs to adapt to structural changes in global economy

A decade after the bankruptcy of US investment bank Lehman Brothers triggered the global financial crisis, Finance Minister Heng Swee Keat said that another crisis is unavoidable.

Whenever that happens, however, Singapore's ability to meet the new challenge will hinge on its ability to understand the impact of ultra-accommodative central bank policies, adapt to structural changes in the global economy and maintain a disciplined central bank, he said.

"The ups and downs of the economy over the years; economists have tried very hard, they've studied this for a long time, and we've not been able to avoid business cycles."

However, the tools to mitigate the worst of those cycles have evolved since Lehman's collapse. The speed and extent to which the fallout spread around the world have led to global coordination of regulations and attention to firewalling and systemically important institutions, Mr Heng said in an interview with The Business Times.

Investor education is also now a significant part of the Singapore financial regulator's toolbox after large numbers of retail investors in Singapore and Hong Kong suffered losses from buying Lehman-issued structured products.

"The extent to which investors had bought into those, we had very little knowledge of initially," Mr Heng said.

"But as the Lehman crisis deepened, more and more came out... That was a very, very difficult episode. I had full understanding of the people who invested in Lehman bonds.

"We tried as best as possible to have a proper resolution. It was extremely difficult, but in the end I think we acted in a way that was fair to investors. But I also understand that many people were hurt by the episode. And that is why after that, we stepped up investors' education in a very major way."

While it may be difficult to predict how and when the next crisis might play out, Singapore can take steps to prepare for that inevitability, he said.

The first is to study the impact of the past decade's historically accommodative central bank policies.

"Central banks all over the world have had a period of ultra-accommodative monetary policy, and with very unconventional policies, in particular on these asset purchases and keeping interest rates at almost close to zero.

"We are still trying to look at the effects of this very prolonged period of ultra-accommodative monetary policy. Now, what risks have been built up with this, is something which I think we need to probe more deeply."

Singapore will have to face that uncertainty amid major structural changes in the global economic system, he said.

Those changes include the shift of the "centre of economic gravity" towards Asia, demographic changes in the region and technological disruption. - THE STRAITS TIMES