Tharman Shanmugaratnam
Singapore
“EDB conducts regular reviews to GIP to ensure its effectiveness in attracting only top-tier business leaders who are interested to drive the growth of their businesses and investments from Singapore.”
“MAS may vary the size of the additional capital requirement imposed on the bank and take other regulatory actions depending on the outcome of ongoing reviews. MAS requires all retail banks in Singapore to ensure that their mission critical systems supporting digital banking are resilient.”
“This question will be answered in the reply to Dr Tan Wu Meng's Parliamentary Question filed for tomorrow's Sitting. [Please refer to "Probe into Recent Disruptions of DBS' Digital Bank and Physical ATM Services and Preventive Measures Implemented", Official Report, 5 July 2023, Vol 95, Issue 107, Written Answers to Questions for Oral Ans…”
“Borrowing from the banks is one of the ways in which MAS carries out MMOs to soak up such excess liquidity. Like other central banks, MAS does this daily through an auction system, enabling MAS to withdraw liquidity through the Primary Dealers that submit the most competitive prices.”
“To mitigate consumer over-indebtedness, the Monetary Authority of Singapore (MAS) requires financial institutions (FIs) to implement a range of safeguards when extending mortgage loans and unsecured credit.”
“The Monetary Authority of Singapore imposes on external asset managers the same stringent regulatory standards for anti-money laundering and countering the financing of terrorism that it imposes on banks.”
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“What we are seeing is a level of risk aversion that has gone well beyond what happens in normal downturns. This is a systemic problem and requires a systemic solution. This is why governments all over the world are trying to find solutions to free up credit. The approach taken in some of the developed economies where banks have suffered large write-downs on their assets has been to partially nationalise financial institutions by injecting government capital. However, these measures have so far not succeeded in unfreezing the credit markets. The Government has not had to bail out our Singapore banks. They are already well-capitalised and have no lack of liquidity available to them. Singapore banks are also not burdened with toxic assets. Their non-performing loans are low at about 1%. The credit situation in Singapore held fairly steady until October but loans have begun to decline since then. A decline in credit occurs in every recession both because the demand for credit goes down, and because the banks become more cautious over the prospects of loan recovery. However this time we have to expect a more severe contraction if nothing is done. Firstly, several of the foreign banks, especially those with weak balance sheets globally, have been focusing on recapitalisation in their head offices. Secondly, even the stronger players, including our local banks, have taken a step back to reassess their lending strategies because of the uncertainty over the depth and duration of this recession. Special Risk-Sharing Initiative (SRI) We therefore have to do more to avoid a situation where good and viable companies are unable to get the funding they need to stay afloat and grow. The Government has therefore decided to take on a significant share of the risks of bank lending.”
“In all, we expect a total of 18,000 public sector jobs to be made available over the next two years(4). (This includes government-supported jobs outside of the Government in areas such as childcare, tertiary education, and restructured hospitals.) The Government is not expanding hiring simply to pad up our ranks. We are doing this so as to build up capabilities and strengthen quality. The downturn is the right time to do so, and enhance our ability to deliver quality education, healthcare and other essential services. We also need more people to handle an increased workload and scope of services such as in security and for the various social schemes that we have started and are expanding. In all these areas we will remain lean and efficient, and avoid over-manning. So we are really building up capabilities for the long term, using the opportunity of the downturn to accelerate hiring but we will keep lean, keep efficient and avoid over-manning. [4] This includes close to 7,500 in teaching positions and teaching support staff for our schools and tertiary institutions, 4,500 healthcare professionals and administrative staff for our hospitals and 1,400 for our Home Team and over 2,000 for MINDEF, which has been announced earlier by the respective Ministries. In addition, the rest of the public service have plans to recruit an additional 2,600 jobs over the next 2 years. These jobs comprise policy, operational and administrative positions in various government agencies, as well as positions in more specialised areas such as Project Management, IT, Accounting and Urban Planning. STIMULATING BANK LENDING The second component of the Resilience Package is stimulating bank lending. Globally, the most serious immediate problem is the credit crunch.”
“Complementing SPUR, the Economic Development Board (EDB) will introduce a $100 million programme where EDB co-shares manpower, training and related costs with companies, especially focused on engineering and technical jobs. It will also fund on-the-job training opportunities for fresh graduates. These re-training and upgrading measures are expected to cost $750 million over the next two years. It is money well invested in the human capital of our workers. WIS Special Payment to help with lower wages The third component of our Jobs programme will be a temporary top-up to the Workfare Income Supplement (WIS) received by low-income workers. Some of them may have to accept lower wages or work less overtime because of the downturn, which means they will have less take home pay. We will give them a temporary WIS Special Payment, to supplement their pay and encourage them to stay at work. The WIS Special Payment will provide low-income workers with an additional 50% of the WIS payments that they will receive over the course of this year. As an illustration, a 50-year old employee who has been working throughout 2008 and 2009, earning $1,000 a month, will receive $600 in WIS Special Payment, fully in cash. This will be on top of the $1,200 in WIS that he will receive for this year’s work. So the WIS plus the WIS Special Payment will be a total of $1,800 for this worker who earns $1,000 a month. As this is a special measure for the downturn, we will also relax the work eligibility criteria of the WIS Special Payment to allow those with less regular employment to also qualify. The WIS Special Payment will cost the Government $150 million. The Government will also be expanding recruitment.”
“This is the reason why the Government launched the Skills Programme for Upgrading and Resilience (SPUR) last November which provided higher course fee support for companies and individuals and absentee payrolls for companies that send their workers for training. Workforce Development Agency (WDA) has recently expanded by five times, the number of courses covered under SPUR including courses in human resource, healthcare, precision engineering, and ICT. We have also extended SPUR support to in-house training that meets quality training standards, for companies that commit to the Tripartite Guidelines for Managing Excess Manpower. With the recent expansion, there will now be more than 800 courses, covering 24 industries, and a total of 230,000 training places under SPUR. Help for PMETs We have to step up training across all levels of the workforce, including our PMETs (professionals, managers, executives and technicians). To cater to the needs of PMETs, WDA aims to double the number of Professional Conversion Programmes over the coming year, from 23 currently. We will make two more enhancements to SPUR to help PMETs re-train and prepare for their next jobs. SPUR currently provides course fee subsidies of 80% for PMET-level courses. We will be increasing the subsidy rate for PMET courses that are eligible for SPUR to 90%, the same subsidy level as rank-and-file level courses. This includes all Specialist and Advanced Diplomas offered by our polytechnics. Further, WDA will bring under SPUR, selected tertiary courses at UniSIM and our three publicly funded universities.”
