Using Funds “Wisely”?
TRE recently posted up an article by Jeremy Chen with the opening salvo, “This is something of a response to a proposal by Kenneth Jeyaretnam to privatize Temasek Holdings and GIC and distribute shares to Singapore citizens. “ The author was attempting to rebut my Ricebowl article of 4 May 2013, “How to Create A True Property Owning Democracy through The Privatization of Temasek and GIC”.
The author gives his opinion that my proposal is flawed and comes up with a counter proposal. Supposedly. Let us begin with the so called flaws. Actually we can’t because Jeremy says, “There are more problems with the proposal,” but puzzlingly he fails to say what these so called further problems are.
Then again he says, While I respect KJ’s work……this is simply not one of his best. I believe his proposal is flawed. “Actually he neither demonstrates why my proposal is flawed nor counters it. Which is a pity. I put up an idea, it is just an idea and I would enjoy engaging in intellectual debate over it. It is not an economic manifesto and it is certainly not a blue print for using funds therefore it cannot be countered by a complete manifesto on using state funds. Jeremy’s article is merely a clever bit of name dropping, using my article as a hook, to get his own political manifesto out there.
He does write “ Firstly, there are problems related to who is entitled to how much.” That is correct, although it is a question of fine tuning rather than being a problem. I have talked about distributing shares equally although another option would be to weight them in favour of citizens current asset holding status. The fundamental point is to endow Singaporeans with ‘property’. The amount could be credited to CPF and it needn’t be the total share holding. We are talking about Temasek and GIC not the MAS official reserves after all. These are all ideas it would be timely to discuss.
When he does attempt to get to grips with my proposal he simply gets it wrong.
He writes, Furthermore, he (KJ) states that the fundamental problems his proposal sets out to address are transparency and accountability, which privatization does not directly address.
Jeremy fails to spell out why this is the case. Of course privatisation addresses transparency. Since my proposal would involve an IPO of the shares of Temasek and GIC on the stock market the companies would have to fulfil rigorous disclosure requirements. As for accountability it begins with transparency and we Shareholders can actively seek the removal of managers who perform poorly in investing our funds.
There is an alternative method of achieving transparency but not endowment, which is for Singapore to adopt the Norwegian model with regard to their sovereign wealth fund (SWF). In Norway there is a highly detailed report on the performance of the SWF and its positions are published annually and debated by the Norwegian Parliament. Norway is in fact a model of transparency in many areas and even posted up (in English) their debate on the IMF loan. I have often advocated that we adopt their model and use the accepted IMF framework for our budget reporting also.
So who is Jeremy and what is this alternative manifesto he outs here. In the interests of disclosure I am presuming that everyone who reads my blog here or reproduced on TRE, knows who I am. Jeremy Chen may not be as well known and I find it disingenuous that he does not let readers know where he is coming from. (But then that is me and this would not be Ricebowl if I was not agitating for transparency.) So in the interests of transparency, allow me introduce him to you. Jeremy is a member of SDP. I can’t say for sure whether Jeremy is a Cadre/CEC member or not. He is however definitely the author of recent key SDP policy documents particularly the one on housing and therefore responsible for the manifesto contained therein.
Which is great! Whilst I would really like to debate policy with the authors of the PAP manifesto, it is a good start to be doing it with the SDP. If we are to develop a tradition of democracy or normalise democracy in Singapore then it is about time we started debating manifesto and economic policy. At least that way there is some ideological base to the debate as opposed to the skin deep ideological veneer of the ‘ranters’ in our midst. It is good to see the big State paternalistic policies of the SDP out there and stack them up against my pro market small state ideas.
In fact Jeremy spends barely a paragraph on my proposal before unashamedly launching into a totally unconnected promotion of his manifesto. To be fair Jeremy probably thinks that my small idea is a complete manifesto for endowing Singaporeans with wealth. His manifesto is the same old Big State socialist with a capital S ideas with the added PAP favourite of believing peasants to be “daft” and unable to manage their own wealth.
He writes But I appreciate the intent to transfer wealth back to citizens. Well my intent as I said was to force some transparency out of Temasek and GIC. I do believe that we have been hoodwinked into living in conditions of austerity that the citizens of the countries we lend our money to would refuse to accept. We should all be richer by now not just an elite 10%. However I do not really seem much mileage in Robin Hood proposals. A major proposal I put out some time ago for transferring wealth back to the citizens was a proposal that they be allowed to buy the freehold of their HDB flats.
