Will Singapore remain the hub in the region amidst the rise of neighbouring ASEAN economies?

Probably the most important factor that makes Singapore a hub is that it has always been a politically stable country. Much of this has to do with 2 factors: a relatively small population making it easier to govern, and the competence of the dominating People’s Action Party set by Lee Kuan Yew. Political stability such a crucial ingredient in becoming a financial hub. Many big corporations would only choose to base their operations in a highly stable country with low corruption and a well enforced rule of law.

This is something very hard for Indonesia to achieve especially ever since the democratic reformations. There are many different parties continuously wrestling for power with their own vision. The long term direction of Indonesia is therefore not predictable with public sentiments continuously changing, some times the people want a free market economy, other times they want to be protectionist, much depends on which side is the most convincing at that moment. This will continuously hinder Indonesia’s prospects of being a financial hub as many businesses would always think twice before taking the risk of opening shop in Indonesia as they can never know what is going to change tomorrow. Unlike Singapore, that for many decades have a clear vision and therefore enjoys great stability.

What this also means for Indonesia is that they can’t have a financial sector as strong as Singapore’s. An advanced financial sector consists of many investment banks, wealth management and business consulting firms. Many of these firms can only prosper on a busy and stable business environment. This is a hallmark of the financial hubs as the establishment of these services places the city/country as one of the centers for money and investments in the world. Wealthy individuals from around the region would come and park their money or invest in instruments provided by these advanced financial institutions, thus bringing large sums into the country. Jakarta and Indonesia meanwhile simply do not have the ingredients to facilitate these levels of advancements in its financial sector. They would definitely grow to become a regional power in the future as they currently only have less than half the population that are using commercial banking services, thus great space and potential for growth. To be one of the hubs in global trade however is something else entirely. It’s one thing to get the common people to bank a bit of money in their savings accounts, it’s another to get billionaires from other countries to save and invest their money into the country, and thats where all the big money and investments come from. That’s what makes a hub.

What happens when a country can’t repay its debts and how does it affect the economy?

There are two ways a country can find itself in a situation where it can’t repay it’s debts. Either the Government has been borrowing excessively for it’s fiscal policy and defaults on their short term obligations. The other way is when there is a systematic failure in the country’s banking system which leads to the Government having to bail out the banks. We are going to discuss the aftermath of both these situations.

Firstly the Government of the country will approach/be approached by the world banking institutions, the “lenders of last resorts” such as IMF and the World Bank. Several countries in Asia and Africa will also be negotiating with China’s Asian Infrastructure Investment Bank (AIIB) and Asian Development Bank (ADB). Meanwhile countries in the EU will also be negotiating with the European Central Bank. The indebted country will negotiate for new loans to service their short term obligations they couldn’t cover. Negotiations will be on how the country will restructure their economy to warrant these new loans. This includes providing plans on how the Government will increase their tax revenue and which Government spending will be cut. The IMF will usually propose several reforms for the country.

If the current debt levels are at a very critical level, there might be negotiations on the sales of the country’s national assets. The assets can literally be anything the Government owns from state owned enterprises or even Government owned buildings and properties. The Greece debt crisis resulted in several of their airports being sold to German firms.

After an agreement is met, the Government now has the funds to meet their short term obligations and prevent default. However, the hard work is just about to begin.

Impact on the economy

The first thing that will happen prior to default is foreign investors and investments will rapidly pull out of the country. Usually coupled with other external factors, all of this will cause the currency to weaken drastically, thus causing rapid inflation in the country. Riots and strikes would then follow causing most business activities to come to a standstill, halting the economy.

Asian Financial Crisis, Indonesia 1998

Greece Sovereign Debt Crisis

Most banks will close, either temporarily or even permanently as they cannot cope with the drastic amount of cash withdrawal caused by the panic of the population. Many businesses may not survive and go bankrupt resulting in the overall economy (GDP) to shrink.

Some countries such as present day Venezuela (above) is experiencing an economic crisis at such a critical level, the Government is forced to ration out goods for the people.

If resentment has been rising towards the incumbent head of state, calls for impeachment might occur as the people calls for drastic change on the system. The replacement then will bring messages of optimism and bring about major reforms. Slowly, with large sacrifices from higher tax rates and massive cuts in Government spending, the economy may gradually recover.