“There is therefore no need for an across-the-board wage cut at this time. Furthermore, by designing the Jobs Credit to cover the first $2,500 of each employee’s wages, which is pegged at the median wage in Singapore, we are in fact giving companies special incentive to retain low and middle-income workers - more than a CPF contribution rate cut would achieve. *Cols. 1317-1318. [3] The Jobs Credit is based on wages up to the first $2,500, whereas CPF contributions are based on the first $4,500. This explains why the 12% Jobs Credit is equivalent to a 9% CPF contribution rate cut for employers. The Jobs Credit is also better than the alternative of giving companies a corporate tax rebate during the crisis. It helps all companies, including our SMEs who pay much lower income tax under our tax schedule, because of the partial tax exemption threshold that we have. This broad-based approach is important because our SMEs account for six of 10 Singaporean jobs. The Jobs Credit will add to the resilience of companies that are still viable but have been caught by the severity of the crisis and would otherwise be forced by cash-flow difficulties to shed workers. The Jobs Credit will cost the Government $4.5 billion. This is not intended to be, and must not be, a permanent scheme to subsidise employment. It is a temporary scheme to help companies through an exceptional downturn. However, if the downturn continues, it may be necessary to extend the Jobs Credit, in some form, over the following year as well. We will review this later depending on the state of the economy. Re-skilling: SPUR for workers and professionals The second component of our Jobs programme is to help Singaporeans upgrade their skills so that they can stay employed or seek re-employment.”
“Workers will therefore be making significant adjustments in this crisis to allow businesses to survive and to keep their jobs. But wages are only part of the total cost of doing business. We expect businesses to find every way to cut unnecessary costs in their operations, improve efficiency so as to reduce overheads without having to retrench workers. As NTUC Secretary-General Lim Swee Say has urged, businesses should cut costs to save jobs, not cut jobs to save costs. The Government will however, provide a significant incentive for companies to retain their workers, and where their business warrants, to employ new ones. The Jobs Credit will provide every employer with a cash grant to reduce their costs of employing Singaporean workers during the crisis. Jobs Credit will have broadest impact The Jobs Credit that an employer receives will comprise 12% of the first $2,500 of the wages of each employee who is on the CPF payroll. It will be given in four quarterly payments, with each payment being based on the workers who are with the employer at the time. This will therefore provide incentive for employers to retain their local workers. For example, for a worker whose wage is $2,500, an employer will get $900 a quarter, or $300 a month. Employers will receive the first payment at the end of March this year. The next three payments will be in June, September and December 2009. (Details of the Jobs Credit are in Annex A*.) The Jobs Credit of 12% of wages, will be equivalent to a 9 percentage point CPF cut(3). The Government did consider cutting the employer CPF contribution rate but decided against it. The fundamental problem in this recession is not one of wage competitiveness but of a slump in global demand.”
“The Basic Balance is expected to be in deficit by 6% of GDP in FY2009 (before accounting for NIR or transfers to our endowment and trust funds). The basic balance is expected to be in deficit by 6% of GDP for FY2009. This is the largest deficit the Government has budgeted for to-date. Emerging stronger This is therefore a major package for tackling an unprecedented recession and preparing for recovery. We will help our businesses and people with their immediate problems in this economic crisis. More than this, we will reduce taxes, and invest in every new skill and capability that will help us come out of this crisis more competitive. We will emerge stronger and ready to seize new opportunities, just as we did when we responded to the Asian Financial Crisis a decade ago. JOBS FOR SINGAPOREANS The first and most important thrust in the Resilience Package is jobs for Singaporeans. We will introduce a Jobs Credit scheme to help employers to keep their workers. We will also strengthen our subsidies for training and provide additional support for lower-income workers who face a reduction in pay during the downturn. Finally, the Government will also expand recruitment across ministries and statutory boards, for all levels of employees, and including mid-career professionals. Jobs Credit To sustain jobs for Singaporeans, we will introduce a Jobs Credit which will encourage our businesses to preserve jobs as much as is possible in the downturn. Everybody has a part to play Everybody has to make adjustments in this downturn. Workers are already facing cutbacks in bonuses, reduced overtime and in some instances, involuntary no-pay leave. The National Wages Council has recommended that companies may implement a wage freeze or wage cut to remain competitive and save jobs.”
“And we will rejuvenate our neighbourhoods and develop suburban nodes, and move ahead with initiatives to ensure sustainable development, so that Singaporeans will enjoy an extremely liveable city in all its facets, even as the economy continues to grow in the years to come. Resilience Package: Five components The Resilience Package of $20.5 billion for 2009 will have five components: – First, jobs for Singaporeans. We will spend $5.1 billion to help preserve jobs. – Second, stimulating bank lending. We expect to extend $5.8 billion in government capital for a Special Risk-Sharing Initiative (SRI). Of this $5.8 billion of government capital, a small fraction is likely to be eventually expended on provisions for loan losses. – Third, enhancing business cash-flow and competitiveness. We will implement tax measures and grants for businesses that will cost $2.6 billion. – Fourth, supporting families. We will spend $2.6 billion to support Singaporean households this year. This is on top of the benefits they will derive from the measures to preserve jobs. – Fifth, building a home for the future. We will spend $4.4 billion on developing first class infrastructure for the island and on expanded provisions for education and healthcare. These amounts totalling $20.5 billion are what the Package will spend this year. We will front-load some of the measures, beginning in March 2009. Certain measures will also stretch beyond 2009 and will therefore have an impact on future budgets, on top of the $20.5 billion package this year. Together these initiatives will mean a significantly expansionary Budget in the financial year 2009.”
“Key objective is jobs Our key objective in this package is to help Singaporeans keep their jobs. The best way to give our people confidence during this crisis is to help them stay employed and retain their ability to support their families. This is why the Resilience Package will focus especially on helping businesses to retain workers, by helping them to meet their costs and strengthen their cash-flow, and by enhancing their competitiveness. It is mainly a supply-side approach, aimed at keeping jobs. It will provide more support and more confidence for the domestic sector of the economy than efforts to stimulate consumption demand directly. Keeping our focus on the future We will help businesses and Singaporeans with their immediate needs, so that they can stay afloat in the recession and look towards the future. But even as we deal with the immediate problems, this cannot be a Budget that is only about the short term. We should take the opportunity of this downturn to build up our capabilities and infrastructure, and position Singapore for its next phase of growth. The Resilience Package will therefore keep up and accelerate our investments for the future. It will mean stepping up efforts to equip Singaporeans with a world-class education in their youth, broadening training opportunities during their working years, and providing the best care services for those in their silver years. We will provide further incentives for investments across our industries and help build up innovative capabilities among businesses small and large.”
“We have been affected by the decline in the advanced economies which has reduced demand for our manufacturing exports. Our services industries are also being impacted by the sharp contraction in global and regional finance, and in intra-Asian trade and tourism. The Government has updated its economic forecasts for 2009. We are projecting GDP to contract by between 2% and 5% this year. We start from a position of low unemployment, the lowest in Asia last year. The resident unemployment rate was 3.3% in September. However, given the severe economic recession, we have to expect many more jobs to be at risk this year. RESILIENCE PACKAGE Keeping jobs, building for the future The Government will implement a major fiscal package in response to this crisis. We are likely to experience the deepest recession in the Singapore economy since our independence, arising from the worst global economic decline in 60 years. Budget 2009 will deliver a Resilience Package totalling $20.5 billion this year, to help Singapore see through this period of exceptional difficulty. The Package aims to save jobs to the maximum extent possible in the recession, and to help viable companies stay afloat. It also prepares Singapore to emerge with strength when the global economy recovers, and enhances our capabilities and competitiveness for the long term. The Resilience Package will not get us out of the recession, as long as the global economy continues to contract. But it will help avert an even sharper downturn, and more lasting damage to the economy. The Government will keep a close watch on the global situation and its impact on Singapore. We remain ready to undertake further measures if necessary over the course of the year and the next few years.”
