Greek default: No cause for alarm here

Protesters in an anti-EU demonstration in Athens on Monday rallying against the deal struck between Greece and its European creditors. Under the deal, Athens must push through draconian reforms in a matter of days.
Protesters in an anti-EU demonstration in Athens on Monday rallying against the deal struck between Greece and its European creditors. Under the deal, Athens must push through draconian reforms in a matter of days.PHOTO: AGENCE FRANCE-PRESSE

Greece's recent default of its debt repayment to the International Monetary Fund (IMF) has had no negative financial impact on Singapore but the authorities here remain watchful of developments and possible knock-on effects these could have, Monetary Authority of Singapore board member Lawrence Wong said yesterday.

But there are also lessons that can be learnt from the nation's crisis.

Mr Wong, who is Culture, Community and Youth Minister, was replying to Ms Irene Ng (Tampines GRC), who asked about the impact of Greece's default on Singapore, the region and the global economy.

Although Greece has defaulted on a total of €2 billion (S$3 billion) to the IMF as of Monday, Mr Wong said the IMF had procedures and sufficient funds to minimise any negative impact on member-states.

This is not the first time a state has missed payments to the global lender, but "no country has had to face what is, in effect, expulsion from the IMF due to persistent arrears, and no losses have been realised on IMF loans", Mr Wong said.

The IMF also has considerable reserves with which to protect its lenders and members. A contributing member is financially exposed to the organisation itself rather than to the countries it lends to - thus shielding IMF members like Singapore from the Greek default.

Singapore is also protected from the Greek crisis by its limited links with the country. Greece accounts for only 0.1 per cent of banking system assets here and just below 0.2 per cent of Singapore's total trade.

To Ms Ng's question on his assessment of the risk of economic contagion, Mr Wong cited how even European banks have substantially minimised their exposure to Greece. So the impact of the crisis beyond Europe is containable.

He said countries should ensure Budget policies are sustainable and that they live within their means. This means avoiding populist spending or providing benefits that are financed solely through indefinite debt accumulation.

They should also not lose their competitiveness. In the lead-up to the crisis, the growth of wages and benefits in Greece far exceeded productivity gains. The resultant severe drop in competitiveness diminished its growth prospects and compounded its debt.

A version of this article appeared in the print edition of The Straits Times on July 15, 2015, with the headline 'Greek default: No cause for alarm here'. Print Edition | Subscribe