Indonesia Democratic Reformations, 1998

Greece’s Syriza Party led by new PM Alexis Tsipras

The history behind Singapore’s appeal as a centre for money laundering activities

In Singapore’s short history, she has quickly established herself as a financial hub where wealthy individuals from around the region would choose to park their wealth. Here are the landmarks which got Singapore to where they are today.

Singapore Banking Act and the Establishment of the Monetary Authority of Singapore (1970–1971)

Shortly after its independence, the Singaporean Parliament introduced The Singaporean Banking Act (Act 41 of 1970). These are sets of regulations that still applies to Singapore’s financial industry until today. This is a highly significant landmark as these legislations set the foundation for Singapore’s status as the banking and financial hub in the region, implementing Bank Secrecy laws that would make Singapore a “haven” for wealthy investors. With this legislation, Singaporean Banks are not required to disclose client information regardless of criminal charges. Not many other countries can introduce such laws successfully due to its potential for corruption, collusion and many other harmful practices. The only other countries that implements bank secrecy laws are Switzerland, Luxembourg and Lebanon.

Additionally, Singapore also established the Monetary Authority of Singapore (MAS) which is a Government institution that specifically manages Singapore’s banking and financial industry. Other countries traditionally do not have such a specific and advanced institution to manage the financial industry, relying on traditional Government departments and agencies to oversee the highly complex and dynamic Banking industry. MAS was specifically designed to make Singapore more focused and agile in its Banking industry authority. As a result, Singapore is yet to experience a single banking failure since its independence, making it an extremely safe and secretive place for many wealthy individuals and organizations to park their money.

Entry of many giant multinational investment banks (1970s – 1990s)

After the legislations in the early 1970s, many giant multinational banks find it extremely lucrative to set up their operations in Singapore. This is very important because these banks bring with them many different currencies and exotic financial instruments for wealthy individuals and organizations to invest and trade with. In developing economies such as Indonesia, the financial institutions are mostly limited to G7 currencies. Additionally, advanced financial instruments are also heavily regulated in order to prevent harmful practices which could otherwise harm the country’s economy like the financial crisis triggered in the US in 2008. This lack of variations provided by developing countries restricts its financial institutions from growing to a global level as investors would rather flock to Singapore which could provide way more options to its clients.

Asian Financial Crisis (1997–1998)

The Asian financial crisis in Thailand caused a massive shock in ASEAN markets. Many investors lost their trust in emerging economies such as Indonesia, Thailand and the Phillipines. However, it can be argued that Singapore benefitted heavily from the experience. During the 1998 financial crisis many investors moved their money to Singapore and many are yet to return. The event further cemented Singapore’s status as a haven for wealthy individuals to park their assets.

Note: It’s also important to add that many banks in Singapore such as Citibank and HSBC allow individuals from other nations to open bank accounts even though they may not be resident in Singapore. Its therefore no surprise why Singapore is such a haven for money laundering activities.

Where does Indonesia rank among other ASEAN developing economies?

This analysis uses GDP per Capita as a tool to measure roughly the average income level of the countries, thus analyzing their historical economic progress. World Bank has cited GDP per Capita benchmark of USD12,500 for high income and developed countries.USD4,000 for middle income and developing countries.

Malaysia; GDP per Capita: USD10,876 (Upper Middle Income Country)

The 2nd most developed economy in ASEAN behind financial hub Singapore, Malaysia is on the verge of being a developed economy after running consistently impressive growth for many decades. It has strong prospects for the long term future, despite recent political difficulties. Present day Malaysia is at the levels of South Korea and Taiwan in the early 1990s, when they were just established as developed economies.

There’s no obvious reason why Malaysia won’t catch up to South Korea’s developments in the next 20–30 years. Their growth has been consistent over the past few decades and are proven to be quite resilient to crises. They have a healthy diverse economy driven mostly by the manufacturing and services sector, which is a standard model of high income countries. Their services sector, mainly tech, ecommerce and banking are expanding larger and larger into neighboring ASEAN countries. They handled the middle income trap pretty well and even with maturing slower growth rates, they are expected to be fully developed quite soon.

Thailand; GDP per Capita: USD5,774 (Middle Income Country)

Thailand was on par with Malaysia in the early 1990s, they were considered newly middle income countries. However Malaysia’s economy boomed over the next few years while Thailand’s growth stayed at a very conservative pace. A lot of it had to be attributed to the 1997 Asian Financial Crisis which was triggered in Thailand that severely harmed its economy. It slowed down the momentum of their growth significantly.

