WITH the world economy slowing, Singapore's export markets are being adversely affected. And therefore, Singapore, too. Hence, it is gratifying that measures have been taken to blunt the effects of the global financial crisis.

It is against this backdrop that Singapore has amended the Constitution on spending investment returns from its substantial reserves, introducing a new framework that increases the funds available to the Government. Indeed, the global crisis provides a timely reminder of how best to pursue this. It is only natural to want to spend from funds available, in times of economic slowdown. But a large measure of prudence is called for in order to prevent excesses, and thus to ensure that resources continue to grow for the future. Thus, Prime Minister Lee Hsien Loong noted yesterday in Parliament that while the amendment was not designed for this downturn, it will put in place the principles to guide spending from investment returns derived from reserves in this and future downturns.

The key term in the changes, Mr Lee stressed, is 'long-term expected real returns'. To put it simply, this means looking at what can realistically be expected from investments over a long horizon. Doing this much would allow Singapore to spend in crucial areas that have long gestation periods, free from the vagaries of short-term ups and downs in market and business cycles. For example, making investments in the workforce so it is continually trained up and better able to adapt to changes, and to fund research and development that take years to yield dividends. Access to more funds also allows for more flexibility in direct taxation, especially when tax rates are declining the world over. Put together, the new framework will allow for investments that broaden the scope of the economy, to allow it to weather future slowdowns and whenever stresses and turmoil emerge.

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