From reading Jeremy’s posting, “Using Funds Wisely and Investing in Our Seniors”, as well as his housing policy proposal, it is apparent that there is a strong collectivist and paternalistic streak in much of his economic thinking. Instead of wanting to free Singaporeans from government-controlled monopolies in every sphere of economic life and virtual serfdom in housing and employment, Jeremy seems to want to reinforce state control. This is the kind of thinking that the less well off do not deserve autonomy because they are going to make unwise decisions and squander the cash they receive on frivolous expenditures rather than “worthy” ones like education and health. From here it is only a short step to believing, like the Communists and the PAP, that government is much too important to be left to the people and that democracy is dangerous.
Jeremy’s idea of converting state housing purely into a subsidised long-term rental market would entrench the government’s control over Singaporeans and make them more dependent. By contrast my idea, which is RP policy, is to return state assets to the people to whom they should belong by right. Singaporeans should have the right to own the freehold of their HDB flats so they are no longer dependent on the government for upgrading. Town councils should be merged with the PA and directly elected so that citizens have more control over expenditures at the grass roots level and so that one party does not have a monopoly of power. And the state assets built up by years of unnecessary austerity, and invested badly by the current government, should be returned to the people. By distributing shares in Temasek and GIC and other state assets to the citizens we create a true property-owning democracy and go some way to solving the normative economic dilemma of how to reconcile a free market, with the demonstrated efficiency gains that go with it, with widely differing starting endowments between economic agents. People can then to a large extent make their own decisions over education and health and provision for old age.
However, distributing the shares of Temasek and GIC to Singaporeans was in many ways secondary to the principal objective of forcing them to be transparent and accountable. I have repeatedly called for transparency in the whole government budgeting process and drawn attention to the Finance Minister’s deliberate use of “smoke and mirrors” to hide the fact that even the Net Investment Returns Contributions are not spent but instead allocated to unaccountable funds not subject to clear Parliamentary control. This thwarts the supposed purpose of allowing the NIRCs to be used for current spending and hoodwinks the people into believing that they are seeing some benefits from the austerity needed to generate these returns. The contribution of $7.7 billion in 2012 was in any case dwarfed by the government surplus (let alone general government surplus which is usually much larger) of $36 billion.
Instead of privatizing Temasek and GIC and distributing shares to Singaporeans Jeremy instead calls for free pre-school education, university education and an old age pension. These are commendable objectives although not new or original to Jeremy as some of them were part of the Reform Party’s’ manifesto in 2011. Sadly the figures are way off. An additional $6 billion to be returned to Singaporeans is meaningless in the context of tens of billions of dollars of apparent surpluses that are accumulating each year and over which the PAP government feels little pressure to be accountable. Jeremy seems to be accepting an implicit OB marker concerning discussions of the appropriate size of the reserves and what is the ultimate objective of reserve accumulation. Instead he echoes the PAP mantra that higher taxes will be necessary if we are to have higher welfare spending though he also mentions cutting defence expenditure on hardware and finding other savings by increasing efficiency. While a review of defence expenditure is needed it is probably the wrong time to be cutting it at the moment when Asian defence spending generally is rising. Savings from reducing NS, as per RP’s policy, would be counterbalanced by the increased costs of a professional army and high technology weapons.
In conclusion, Jeremy’s article misleadingly purports to be a critique of my proposal for a property-owning democracy. However he does not even begin to come to grips with my arguments instead using my name as a hook to set out his own pet policy ideas. These mainly consist of tweaking existing PAP policies to produce higher social spending but with even greater state control. Instead my ideas aim at devolving state political and economic power to the people to develop a free Singapore.
How to Create A True Property Owning Democracy through The Privatization of Temasek and GIC
In my last blog post (see here) I pointed out that since 2009 I have advocated the privatization of Temasek and GIC and the distribution of shares to Singapore citizens. This was also a plank of the Reform Party manifesto in GE 2011 (see here). Naturally there has been a lot of interest in this idea, if not controversy, including an attack by some YPAP activists back in 2009. Most of their criticisms were simplistic and easy to answer.
However there has continued to be a lot of interest in the mechanics of how such a privatization might be achieved and how the shares would be distributed. Recently an anonymous commentator asked posted this question on TRE:
Kenneth, what about future generations of Singaporeans? How does it work? Every Singaporean gets one share? How?