“We therefore cannot say when this recession will end. The key factor is the US economy. Although China’s major government spending initiatives will boost domestic infrastructural demand, it is unlikely to provide a stimulus for the rest of the world. If we are fortunate and the US Government’s fiscal stimulus spurs new demand, we may come out of the recession in late 2009. However, many careful observers believe it is equally likely that the recession will last into 2010, and that the recovery when it comes, will be weak. Economic situation and prognosis for Singapore Singapore’s economic growth in 2008 was far below what we had expected at the start of the year. We had known and had highlighted the downside risks of a US recession and a worsening global credit crunch. But like other governments and the vast majority of private forecasters, we did not anticipate the speed and scale of the deterioration in the global economy in the last six months. On the latest estimates, the Singapore economy grew by 1.2% in 2008. GDP in the fourth quarter declined by 3.7% compared to a year earlier, or by 17.0% on a quarter-on-quarter annualised basis. Inflation averaged 6.5% last year – or by 5.4% if we exclude the increase in the Annual Values of homes which had no impact on household expenditures. Inflation was higher than what we expected at the start of the year because of the spike in food and fuel prices globally. It has however been declining since the middle of last year and is expected to be close to zero in 2009. The key risks for us this year therefore have to do with the scale of the recession and loss of jobs, rather than inflation. All recent indicators point to a continuing downward momentum in the economy.”
“Second, domestic spending in the US and other advanced economies, is unlikely to recover for some time to come. Consumers in the US are over-stretched, having over-borrowed during the years of the housing bubble. The housing bubble has burst, but home prices are still falling and have yet to reach bottom. US consumers, who account for one-fifth of global consumption, will have to gradually reduce their debts and are therefore unlikely to go back to old ways of spending for some years to come. Consumers elsewhere, including those in China and Europe, are also facing declining values of their homes and asset prices. They are not expected to spend more and pick up the slack left by the Americans. The third reason why there is great uncertainty over how long this recession will last is the continued fragility of the global financial system. Banks, especially in the US and Europe, have made heavy losses - the results are coming out each week. Once the full extent of impaired assets becomes apparent, it is estimated that the loan losses will reach two trillion dollars in the US alone. These banks are therefore focused on building up their capital rather than making new loans. Furthermore, the de-leveraging that is taking place in financial markets as a whole still has some way to go. Although we are past the psychological panic that followed the collapse of Lehman Brothers in September 2008, there remains a high degree of risk aversion in the credit markets(2). As a result, even good quality corporate borrowers are having difficulty obtaining credit. [2] One of the key indicators of risk in the markets is the Libor-OIS spread. It is now about 100 basis points (bp), down from its peak of about 360 bp at the end of October, but is still well above normal levels of about 10 bp.”
“Even in China, despite positive economic growth overall, job losses have risen sharply in the coastal provinces. Governments around the world are taking unprecedented steps to stimulate their economies and re-capitalise their banks. Central banks have cut interest rates aggressively. However, with little room left for interest rates to fall, most governments have turned to expansionary fiscal packages as their main policy response. The new US Administration’s fiscal package is currently expected to be US$825 billion spread over two years, which will increase its government deficit by about 2.8% of GDP each year. Including the US government’s existing deficit programmes, this will lead to a total deficit of about 10% of GDP in 2009. In the UK, the government has proposed a package of £20b or 1.4% of GDP. Germany has just announced a fiscal stimulus package of about 1% of GDP a year over the next two years. China has announced a 4 trillion yuan package of expenditures to be rolled out over the next two years. Taiwan intends to spend 4% of GDP spread over four years. These measures are widely regarded as mitigating the severity of the recession. But it is too early to say if they will help in bringing forward a recovery in the global economy. Length of recession is uncertain No one knows how prolonged or deep this recession is going to be. The current downturn is unlike past recessions, and recovery, when it happens, may be weaker than in most past cycles. There are a few reasons for this. First, all major regions in the world are experiencing economic decline at the same time, which makes this the first truly global recession in the post-war period. No economy is able to rely on exports to pull it out of recession.”
“Mr Speaker, Sir, I beg to move, "That Parliament approves the financial policy of the Government for the financial year 1st April 2009 to 31st March 2010." ECONOMIC PERFORMANCE AND OUTLOOK Global crisis and recession This Budget comes at a time of grave economic crisis. Growth in the global economy as well as in Singapore last year fell well below what was expected. We are now in the midst of a simultaneous recession in all major regions of the world. Prospects for 2009 remain highly uncertain. Economic activity has taken a sharp turn downwards in the last six months in the advanced economies. GDP is estimated to have fallen by about 5% in the US in the fourth quarter of 2008. The Euro area fared as badly, while the contraction in Japan is estimated to have been even larger. Global manufacturing production fell by almost 20% in the same quarter, in the fourth quarter, while global trade and cargo volumes have also slumped. Asia has not been decoupled from the decline in the advanced economies. Across the region, industrial production and exports have fallen dramatically in recent months. In China, industrial production towards the end of 2008 is estimated to have been below half the levels seen at the start of the year. Taiwan’s exports contracted by 42% in December and Singapore’s by 21%(1). Korea’s latest export data shows a decline of over 30%. [1] Singapore’s data refers to non-oil domestic exports. The result is that jobs are at risk everywhere. Job losses in the US in December 2008 were the worst in 60 years and unemployment has risen to 7.2%. In the Euro area, it has risen to 7.8% and in Japan to 3.9%, and is expected to rise further.”
“In October 2008, Member of Parliament for Sembawang GRC, Ms Ellen Lee asked a similar question. The challenging situation that global investors faced then remains. As at 31st December 08, the MSCI World (Equities) had declined by 42% in 2008, slightly worse than the 40% decline as at end October 2008. The MSCI (Singapore) fell by 50% over the year. Investments by GIC and Temasek have inevitably been affected, like those of other global investors. However, their overall value has fallen by less than the decline in global equity markets, as they maintain diversified portfolios and had taken precautionary actions early in the crisis to reduce their exposures to the equity markets. Temasek reports the market value of its portfolio in the annual Temasek Review. GIC now reports its long term returns on a moving average basis, which will be updated in the next annual GIC Report. GIC and Temasek's strategies of investing on a diversified basis for the long term, and maintaining sound governance and risk management practices, enable them to ride through market cycles, including severe market declines such as in the current global crisis. These strategies also put them in a position to take advantage of any opportunities that may arise from the current downturn. INTEGRATED PROGRAMME STUDENTS (Number of failures) 5. Mr Ong Ah Heng asked the Minister for Education since its inception in 2004, how many students in the Integrated Programme did not pass the GCE 'A' level examination or equivalent examinations and ended six years of education without a certificate.”
