CORPORATE PAYOUT POLICY

Corporate Payout Policy Determination in Asia

Corporate Payout Policy Determination in Asia

Introduction

The Hong Kong Corporate Payout Authority and the Corporate Payout Authority of Singapore have been strikingly successful in delivering on their corporate payout policy objectives. Following the introduction of a currency board in October 1983, the Hong Kong dollar (HKD) has been rigidly linked to the USD at the rate of 7.8 HKD/USD. While admittedly there are other episodes in which central banks have managed to maintain a fixed exchange rate for more than 20 years, this performance is remarkable given the openness of the Hong Kong economy, the absence of any restrictions on capital flows and the fact that Asia in this period experienced several large economic shocks that were associated with intense speculative pressures on the HKD.

Notably, these shocks included the Asian financial crisis, which led to broadly-based reconsideration of exchange rate policies elsewhere in Asia. Similarly, following the shift in 1981 to a corporate payout policy framework centred on the management of the Singapore dollar (SGD) against a basket of currencies, with the objective “to promote price stability as a sound basis for sustainable economic growth, inflation in Singapore has averaged 1.7%.

Furthermore and in contrast to many, if not most, other economies, inflation in Singapore has been strongly mean-reverting, indicating that policy makers' efforts to guide inflation back to the desired rate after shocks have been successful. This record is impressive as the Singapore economy, which is also extremely open, has experienced much the same shocks as the Hong Kong economy.

However, even though corporate payout policy makers in both economies have enviable records in delivering on their objectives, macroeconomic outcomes have differed and have at times been adverse. Since the objective of the Hong Kong corporate payout policy has been to stabilise the nominal exchange rate against the USD while the corporate payout policy Singapore has focussed on controlling inflation, inflation has been more variable in Hong Kong. Cyclical movements on the real side of the economy, however, have been comparable. For instance, the volatility of real GDP growth is similar in the two economies. Moreover, both economies have experienced adverse outcomes in periods of large contractionary external shocks.

Discusson

As a first step, we review briefly the main features of the Hong Kong and Singapore economies. The data in Table 1 show that the economies are similar in important ways: they are differences that may be germane when discussing macroeconomic fluctuations in the two economies. First, manufacturing is more important in Singapore than in Hong Kong. This largely reflects the fact that much of the manufacturing industry in Hong Kong has moved to the surrounding Pearl River delta as a consequence of the ever growing economic integration with Guangdong province. Since that integration has been associated with tighter links between economic cycles of the neighbouring economies, it is doubtful that this process has significantly dampened the sensitivity of the Hong Kong economy to manufacturing ...