This article attempts to address these questions.
But before then I would just like to answer the question as to why I am proposing privatization in the first place.
The most fundamental reason is transparency and accountability. Temasek’s charter says it aims to “create and maximize risk-adjusted returns over the long-term”. There is no definition of what long-term means. GIC merely says that its objective is to deliver “good long-term returns for the government” which is defined as “good long-term returns for the Government – a reasonable risk-adjusted rate above global inflation over a 20-year investment horizon. “As any economist knows “investing for the long-term” can be used to cover a multitude of sins. Almost any period of poor performance can be explained away by saying that it is temporary. Without the discipline and transparency of a market listing and need to provide full information to investors there has to be the suspicion that management will seek to enrich themselves and/or tolerate poor performance. I wrote about these issues and the need to privatize Temasek in particular in my blog post, “Chesapeake Energy and Temasek: A Tale of Two CEOs and Shareholder Democracy” where I said:
It is instructive to contrast the power of shareholder democracy in shining a spotlight on management conflicts of interest and excessive compensation with our own powerlessness in finding out what is the real picture at our own sovereign wealth funds. Of course an incorruptible government ensures that there is no egregious wallowing at the corporate trough, like the shenanigans at Chesapeake, even though the PAP elite believes it is not in our interests to be told very much of what is going on. Even our (s)elected President has little power, and seemingly little interest, in keeping an eye on the investment performance of our SWFs, despite his choice of a pair of spectacles as his electoral symbol.
And also:
“…as a first stage to transparency and the privatization of our SWFs we need to separate the stakes in domestic companies from foreign investments. Temasek should be split in two. In fact if it had been a listed company in the US, for instance, management would have taken that route in order to raise shareholder value. With the split, the market is likely to value the two successor companies as a whole more highly than the original. This is because of the improved management focus and transparency resulting from the split. As a rule investors prefer to construct their own bundles of different businesses rather than have to invest in a company where management have made that choice for them.
Another reason for privatizing and listing Temasek and GIC is so that management compensation and incentives can be made transparent. Shareholders can check whether the incentives of management then are in alignment with the objective of increasing shareholder value. If there is excessive compensation for mediocre performance, then shareholders can vote against management at the AGM just as at Chesapeake. In the last resort they can vote with their feet by selling their stock which is why companies with poor corporate governance trade at a lower multiple than similar companies, ceteris paribus.”
As I explained in my last article, “Has Temasek Found A Cure for Balding” the lack of information and the valuations placed on assets that the government has injected and continues to inject into Temasek leave large question marks over the true track record of the managers. There is no reason for this excessive secrecy. After all look at Berkshire Hathaway, Warren Buffet’s investment vehicle, which is around the same size in terms of net assets which publishes quarterly and annual reports as required by the US Securities and Exchange Commission with exhaustive explanations of its accounting policies. Having to release so much information has not affected its ability to generate returns.
Both Temasek and GIC give their shareholder as the Government of Singapore. But the shareholders should be the people of Singapore and the managers should be accountable to the people. This is the rationale for my plan to privatize Temasek and GIC and distribute shares to Singapore citizens. By doing so, together with allowing Singaporeans to own the freehold of their HDBs, we create a true property-owning democracy rather than the fake “porcelain rice bowl” model that the PAP government is so fond of. The 99-year leasehold coupled with the right to move us with inadequate compensation whenever there is a profitable development opportunity is akin to feudal land tenure for the 90% of us who cannot afford private property. In fact it is even worse since there is no asset to pass on to one’s children.
To distribute shares equally to all Singapore citizens would also be a powerful boost to wealth equality without having to resort to redistributive policies on taxation, which by reducing the incentives to work and invest for the most productive may reduce potential output. A rough guesstimate using the deliberately opaque and inadequate information provided in the government’s annual Statement of Assets and Liabilities suggests that this could be potentially worth more than $100,000 per citizen. Obviously with a listing the valuation would depend on the market and the greater the transparency and measurable alpha generated by the managers the more likely the shares would be to trade at a premium to book value. On the other hand if Temasek and GIC’s portfolios are very optimistically marked in terms of valuation and the less liquid the portfolio the lower the market valuation is likely to be.