“Mr Liang Eng Hwa asked the Minister for National Development given the high prices of new HDB flats reported in the media recently (a) whether new HDB flats are still affordable; (b) what is the rationale for using a market-based approach in pricing new HDB flats; and (c) whether HDB will consider selling flats based on cost or further lowering the selling prices of new flats.”
“First, on the statutory boards which have the exposure. To repeat, none of the statutory boards have any exposure to credit-linked notes which have seen early redemptions triggered. I should add that the universe of credit-linked notes includes both relatively safe instruments which are backed by very safe underlying securities – including those of some major Singapore companies – as well as credit-linked notes which are closer to the moderate to higher end of the risk spectrum. So there is nothing in credit-linked notes per se that speaks about high risk. I would like to clarify that. But in the interest of transparency – because I was asked about exposure to credit-linked notes – I provided that there are four statutory boards that do have some exposure to some credit-linked notes. Their performance on those notes alone has not been very different from that in global markets. In fact, I can tell Members that on those credit-linked notes alone, they have suffered a paper loss of about 14% in the course of this year. Fourteen percent, as you know from what is going on in the global markets, is not an extraordinary paper loss. The four statutory boards concerned are Civil Service College, Singapore Land Authority, Infocomm Development Authority and the Professional Engineers' Board. The exposure to these credit-linked notes, as a percentage of total investment portfolios of our statutory boards collectively, was about 0.05%. So, it is not a large sum. All our statutory boards are advised, not just for credit-linked notes – which I have just explained – are not always high risk. I advise in investment portfolios to maintain sound principles of diversification and risk management. NEW HDB FLATS (Affordability) 5.”
“Mr Siew Kum Hong had also asked specifically about whether the statutory boards have exposure to collateralised debt obligations (CDOS) and credit default swaps (CDSs). One statutory board has financial products, other than credit-linked notes, which are linked to CDOs and CDSs. These products comprise around 0.1% of the statutory board's portfolio and, as it happens, they have also made a net gain over the year on these products.”
“Statutory boards keep some surpluses for future capital expenditures and as a buffer against unanticipated spending needs or budget shortfalls. They manage and invest these funds in financial assets to earn an appropriate return within acceptable risk limits, after taking into account their cashflow and liquidity needs. Each statutory board has to ensure that an appropriate investment management structure is in place for proper oversight of its financial investments with prudent risk management. As of 31st October 2008, there were no statutory boards holding Lehman Minibond notes and other credit-linked notes for which early redemption has been triggered, in other words, which have either defaulted or early redemption has been triggered. This includes, besides the Lehman Minibond notes, Merrill Lynch Jubilee Series, DBS High Notes 5, Morgan Stanley Pinnacle Series 9 and 10 Notes. So no statutory boards have had exposure to any of these notes for which there has been early redemption triggered. Four statutory boards had other credit-linked notes in their investment portfolio which are unrelated to what I have just described. None of the underlying entities and assets referenced to by these credit-linked notes have defaulted or had early redemption triggered. On a marked-to-market basis, these credit-linked notes held by the four statutory boards had not performed very differently from the performance of global market generally this year. The four statutory boards are nevertheless monitoring the situation on all their investments, not just this small amount of credit-linked notes but all their investments, and will take the necessary steps to minimise any losses on these investments.”
“Mr Speaker, Sir, Question Nos. 3 and 4 are both closely related. So, with your permission, I would like to take them together. Mr Speaker: Yes.”
“I quite agree with Ms Lee Bee Wah that we would not want to see good viable businesses, which are the majority, being having to cease business or having to scale down significantly their business because of a lack of access to credit. So the Government has been studying this carefully taking in feedback, and we will be making announcement soon on the enhancement of our loan schemes which involve risk-sharing with the banks so as to ensure that we maintain access to credit on the part of our companies. So I would urge the Member to wait, not too long, for announcement of this. INVESTMENTS BY GOVERNMENT AND STATUTORY BOARDS IN LEHMAN-LINKED FINANCIAL PRODUCTS 3. Ms Sylvia Lim asked the Minister for Finance whether Government entities and statutory boards have invested in structured notes linked to Lehman Brothers or similar products and, if so, what is the extent of the investments made and the losses incurred. 4. Mr Siew Kum Hong asked the Minister for Finance (a) whether any Government agencies or statutory boards have invested in Lehman-linked structured products or other financial products that are directly or indirectly backed by, or linked to, collaterised debt obligations (CDOs) or credit default swaps (CDS); and (b) if so, what were the purchase prices of such investments and their current values.”
“Er Lee Bee Wah (Ang Mo Kio): Sir, to many Singaporeans, it is very disappointed that our local bank, DBS, at the first sign of economic downturn hastily retrenched staff. And based on the recent feedback, a lot of smaller businesses gave a similar feedback that they have viable businesses, but the bank has stopped the credit lending to their companies. So I would like to ask the Minister, whether there is any channel that the businesses can turn to should this really happen at the ground because we would not want to see good businesses being killed prematurely.”
“It will be inappropriate for the Government to direct banks to lend, or to get involved in who they should lend to. These are commercial decisions which the banks themselves have to make, based on their assessment of the risks as well as the relationships that they maintain with their customers. Our banks make these assessments carefully, and take into account both the short-term risks and their long-term interests in keeping their customers. We should continue to leave these decisions to them. However, what Government can and will do is to enhance the various Government schemes that are in place to help our Small and Medium Sized Enterprises (SMEs), possibly also some enterprises that are not SMEs but somewhat larger, to retain access to credit. The Prime Minister has spoken about this on Sunday, and we will be making some announcements quite soon. Most of these schemes will involve Government risk-sharing with the banks on loans to Singapore companies. The Micro-Loan Programme offers loans of up to $15 million for factory or machinery loans and $50,000 for unsecured working capital respectively. SPRING Singapore and IE Singapore have also introduced the Loan Insurance Scheme (LIS) which offers secured loans for working capital and trade financing. There are, in fact, among the existing schemes existing eligibility limits and quantums of loans. There has been a significant increase already this year in SMEs' use of these schemes. For instance, the amount of loans under the Local Enterprise Finance Scheme (LEFS) and the Loan Insurance Scheme (LIS) for the first eight months of this year has grown by more than 55% over the same period last year. The Government will be enhancing and stepping up these loans schemes to help our companies, and will announce details soon.”