What differentiates the Thailand economy with the Malaysian economy in the 1990s was that Malaysia had strong growth in their higher value industries, which include pharmaceuticals, medical technology, Banking, tech and ecommerce. Thailand’s economy however was very slow to evolve and still mainly revolved around their automotive manufacturing industry. The Thailand economy seem to have difficulty overcoming the middle income trap as they currently couldn’t find much growth in their services sector which could otherwise generate higher value. Therefore i expect the Thailand economy to have consitent little growth, barring any major reforms.

Indonesia; GDP per Capita: USD3,834 (Lower Middle Income Country)

Indonesia has for the most part been behind Malaysia and Thailand. Present day Indonesia is only as developed as Malaysia and Thailand were in the early 1990s, just before the Malaysian economy started to boom rapidly. That being said, things are currently looking positive for Indonesia. They are expected to enjoy a faster development than the Thailand economy in the 90s. Indonesia has consistently recorded growth rate of at least 4% annually since recovering from the Asian Financial Crisis. Additionally, much of Indonesia’s growth in recent years are driven by its rapidly expanding services sector. If the Government can stimulate growth in its sluggish Manufacturing sector then Indonesia will have a diversified economy with impressive growth. This is why Indonesia is quite likely to catch up to Thailand’s level in the next 10 years or so.


In the next 20-25 years, assuming current growth remains constant, Indonesia can potentially develop into an upper middle income country. It will look a lot like Brazil’s present day economy which has similar population demographics and market structure. Indonesia currently has the right age demographics to make the progress to a more developed economy. The country has a young population and in the next few decades will have a massive workforce. This leads to greater output generated by the economy, leading to higher disposable income among the workforce to be spent on the market, which leads to a prosperous business cycle.

Phillipines; GDP per Capita: USD2,635 (Lower Income Country)

Since the 1980s, things haven’t quite worked out for the filipino economy. Although there has been improvements in the last decade or so, the country has lagged far behind and is currently still classified as an undeveloped economy. Much of this has to do with the lack of political stability in Phillipines history. Nonetheless, growth seemed to be picking up in the last one and a half decade or so. At the current rate, Phillipines is projected to reach the benchmark per Capita for a developing economy USD4,000 at some point in the next decade. They have a continuously diversifying economy similar to Indonesia, however output has always been weak in all sectors. There is one important factor that must be considered. Newly elect President Duterte’s policies on Drug War may have been deemed controversial. But national public sentiments for him is highly positive. If President Duterte can clean up the drug war issue quick and focus on revitalizing the economy, Phillipines will quickly rebound.

Vietnam; GDP per Capita: USD1,684 (Lower Income Country)

Vietnam is the least developed country in this list simply because they started developing late and from such a low base. The war with America really held them back in development when other ASEAN countries were growing. However, ever since the Vietnamese economy started stabilizing in the early 90s, growth has been impressive.

One of the reasons as to why Vietnam has so much promise amongst investors is that the Vietnamese political landscape and economic policies are somewhat similar to China in their pre boom years in the early 1990s, focused on manufacturing and other value added goods.

The single party system that Vietnam employs, if done right can ensure stability in the political landscape, leading to a single national vision in economic growth. This facilitates strong growth. Vietnam has the most potential out of other ASEAN countries to record supergrowth like China did, who often exceeded 10% annually. This is further supported by the fact that Vietnam has a solid foundation for their services sector as they have one of the highest broadband penetration in ASEAN. They have the potential to be big in the e-commerce market and thus will have a busy and diversified economy. If they hit that momentum of 10% growth annually, they can easily catch up to Indonesia and Thailand in 10–15 years. If Vietnam can sustain the rapid economic growth for a prolonged period of time, it’s not impossible that they reach a GDP per Capita of USD25,000 similar to present day South Korea and Taiwan in 20–30 years.

Edit: Vietnam however has a unique problem it does not share with the other ASEAN countries, rather a condition quite similar to their northern neighbors. Vietnam has an aging population, unlike the other ASEAN countries. At some point in the not so distant future, this will slow down Vietnam’s economy as they would deal with a diminishing population, workforce and spending in their economy. There are ways to handle this problem such as introducing liberal immigration reforms to push the natural flow of workforce immigration. Nonethless this will remain a highly complex and sensitive issue that will no doubt prove to be a problem in the future.