There are of course a multitude of questions that would have to be resolved. These are some of them together with some possible answers:
How should the shares be distributed? In my view it should be equal shares for everyone though consideration could be given to allocating more shares to those who had done NS as compensation for the economic sacrifice. Of course this might be opposed by women who could justifiably point to the economic sacrifice entailed by child-bearing though most women who have children do so as one-half of a couple. The sacrifice affects both parties. A fairer way might be for Singapore citizens with less than ten years citizenship to be excluded unless they had done NS.
Should shares be given to those under 21 at the time? Probably not on the grounds that they have not made the economic sacrifices that the older generation has to build up the stock of assets. New citizens would not get shares though perhaps consideration could be given to keeping back a certain proportion of shares to allocate to those who had done NS.
What happens to CPF contributions in future that have been a big source of cheap funding for GIC? I have advocated privatizing CPF and making contributions voluntary (while keeping their tax deductibility). Even with the endowment effect of cheap CPF borrowing GIC’s performance has been lamentably low (see link).
What would happen to future government surpluses? There is no reason for the government to run surpluses once an adequate level of reserves has been reached. Of course if and when shares in our SWFs are allocated to citizens there may be a period of adjustment during which the government would have to run a bigger budget surplus to offset additional spending by the private sector as it adjusts its stock of financial assets to the desired level rather than the artificially high one imposed by government. Budget surpluses could be invested in the SWFs and the new shares created held back to reward new citizens who had done NS or children of existing citizens.
Is there not a risk that Singaporeans would just squander their new wealth or be cheated by unscrupulous individuals with inside knowledge? Privatization and the distribution of shares in state-owned enterprises was given a bad name in the former Communist bloc. The selling off of state assets cheaply to the former managers of the companies with the use of loans from state banks helped create the class of Russian oligarchs who became billionaires literally overnight. However in this case the problem would be avoided as there is no requirement for the state to raise money through privatization. Instead shares would be distributed equally. Some Singaporeans might want to see some sort of vesting process imposed to ensure that Singaporeans could not squander their new-found wealth. However such fears are undoubtedly ill-founded as well as being patronizing and elitist It is exactly the same kind of attitude as the current government has towards our citizen’s rights to know how our assets are being managed and even to know the true extent of the reserves. If markets tend towards efficiency then the share price should broadly reflect the mean value of the probability distribution of future returns. The shareholders would be the best judge of whether the share prices of our privatized SWFs were overvalued or undervalued on this basis.
How would you prevent foreigners gaining control of Singapore’s crown jewels by buying up the shares held by Singaporeans? Firstly most of Temasek’s domestic investments are not in high technology areas but in mature industries. Temasek has sold several of the companies in its domestic portfolio to foreign buyers in the past. It is difficult to argue why the management of a privatized Temasek should not be able to recommend a bid by a foreign company for any of its assets or even for Temasek itself and why Singaporeans should not be free to accept. Adequate safeguards could be put in place by requiring any takeover offer from a foreign company for a Singaporean company above a certain size or in a strategic sector to require approval from a Committee on Foreign Investment (like CFIUS in the US or the FIRB in Australia). It should also be coupled with a strengthened competition regulator given that Temasek holds many quasi-monopolies in the local market.
These are a few thoughts on the issue. I advocated privatizing Temasek and GIC primarily to impose transparency and accountability on the management through the discipline of the market. There would be a transparency premium to the valuation. Distributing shares to Singaporeans would also establish a direct nexus between our citizens and the managers of our reserves and give them the power to replace them in a direct manner as opposed to the indirect method of having to replace the government. At the same time it would give ordinary citizens a significant endowment which would greatly reduce inequalities in the distribution of wealth and thus contribute to much greater equality of opportunity. This would be along the lines suggested by Rawls, the American philosopher, in his later ideas on the creation of a property owning democracy. Given that Singapore’s state should already be wealthy enough to provide everyone with significant property assets, the conflict and loss of economic efficiency resulting from redistributive taxation could be avoided. My ideas may be too radical, even heretical, for the current orthodoxy that state capitalism works best. However Singaporeans can increasingly see that the current model has failed to raise living standards significantly for the past decade or more. My hope is that this will start a debate and I look forward to your comments.
Has Temasek Found A Cure for Balding?