“Mr Speaker, Sir, the Monetary Authority of Singapore (MAS) has been closely monitoring developments in the global financial markets and their impact on Singapore. As far as the inter-bank market is concerned, there has been sufficient liquidity in our system. We have not seen the market freeze up, as happened in some other global financial centres in recent months. Banks have been able to obtain Singapore dollar funding among themselves in an orderly manner. Inter-bank funding rates, illustrated by the three-month, Singapore Inter-Bank Offer Rate (SIBOR), eased from over 2% during the quarter-end period in September to about 1% currently. This is lower than the 2.5% that we saw in July last year, before the crisis started. So inter-bank rates are now lower than they used to be, the market remains orderly and we have not seen major disruptions in Singapore inter-bank market. As at end-September, total bank lending to non-bank customers is still growing. Specifically, loans to the building and construction sector, which Ms Lee Bee Wah was enquiring about, have increased by about 50% in the 12 months to September 2008. So year-on-year, it is a 50% growth in loans to the building and construction sector. Some tightening of bank credit is inevitable in an economic downturn. But we are unlikely to see this happen on the scale that is occurring in many other parts of the world, where banks are tightening credit not only because of increased risks that they perceive in a downturn, but because they are short of capital. We do not face that problem. MAS' assessment is that while there is no large scale credit crisis in Singapore, some segments of borrowers may face higher borrowing costs.”
“Although there is an annual intake cap of 400 Singaporean students, there are more than 4,000 students as some of the madrasahs offer more than 10 years of education, and some madrasahs take in non-Singaporeans. The number of children of permanent residents and expatriate families is small. There are only 27 such students across all levels in the six full-time madrasahs. WRITTEN ANSWERS TO QUESTIONS SECURITY OFFICERS (Profile and manpower requirement) 1. Ms Sylvia Lim asked the Deputy Prime Minister and Minister for Home Affairs with regard to the private security industry (a) whether any changes have been noted in the demographic profile of security officers (eg, age, prior educational qualifications) since the mandatory training and licensing requirements were imposed; and (b) whether there is a shortage of security manpower and, if so, how this is being or will be addressed.”
“Further, there may also be some dampening of revenues in view of the lower than expected economic growth and more subdued property transactions, especially in the last two quarters of the fiscal year. We should therefore expect a significantly larger deficit in FY08 – possibly more than three times larger than the initially estimated $800 million. We are not seeking to reduce this deficit, either by trimming Government expenditures or raising additional revenues. The larger deficit is an appropriate fiscal stance in the context of an economy that has entered a slowdown. We have in fact raised expenditures over the course of the year, so as to allow for a more expansionary budget in the current economic environment. We will be able to fund the larger deficit from the surpluses we accumulated in FY07, when we had unexpectedly higher revenues. In the Budget Statement in January 2009, the revised budget estimates for FY08 will be presented along with the estimated budget for FY09. ENROLMENT IN FULL-TIME MADRASAH SCHOOLS (Number of students) 40. Dr Fatimah Lateef asked the Minister for the Environment and Water Resources and Minister-in-charge of Muslim Affairs (a) what is the total number of student enrolment in full-time madrasah schools in Singapore for the last three years; (b) whether the numbers are stable or changing as there is a cap of about 4,000 students annually; and (c) whether the madrasah schools accept any foreign students, permanent residents or expatriate children. Assoc. Prof. Dr Yaacob Ibrahim: The total number of students in madrasahs has been stable over the past three years, hovering between 4,170 in 2006 and 4,165 in 2008.”
“At the time of Budget FY08, the Government’s forecast of GDP growth for 2008 was 4%-6%, and inflation between 4% and 5%. These forecasts were also in line with most market forecasts in February 2008. However, we also highlighted in the Budget the significant downside risks to growth in 2008 due to the turmoil that was ongoing in global financial markets. We also underlined the risks of higher inflation arising from the run-up in oil and food prices. As the year progressed, these risks have in fact materialised. Growth is now likely to fall significantly below the forecast range at the start of the year. Inflation also rose to above 6% in the middle of the year, although it is now falling together with the decline in commodity prices. Overall, inflation should average above 6% in 2008, or between 5% and 6% if we exclude rental values that are imputed to owner-occupied homes (which do not reflect cash expenditures). We will be revising our budget estimates for FY08, taking into account the latest available information and the most updated forecasts for the remaining five months of the fiscal year (ending in March 2009). It would be premature to provide a precise revised forecast for the Budget at this point given the considerable uncertainty in global markets currently. However, I can provide a broad sense of what we are now expecting. We had originally projected a deficit of $800 million for FY08 in the Budget. We now expect expenditures to be significantly higher than budgeted in view of the higher cost factors in infrastructural projects, additional spending on the new and enhanced Marriage and Parenthood measures, and higher payouts from the enhancements to Growth Dividends and U-Save rebates that PM announced in his National Day Rally speech.”
“There is now in fact universal banking being practised across many institutions. It makes the task of the regulator more complex. But it is not necessarily a safer system to simply separate these things out into different institutions. Huge problems have happened in Monoline insurers. Huge problems have happened in institutions that are dedicated and specialised to just certain segments of the markets. So, at the end of the day, it is about corporate governance, risk management, sound supervision and disclosure practices that allow investors to make sound judgments. ADVANCE MEDICAL DIRECTIVE (Sign-up rate) 3. Mdm Halimah Yacob asked the Minister for Health (a) whether his Ministry will review the current procedures in order to make it easier for Singaporeans to sign the Advance Medical Directive (AMD); (b) how does our current AMD sign-up rate compare with other countries with a similar provision; and (c) what are the reasons for the low sign-up rate. 4. Dr Fatimah Lateef asked the Minister for Health how many Singaporeans have signed the Advance Medical Directive since 1996 and, of these, (a) what proportion have (i) chronic, debilitating illnesses; (ii) terminal stage malignancy; and (iii) other conditions such as advanced age and dementia; and (b) how many have revoked their decision after signing. 5. Dr Lam Pin Min asked the Minister for Health (a) how many Singaporeans have signed the Advance Medical Directive (AMD) since the Act was passed in 1996; (b) how many patients have exercised the AMD since; and (c) what strategies will his Ministry employ to enhance the awareness of AMD amongst Singaporeans.”
“First, on her question of trust, if indeed an investor has been sold a product that is clearly unsuitable for his or her profile, given his age, experience in the markets, income, or if he has put into that product a very large proportion of his total assets, and if there are clear-cut cases of a mismatch of product with the investor, then the financial institutions and FIDReC will ensure that the investor gets proper restitution. That is the way in which we will preserve trust in the system. But if the investor knew what he or she was doing, took a risk, and it turned out wrongly, then the way to preserve trust in the system is not to ask the financial institution, "Never mind, you cough up". That is the way to weaken trust in the system. So I think we will have to be fair and objective about this. Err on the side of the investor where there is a good measure of doubt as to whether the investor was given proper advice, but keep the basic precepts of the system that this is not a bully system, this is a system where you got to operate by rules, guidelines and sound management prac tice. I think that is the way we preserve trust in our system and that is how investors will benefit, not just in this episode but in future. I am sorry I have not read that article she mentioned. But I am sure the MAS in its review of products and the institutional practices that lie behind the sales of products will look at all views. The view that she mentioned, from my hearing it at the first time, was a little simple, a little black and white, because this has been debated extensively in the US and other places for a long time, and they have moved away from a clear separation of investment banking and commercial banking.”
“It is easy if Senior Minister, Mr Lim Hng Kiang or me wanted to try and put pressure on MAS to put pressure on the financial institutions, we may look good politically, but not only is it not likely to get the outcome we want for investors, it is also going to be the way in which investors' interests will be hurt in future. The next time banks want to come up with products, the next time we go through any episode, we will be best served by having rule of law, good practices within the institutions, rather than a system that has to act by the whims or the convenience of political interests. That is our approach. So make no mistake about this. MAS is not cloistered – I do not know what number Shenton Way it is but it looks like a very formidable building – they are listening to feedback all the time, they are interacting with institutions, and I should mention to you also, they have been in very close contact with the trustees and receivers for Lehman Minibonds to ensure that every restructuring option that can be in the interest of investors is looked into. MAS has been very active in this game with the trustees and receivers to make sure that every restructuring option that can serve the interest of investors is being looked into.”
“On his second point, I am aware that Hong Kong Legico, not the government, has set up a sub-committee – I think that is what it is called – to look into whether there were breaches of regulation. That is one approach. Our approach is different. We have the MAS as an independent body – I do not think anyone questions its independence – staffed by highly-qualified personnel to look thoroughly into every possible breach of regulation – law regulation and sales practice. They are working day and night on this. This is not a softly, softly approach. And when they get results, arrive at their findings, they will take action. And along the way, when they arrive at findings, they also inform financial institutions of the assumptions that need to be made in evaluating each individual investor's appeals, because what MAS determines in general for sales practices in financial institutions should also influence how the financial institution deals with each individual investor. So there is some interaction between those processes. So this is again a way of doing it which ensures independence, rigour but without politicising the process. And I think that will provide the fairest deal to the investor. MAS has been receiving feedback throughout this process from individual investors, through the email, through phone calls and through letters (some handwritten letters). It listens to all feedback. It also receives petitions from Mr Tan Kin Lian and others. And MAS has an open mind of all the feedback it receives, but it has to go about this – not as judge, not substituting its own judgment on cases – by preserving a system that is independent, fair, and a system that has recourse to the law.”
“FIDReC is independent, it is qualified and it is a second level of check in the system. And, thirdly, of course, investors can, if they wish, seek recourse in the courts, which are, of course, independent. So at each step of the process, there is independence but it is not one which required investors to jump immediately to the courts where things will necessarily have to go according to the strict letter of the law. And we think this process where you have judgment being applied in the financial institution on what happened, some judgment being applied as to how investors can be fairly restituted where there is some element of mis-selling or some element in which they were misguided, is a superior process for the investors, and it is more likely to lead to a fair outcome for the investors. And to be quite frank, if you ask me where my sympathies are, if you ask Senior Minister where his sympathies are, or Mr Lim Hng Kiang, our sympathies are with the investors. How do we go about ensuring that the investors' interests are met is the issue at hand, not whether we sympathise with them, because we do. For many of them, it is actually very sad what has happened. But how do we go about ensuring their interests are met? If we either politicise the process or take an overly legalistic approach, as opposed to this case-by-case evaluation in the financial institutions and FIDReC, there is less likelihood that we will get a fair outcome for investors. So we are doing this in a way that may not appear to be making bold political headlines, or it may not even be politically unpopular at each stage of the game, but it is the right thing to do, it is the fairest thing to do, and we have the investors' interests at heart in doing it this way.”
“The approach being taken is one which ensures independence at each step of the process without being legalistic and without politicising the process. And I think the MAS has got the balance right. If I can explain it further – first step in the process is investors' complaints are assessed by each financial institution. It was not left to the financial institution alone to assess it. The MAS required that they appoint independent persons approved by the MAS, reputable independent persons that are not linked to those institutions, to oversee the process. And that is not casual oversight. I can tell you the three independent persons. I am not sure if they are being paid but, if they are, it is probably a pittance. They are putting in a lot of time into this process, evaluating the questions being asked of investors, evaluating the way in which investors' responses are being recorded, evaluating the way in which judgment is reached on whether there was mis-selling, whether there was partial mis-selling, or whether, in fact, it was the investors' own responsibility. It is a matter of details, it is a painstaking and laborious matter, but the three independent parties have been very actively overseeing this process, and they have been in close contact with MAS throughout this process. Second step – if investors are still unhappy with the outcome of the process at the level of the financial institutions, they can take it to FIDReC. What is FIDReC? It is an independent body set up specifically to be able to provide fair and objective arbitration between the investor and the financial institution. It is manned by highly qualified people, adjudicators, most of whom have legal experience who are experienced in arbitration.”
“I would like to thank Mr Inderjit Singh for his two questions which are related to some extent. His first question was whether there should be an independent panel to evaluate complaints rather than to go through the financial institutions. And his second question, if I got him right, was whether there should be a high-level committee, for instance, a parliamentary committee, to look at whether there have been breaches of regulations. I think the desire for independence in this process is an important one and a valid one, and that is precisely what MAS' approach is providing. This is exactly the approach which MAS has taken – ensure that at each step of the process, there is independent evaluation of investors' complaints. I will come in a minute to the investigation into financial institutions themselves. For the investors' complaints, at each step of the process, it ensures there is independent judgment being applied, and it has not been tilted in favour of the financial institution or in favour of the investor. What we have done essentially is to ensure independent and fair resolution of the disputes without either being overly legalistic and without politicising the process. And to do either of those, to be either overly legalistic or to politicise the process, will not be in the interest of investors. It will drag out the process, it will push the financial institutions to the wall – it will have their backs against the walls – and they will slow everything down, they will be overly legalistic, and investors are far less likely to get fair restitution. So the approach being taken is not one which is not independent.”
“I do not have full knowledge of the full landscape of structured products being sold in the United States. But I can say that structured notes similar to what we have seen being sold in Singapore – the Lehman Minibonds and other structured notes – are indeed marketed to the retail public in the US, the UK, Germany and some of the other countries that I mentioned. We are not unique in this respect. Again, I do not want to pre-empt MAS' review. I happen to think that it will be a bad idea. And I doubt MAS will want to conclude that all structured products should be banned from the retail public. First, because that is a large universe of products, a whole range of equity-linked notes, some of which are fairly basic notes but with a little kicker based on equity prices, and some of which are more complex. There are notes which are credit-linked notes such as Lehman Minibonds, Pinnacles, and some others, which involve a higher degree of risks because it is linked to default of the referenced entities. So there are varying degrees of complexity and risks. And I think it is very hard to draw a thick black line around what you consider safe, not so safe, and positively risky. It is going to be extremely difficult for the regulator to substitute his judgment for that of the market and the investor.”
“I have no reason to believe that DBS, in particular, has been slow in processing of complaints. Let us leave it to the MAS in its dealing with those institutions and leave it to the MAS in its inquiries and investigations into this whole episode to derive conclusions. On whether the MAS is looking at structured notes more generally – yes, it is. MAS has a good handle on this. It has been very careful and deliberate in its statement so as to serve the interest of investors best. MAS is not simply being reactive.”