The question of the transparency and proper accounting of our reserves has been a primary concern of mine for some time, in fact ever since 2009. A major theme has been that currently we have inadequate safeguards to prevent them being frittered away by an irresponsible government instead of being used for the benefit of the people whose hard work and sacrifice have built them up. In the RP responses to Budget 2012 and 2013 (see here and here) I complained that our Budget presentation was a masterpiece of obfuscation and misdirection and that there were several glaring discrepancies in the accounts. I followed this up with two letters to the Finance Minister (here and here) complaining about discrepancies and a further letter to Christine Lagarde, the head of the IMF (here).
I have also written extensively at www.sonofadud.com on the question of the transparency of our reserves and why the numbers do not add up(see here for just one example). A further list of links is given at the bottom of this post.
Thus as the person who raised this issue first I am well qualified to adjudicate on the issues raised in the recent argument between Christopher Balding and the person calling himself “Kok Ah Snook” .
After I had been writing about these issues for some time, I found that Chris had in April 2012 been writing in a rather alarmist and sensationalist style and making unsupported allegations of fraud about what he believed to be large shortfalls in our reserves. However his analysis was merely speculation until I spoke to him and pointed where on the MOF website he could find a sub-standard balance sheet, without any explanatory notes, which the Finance Minister is required to publish annually under the Constitution. The balance sheet is supposed to represent Singapore’s assets and liabilities.
After some discussion I then flew out to meet him in Hong Kong where we agreed to work together towards a joint presentation of what we had found. While looking at his work I noticed certain errors or implicit and unjustified assumptions that he appeared to have made in his calculations of what should the theoretical total of Singapore’s gross and net assets and pointed these out to him.
However despite what I thought was an agreement he started publishing fresh articles independently using some of the information that I had sent to him. Since it seemed to be difficult to work with him I went ahead and published my conclusions in the article above where I cited some of the errors he had made in his analysis. However despite this I broadly agreed with his conclusion that the theoretical level of gross and net assets should have been much larger differing only in the order of magnitude. Whereas Chris calculated that there was potentially over a trillion $ in missing assets my more rigorous assumptions reduced the theoretical shortfall on conservative assumptions to the level of $300 billion or so.
In later articles (see here and here) I argued that GIC would have had to have earned less than 2.5% p.a. in S$ terms, even allowing for a cost of government borrowing from the CPF of 3.5%. to generate such a low level of net assets . This was after subtracting Temasek’s publicly stated level of net assets and a conservative estimate of revenue from land sales from the total of gross assets shown in the Statement of Assets and Liabilities. This was actually much more damning because it established that even the most careful analysis suggested cause for concern that the managers of our reserves appeared to be achieving very poor returns.
So let us get back to the current controversy. I read what Mr. “Kok” wrote (and also met up with him). He is technically correct that there is no theoretical difference between owning assets worth $100 directly and owning shares in a company with net assets of $100. However I do agree with Chris that it is a cause for concern if the assets are injected into the company for free or not for fair value and that the managers of the company subsequently revalue the assets and claim the gain as their own investment performance.
The view that Temasek’s presentation is unorthodox and misleading is supported by current accounting practice (as exemplified by US Financial Accounting Standards Board (FASB) Statement No. 141 which can be found here). This requires that:
20. The acquirer shall measure the identifiable assets acquired, the liabilitiesassumed, and any noncontrolling interest in the acquiree at their acquisition-date fair values.
In the case of a “bargain purchase”, one where the fair value of the assets acquired is above that of the consideration paid, the “the acquirer shall recognize the resulting gain in earnings on the acquisition date. The gain shall be attributed to the acquirer.”
Accounting Standards Classification (ASC) 805 has superseded FASB Statement 141 but the instructions remain the same. The International Financial Reporting Standards (IFRS) has very similar, if not identical guidelines on how to treat acquisitions of undervalued assets.
Of course Temasek as an exempt private company is not required to publish its audited statutory consolidated accounts though presumably these should be in accordance with US Generally Accepted Accounting Principles (GAAP) or IFRS.
At the time of Temasek’s acquisition of these group companies from the government, even if there was no fair value determination for the companies transferred, Temasek should have recorded them at the book value they were showing in the acquiree company’s accounts. Temasek paid $354 million for the 35 companies by issuing shares to the government. It is hard to believe that this was book value even then. It is likely that Singapore Airlines alone even in 1974 had a book value of close to that figure.
If Temasek had chosen either to use fair values or book values for the assets acquired then the resultant gains should have been taken to income on the date of inception and added to the reserves. The starting base for calculation of returns would then have been much higher and subsequent returns correspondingly lower, probably by a significant amount. Even if the acquiree companies’ book value was used it is highly likely that there would have been a higher starting value for Temasek’s initial assets and a significantly lower rate of return since then.