“Mr Speaker, Sir, I would like to thank Mr Siew Kum Hong for those questions. On the first question of whether the MAS would expand its review to look into how the products are structured – ie, whether there is some element of the product that requires the retail investor to effectively be insuring the issuer or any other aspect of structuring the product, and whether there should also be disclosure of commissions – MAS is undertaking a thorough review on all aspects (advertising, marketing the products, all aspects of the sale process, and post-sale process of risk assessment within an institution). It will look at all aspects, but I think it will not want to substitute the regulator's judgment for that of the financial institution and the investor for any product. What is formal, useful and, I think, a far better way of ensuring that diverse needs can be met of the investing public is to ensure simple, clear and good disclosure, and to ensure fair and reasoned financial advice that takes into account the investor's risk profile and means. Those are the two most important precepts – disclosure and sale practices – which have to be sound, well reasoned and taking into account the interest of the investor, rather than MAS substituting its judgment for that of financial institution and the investor as to what type of products to be in the market and how they should be structured. So I think that should be the general approach, but I say this without wanting to pre-empt MAS' review. It is going to be a thorough review and all aspects will be looked at, including the issue of commissions which Mr Siew Kum Hong has mentioned. On DBS being too slow, I would rather not comment on specific financial institutions.”
“In Singapore, as my colleague Mr Lim Hng Kiang elaborated at some length a month ago in Parliament, MAS has set out a three-step dispute resolution process, including procedures to ensure the fair and impartial handling of complaints by the relevant financial institutions and arbitration of disputes between investors and the financial institutions. MAS has been active in supervising these procedures, and its priority is to ensure that every complaint is dealt with appropriately.”
“The basic principles are similar - financial institutions and issuers are required to properly disclose key product information; financial advisers and their representatives in the sales and advisory process have responsibilities to abide by, which are set out very clearly in the Financial Advisers Act; the role of investors, in turn, is to ensure they understand the products they invest in and, where there is no mis-seeling, to take responsibility for their investment decisions. In Singapore, financial institutions are required to properly disclose to investors the features and risks of the products they distribute. They and their representatives must have a reasonable basis for recommending investments, taking into consideration the investment objectives, financial situation and needs of the investor. In addition, the MAS has published a set of good practices which financial institutions are encouraged to follow. These are good practices over and above the regulatory requirements which are specified under the law. There is, of course, in place, quite importantly, the MoneySENSE programme – a national financial education programme that aims to enhance the financial literacy and sophistication of investors and to empower them to make informed decisions. Ms Sylvia Lim has also asked about how investor complaints are being looked into in the United States. In relation to the Lehman notes, reports indicate that some investors have approached lawyers to look into pursuing arbitration claims with the Financial Industry Regulatory Authority (FINRA) – previously called NASD – which is an industry-based regulatory body.”
“MAS receives regular updates from the independent persons who have been appointed to oversee the complaints handling and resolution process in each financial institution. The financial institutions have put in concerted efforts and additional dedicated resources to deal with all complaints. While there were some difficulties at the start, MAS has seen improvements. Some financial institutions have made good progress in the resolution of complaints, and MAS has welcomed this. Others which were lagging earlier have now put in greater effort and resources. MAS is monitoring the progress of all the financial institutions concerned. It expects the financial institutions to deal fairly with all cases, regardless of the background of the investors and whether they were investors that fall within the vulnerable category or otherwise, with a view to reaching fair resolution where there is evidence of mis-selling. Ms Sylvia Lim has asked whether structured notes similar to Lehman Brothers products were sold in the United States and how investor complaints on such products are being handled. Structured notes have been marketed to retail investors in the United States. In fact, recent press articles from the US have indeed highlighted how the recent Lehman Brothers bankruptcy has resulted in investors, both retail and institutional, suffering significant losses on structured notes. Structured notes have also been sold in other countries, including the UK, Australia, Germany, France, Hong Kong and Taiwan. The regulatory regime for investment products in Singapore is not fundamentally different from that in other reputable jurisdictions like the US, UK and Australia.”
“MAS' approach has allowed Singaporeans a wider choice of investment options to cater to their diverse needs. It is studying the specific refinements that need to be made carefully so that we do not make hasty changes that bring unintended consequences in the future. Furthermore, regulation cannot be the only solution. All stakeholders have a role to play. The Boards and senior management of financial institutions must embed a culture within their institutions of ensuring fair dealing for customers of their institutions. In this regard, MAS has instructed the CEOs of all financial institutions to conduct a thorough review of their financial instutitions' processes and procedures for their sales and marketing activities. Investors too have to play their roles, by reading product disclosures and making the effort to understand the products they purchase. This will reduce the risk of they being sold products which do not meet their needs or which are beyond their ability to absorb in terms of the risks that need to be absorbed. Where there is no mis-selling, investors have to take responsibility for their investment decisions. Mr Siew has also asked for MAS' views on how the financial institutions have been handling the customers' complaints process thus far. MAS has been following up with the financial institutions to ensure that they are handling all investors' complaints – and I repeat – all investors' complaints in accordance with the impartial process that has been set up, and to do so with full urgency and seriousness. This has been communicated at the most senior levels of each of the institutions.”
“Mr Siew Kum Hong has asked for an update on MAS' investigations into allegations of mis-selling, and also an update on the review of the marketing and sale of structured products. A number of possible cases of mis-selling have been brought to MAS' attention and MAS is following up on them. MAS has confirmed that it has been conducting formal inquiries into allegations of breaches of the law, inadequate internal controls by the financial institutions that sold structured products linked to Lehman Brothers, and poor sales practices by their representatives. MAS will take firm and appropriate regulatory actions where there are breaches of law or regulations by the financial institutions or their representatives. These regulatory actions could include fines, public reprimands and prohibition orders which bar the financial institution or a representative from providing financial advisory service for a specified period of time. MAS' inquiries are progressing, and it will make an announcement on any actions it is taking when they are completed. While MAS considers its current regulatory regime for marketing of investment products as fundamentally sound, it is undertaking a review in light of recent developments not just in Singapore but globally. MAS has announced that the review may include stronger suitability requirements for certain types of products, clearer product labelling and risk rating, and simpler descriptions of the features and risks of products so that they can be more readily understood. In reviewing our current regulatory and supervisory approach, however, MAS intends to be careful not to come up with overly prescriptive rules which may not serve all investors.”
“Now, Sir. I beg to move, "That the Bill be now read a Third time."”
“That way, we make sure that Singapore continues to be built to search for excellence, and built to last. [Applause].”
“Iceland is the latest example – it is being played out this week itself, day by day. The Icelanders are very tough, hardy people because of the extreme climate and the way they have had to survive beside large neighbours over the course of their history. They were regarded as a self-reliant people – and until very recently, Iceland was regarded as the "darling of the Nordic model". In fact, their per capita GDP is double that of Singapore's. Iceland is now technically bankrupt. Its reserves are 25% of GDP, but its borrowings, largely by its banks, are seven times its GDP. So its system has collapsed. Foreign banks are no longer willing to accept its currency even for trade payments. So trade has come to a standstill, supermarket shelves are empty, and the government is restricting the use of foreign currency to food, oil and medicine. And, yesterday, they decided to accept a $6 billion loan from the IMF. Strong people, bright people, capable, and they used to be self-reliant, but a huge error over a relatively short space of time – over exuberance, over leverage, and not realising the importance of erring on the safe side. As Mr Arthur Fong said, "if you save, you will be safe", and it is as simple as that. I think we can be confident. We have got strong reserves. It keeps our credit rating strong, good not just for government but, more importantly, for our businesses and banks, lowers the cost of borrowing. And in that way too, our reserves generate sustained income over the long term which will benefit both current and future generations. Ensure that when we spend more, we spend on the basis of what we can afford and we keep that spirit of self-reliance and living by our wits, which Josephine and many others spoke about.”