This does matter if you are a publicly listed company because investors will look at the track record of the managers. If you were a hedge fund manager and your returns were inflated because they include returns that belong to prior periods then that would be highly misleading and probably fraudulent. Regulators would definitely be concerned. If the fund’s returns were padded by the injection of undervalued assets from other funds then this would also be misrepresentation of the true performance of the fund. Before regulators tightened their rules on marking of assets and liabilities to fair value, which should be market values as far as possible, it is probably true to say that it was fairly common for investment bank proprietary trading desks to build up hidden reserves by undervaluing some of their assets. These could then be released when necessary to cover losses or when bonus payments were calculated.
It has been argued by “Kok” among others that the glaring undervaluation of Temasek’s initial portfolio does not matter in the case of Temasek because it is a government-owned company and it is not marketing shares or investment funds based on its performance. It was just a choice of accounting treatment and after all no money was siphoned off.
However, this is far too naïve a view. Singaporeans are the investors in Temasek and ultimately the owners of the assets. If the government is able to convince them that they are better managers of these assets then they really are then the voters may be swayed to vote for them when they otherwise would not. Also the CEO of Temasek has talked in the past of co-investment funds to be sold to Singaporeans and others to allow them to invest alongside Temasek. Should these come to fruition then investors need to know what the true performance of the current managers is. The remuneration plans of Temasek’s managers are also linked to long-term investment returns. If these appear better than they really are then payouts to managers may have been larger than they should have been.
Finally a future group of managers may decide at some stage to partner with a private equity firm or firms to make a buyout bid for Temasek’s assets that a future government might accept. If some of the assets in the portfolio are still significantly undervalued, and only the future managers know about it, then Singaporeans may be seriously shortchanged. This is unlikely but not inconceivable. After all Nomura’s private equity division bought the Ministry of Defence housing stock in the UK for a fraction of its true worth generating reported profits for Nomura of US$1.9 billion and setting Guy Hands, the then head of Nomura’s Principal Finance Group, on thr road to a reported personal fortune of £100 million by 2011.
Despite Balding being on the right lines his analysis is unfortunately vitiated by some elementary mistakes as usual. These unfortunately undermine the credibility of his case though they do not affect the main argument. He mentions Changi Airport Group (CAG) and says that the government invested $5.68 billion since the late 1970s and is then selling it at a loss to Temasek for $3.2 billion in 2009. However he omits to take account of any dividends paid by CAG to the government since its inception. Given that their profit after tax in the first year after corporatization (2009/10) was S227 million the positive cash flow since Changi’s inception may have been several billion dollars. This would have reduced the headline investment figure of $5.68 billion probably significantly. Against this must be set the unexplained entry in the consolidated cash flow statement showing $580 million received from CAAS. Perhaps this represents revenues collected by CAAS prior to corporatization and subsequently paid to CAG. In this case the purchase price of $3.2 billion should be reduced by this amount. In addition CAG’s balance sheet showed cash of another $500 million as well as the $580 million and both amounts should be deducted from the purchase consideration to determine the enterprise value.
The purchase price was purely notional anyway because the purchase was financed with a simultaneous capital injection by MOF of the same amount. While the capital injection will add to Temasek’s asset base but not increase its returns, the purchase price of $3.2 billion is well below what such an asset with predictable and growing cash flows should fetch in an open auction. Recent airport sales (Edinburgh, Stansted) have achieved Enterprise Value/Earnings Before Interest Tax Depreciation and Amortization (EV/EBITDA) multiples of 15 to 17 times. Putting CAG on a EV/EBITDA multiple of 17 times implies that in 2009 it should have been worth at least $7.3 billion and on the basis of the latest results that would have risen to nearly $16 billion.
So exactly the same thing is happening as in 1974 despite recent accounting standards updates that mandate that acquired assets should be recorded at fair value in the acquiror’s books with gains recorded on acquisition. All the previous reasons why this is wrong apply here. Yet again, the Singapore citizen and taxpayer gets a raw deal because the value of the assets concerned is not being maximized as they would be if CAG was put up for auction. It would be interesting to see how the value of CAG is treated in Temasek’s statutory consolidated accounts. Of course undervaluing the asset creates a very useful reserve for a future rainy day for whoever happens to be the managers of Temasek then!