“This is continuous work, making sure that we keep a culture of efficiency, economy and stewardship in the use of public funds. Growing our reserves Finally, let me take from where I started off. This is not just a framework about deriving more money for spending, but a framework for ensuring that we continue to conserve our resources for the future and that our reserves will continue to grow in line with our economy. To answer Dr Ong Seh Hong's question, which also includes our population size, because if you have a growing population, you have a growing economy, you do want your reserves to be able to cover that. This formula will assure us that our reserves will not decline over the long term in relation to the size of our economy. The ratio of reserves to GDP will not decline over the long term. There will be cycles, but there will be no long-term trend of decline. Mr Lim Biow Chuan had in fact asked whether we had a fixed target for our reserves. What size do we aim for? We look at this from time to time and we get teams of economists to try and study the optimal size of reserves. In fact, in my earlier days as an economist at the MAS, I tried this myself. There is frankly no answer to that question. We do not know what crisis will hit us. We do not know what natural calamity, what war, what economic crisis will hit us and what the scale of the damage will be. The more important point is that we must ensure that the reserves continue to grow in line with the size of the economy, and that is what I can assure Members this formula will be able to do. The current crisis that we are going through internationally is throwing up very interesting lessons about the dangers of not storing up enough in reserves, and living for today.”
“So, over time, what you find, when you are not generating future growth and future revenues, is that the NIR, as a percentage of total revenues, keeps going up and as a nation we get to be increasingly dependent on this new form of oil. We should avoid being dependent on this new form of oil, but keep to the principle, as PM says, of "Save, Work, Earn" as the basis of our society. And avoid pain-free spending. If you want to spend more, let us get revenues for it. If you do not have revenues for it, do not spend more. I think that is the right approach. I have to emphasise once again what I said yesterday, because we are quite serious about this, that is, whatever we are spending, we have got to keep a very close watch on avoiding wastage and unnecessary expenditures and frills, which Mdm Ho Geok Choo and others have pointed out. There is a lot of work going on in Government which does not create headlines but which really leads to savings. Quite recently, we put in place a whole set of smart procurement practices where we procure in bulk across Government agencies, and share services across our statutory boards and Government Ministries, which have reduced transaction costs significantly. We have put in place a capital charge framework so that our agencies will maximise their returns on the resources that are made available to them. And we recently put in place value-for-money reviews where we go in to have a look at how the funds have been used after a project has been implemented, whether the goals have been achieved and whether the funds were used wisely. With all these processes, we will keep disseminating best practices within and across the system.”
“There is a good reason why the Constitution has written in safeguards against borrowing in order to fund spending and deficits. This is a sound rule, and there are enough examples of how things have gone wrong otherwise. What NIR will be spent on Finally, let me come to the question on what we will spend our money on. This additional 2% of GDP, or slightly more, that we will get through the new NIR framework, when added to the revenue of 0.8% of GDP that we obtain from the GST increase, gives an overall revenue of about 3% of GDP. There was a range of views amongst MPs. Several wanted more social spending, to meet a variety of social challenges. Ms Sylvia Lim had emphasised that. Mr Lim Biow Chuan and several others also felt that there was a need to engage in more social spending. But I have to say that our bias and view is squarely in favour of what Mr Christopher de Souza, Mrs Josephine Teo, Mr Seng Han Thong, Mr Liang Eng Hwa and others have said. We have to focus on building up capabilities and productive infrastructure to generate future growth. I will explain why. It is not an irrational bias. We have to bear in mind that NIR, under the new framework, is going to be quite a significant percentage of our total revenues. At 3%-3.5%, say, 3.5% of GDP, the total NIR revenue, if you include the NII already allowed, will be about one-fifth of our total revenues (20%). If we then use that money to invest in social expenditures or consumption of one form or another, that keeps us happy for the moment but it does not generate future growth and future revenues.”
“And as she put it, currently, Government is, in fact, able to borrow quite cheaply because of our very good credit rating, while we are earning more from investing our reserves, at least historically. Instead of drawing from our reserves and losing the opportunity reward of what we earn on our reserves, why not we just borrow? First, our statutory boards borrow. LTA is going to borrow a significant amount for our transport plans. HDB already borrows very substantially. They issue bonds. And the Government is borrowing through the Singapore Government Securities market, quite a large sum, not for spending, but the funds are invested. The Government borrows in order to develop the financial market and create a risk free yield curve, but we do not spend the money. It is all invested. But there is a limit to how much the Government or the statutory boards can borrow, because credit rating agencies study this very carefully. I think it is absolutely critical that we keep our sovereign credit rating unimpaired through rough times especially, and across the cycles. So, we have got to be very cautious about borrowing more. But, more fundamentally, I would say, let us not get into the game of exploiting spreads, exploiting situations where your borrowing cost is lower than what you hope to earn in your returns, and, therefore, find complex strategies to exploit that spread. We have seen how some countries have gone completely awry that way. We have seen how AIG went completely awry that way. AIG had a strong credit rating, borrowed cheaply and invested in high risk complex instruments and did very well for a long time, until the spreads changed. I do not need to elaborate on what happened to AIG, but AIG had problems. So, avoid this problem.”
“First, just to repeat very quickly a point I made yesterday, by including both realised and unrealised gains in the framework, we avoid a bias in our investments of wanting to sell assets now in order to realise capital gains so that the Government can spend it. This way, we are neutral. We include both the realised and unrealised gains, so that when we sell our assets is of no influence at all. But the question is valid – do we have enough liquid flow of funds at all times to meet the needs of the Budget without GIC or MAS having to inopportunely sell and liquidate in order to provide the Government with the money? We have studied a range of scenarios and it will be highly improbable that we will end up with this problem. We have asked ourselves the question and studied it, and we will not have that problem. There is a net inflow of funds that the Government gets each year from a variety of other sources. Singapore Government Securities (SGS) issuance alone is quite sizable – it is about 4% of GDP annually. That alone in almost all market circumstances gives us the fresh liquid flow. Plus there are other sources of liquid funds that we will have at our disposal in other areas, like land sales. We convert land and put it into the reserves, but, in the first instance, you are getting financial assets and if need be, we can use the fund flows for the Budget immediately. So, this is a problem that we can tolerate because we do not envisage scenarios where we will really face a shortage of liquid funds. Borrowing for expenditure Mrs Josephine Teo had asked another important question – are there alternative sources of funding instead of drawing on reserves to meet these important expenditure needs? For instance, can we borrow?”