Unfortunately Chris Balding also harms the useful points he makes by the wild accusations of fraud and Bernie Madoff he flings around for which he has no evidence (though it cannot be disproved either). This risks the very valid questions about the management of our reserves being ignored or not taken seriously. Given the recent rising trend of threats of defamation suits to try and silence critidism, culminating in a government body threatening to sue an ordinary individual for the first time, there is a real risk that someone in Singapore could repeat Chris’s accusations and end up getting sued. It is notable that no one has threatened to sue me yet despite the very serious questions I have raised (though Kumaran Pillai at TOC lied and told me he had received a phone call from Temasek ordering him to take down one of my posts but could not produce any evidence when asked). This is because I make sure that what I write is accurate.
Ultimately the only way we are going to answer these questions is through transparency. That is why I have called since 2009 for the privatization of Temasek and GIC and the distribution of shares to Singapore citizens. That is the only way we will get to know what our reserves are really worth and whether the managers have been turning dross into gold or, as I suspect, the reverse.
Ding Dong the Witch / Wizard is Dead?
Last week saw the funeral of one of the most divisive and controversial figures in modern British history. Her family should take comfort from the strength of the opposition to her, which is surely an indication of her strength as a leader. Meanwhile many of you have been asking me what I think of her economics or suggesting that we are ‘pro –market’, kindred spirits. So I will try to touch on her legacy and set forth my views below. If you can’t read the whole thing I will sum it up thus: Thatcher was a reckless gambler who knew no economics.
Above all else, Mrs. Thatcher sod for free enterprise and individualism. Her model was Hayek’s The Road to Serfdom and she believed in rolling back the state (State with a capital S) and reducing the share of GDP taken by the state in taxes.
While this was a commendable objective, her abandonment of Keynesian economics and misplaced faith in Hayek and the Monetarist School (via Sir Keith Joseph her intellectual mentor) proved disastrous for the UK economy, initially. Her experiment in fiscal austerity has parallels with the general enthusiasm today, not least by her heirs in the UK Coalition Government for the benefits of fiscal austerity. This enthusiasm is based on shaky theoretical underpinnings and its supposed benefits have no empirical support. Recently the most often cited statistical work in support of austerity, Kenneth Rogoff’s and Carmen Reinhart’s study purporting to show a negative correlation between growth rates and debt levels, was shown up by a Ph.D student to have elementary statistical errors. Mrs. Thatcher had in any case scant knowledge of macroeconomics to which she added her own homespun common sense. Not altogether successfully.
Her father was a grocer and she used to help out in his shop so it is perhaps not surprising that her grasp of economics did not rise above the level of elementary bookkeeping. Indeed she treated the British pubic to endless lectures about the virtues of thrift and the importance of not spending more than you earn often accompanied by a Micawberish exposition on the dangers of going into debt.
When I was studying at Cambridge the economic fallacies of her Medium Term Financial Strategy of cutting public spending and tightening monetary policy and the disastrous effects it was having on the UK economy were the most discussed topics in my tutorials. This culminated in 364 economists, including the Head of Cambridge Economics, Frank Hahn, otherwise a vocal critic of woolly left-wing thinking, signing a letter urging her to change course, in 1981. Of course Thatcher was not one to change course. ‘This Lady is not for turning’ and all that.
She would undoubtedly have lost the 1983 election, ending the experiment with free enterprise and privatization but for a reckless gamble on the Falklands war. By winning that war she instead won a landslide in the 1983 election. With a new Chancellor, Nigel Lawson, at the helm she embarked on a loosening of fiscal and monetary policy that created a housing boom and let the Tories win another term comfortably in 1987.
Ultimately her success went to her head. She became increasingly overconfident in her abilities and inclined to ride roughshod over her Cabinet colleagues and public sentiment. In a small, newly independent island Nation where the leader is always able to invoke the threat of racial conflict or invasion and economic meltdown to justify repression this may work but not in the UK. Worried about losing the upcoming election the Tory party ditched her in 1991 in truly unsentimental fashion.
I cannot help but respect Mrs. Thatcher’s views on the Soviet Union. She proved prescient about the collapse of the Soviet Union and foresaw better than most left-wing economists that the system was founded merely on adding more inputs without any fundamental rise in productivity. To show how unfashionable this view was at the time, I can still remember a BBC programme in which my Economics Professor at Cambridge urged the UK to adopt the Soviet model and leave the EU. In the same way those who criticize the Singapore model as sharing many of the features of the Soviet one are still very much in a minority here.
In fact in the last years of the Soviet Union their economy imploded and productivity growth went into reverse. Mrs. Thatcher must get some credit for having hastened this collapse though the main spur was higher US defence spending spearheaded by Reagan, which the Soviet Union had to match but could not afford to. Reagan was Thatcher’s staunchest foreign ally and they were indeed kindred spirits though Reagan was much too pragmatic to be hung up on the supposed evils of debt!
It is a pity that while Mrs. Thatcher was so prescient about the Soviet Union, she seems to have been blind to the real nature of Singapore’s success. Like many English people of her generation, she felt that the diverse ( i.e. darker skinned) peoples of Britain’s former colonies needed a firm hand. Who better to give it to them than rulers like Harry Lee, whom the former British foreign secretary George Brown is supposed to have described as “the best bloody Englishman east of Suez”. Her boundless admiration for LKY manifested itself in such stunning displays of ignorance as her comment here that “Her ( Singapore’s) leaders knew that in a free society it is the people who own the Government, not the Government who own the people.” Most of her other speeches abound with such fulsome praise for our dear leader’s achievements.
To be fair her sentiments were probably driven more by diplomatic convention rather than by deep-seated conviction. The greatest irony is that many of Thatcher’s policies of privatization and creating a property-owning democracy from the 80’s have yet to be adopted in Singapore.
In Singapore in the intervening years, the degree of state control over every sphere of our economy has increased, as has the size of the surplus extracted from the people. It is difficult to see how an economy where the state owns 80% of the land and 90% of the population live in leasehold public housing can be squared with the Thatcherite vision of a free enterprise economy where share ownership is diffused throughout the population.
Mrs. Thatcher was moulded by the Conservative government’s humiliation at the hands of the miners in 1973 and fixated on reducing overweening trade union bargaining power, which she did through both legislation forcing the unions to adopt a greater degree of democracy and through privatizing and reducing state support for the traditional mining and heavy manufacturing industries. However the direct control exercised by the PAP government here over trade unions through their control of NTUC and through the unions over mush of the workforce would have been seen by her as a violation of fundamental rights to freedom of association and more akin to the Communist model.
As we approach the inevitable end of a similarly controversial and divisive home-grown figure we might wonder how history will reassess his legacy once he is no longer there. I have said before that it will be similar to Tito’s death in Yugoslavia. The iron fist in a velvet glove who, according to his own spin, held the country together by a ruthless but necessary suppression of minority rights and dilution of political power through measures such as the Ethnic Integration Act. Unlike Tito he has been able or willing to use immigration as a tool to maintain what he sees as a favourable racial and religious balance. However , in another echo of the policies of our former colonial masters and something Mrs. Thatcher would have been familiar with, he has also shamelessly made use of and exaggerated racial and religious divisions in order to maintain and extend his hold on power.
About the only thing we can be sure of is that there are unlikely to be any protests or similar marks of disrespect at his passing, though perhaps more out of the customary apathy and fear than from deep-seated affection. Not to mention that in Singapore, protest is illegal.
Singapore, Lagarde Stealing from the Poor to give to the Rich
With reference to my legal action to block our government’s loan commitment to the IMF you may have heard me say that I am not necessarily opposed to giving the IMF more resources. I must now admit that in light of continuing events in Europe I may have to revise my original statements.
I said that I was not necessarily opposed to the IMF goal per se, for two reasons. Firstly, it may be beneficial if it prevents another financial crisis like 2008 that led to a catastrophic slump in demand for our exports. Secondly, my opposition to the loan pledge is founded on considerations of rule of law and democracy. In my view, and that of a majority of other Singaporeans, who find the AG’s arguments extremely evasive and nonsensical, our loan commitment to the IMF is caught by a law that requires it to get Presidential and Parliamentary approval first.
So, I stressed that I had no objections to the IMF’s firewall fund, per se, in order not to co-mingle an issue affecting our rights to representative democracy at home in Singapore, with general opposition to the IMF, already out there.
In fact my action was just a mirror of that taken by the Auditor General who caught a soft loan to the World Bank’s International Development Association, in breach of the same Act. That loan was scrapped, raised again and put through the correct procedures, namely that Presidential approval was sought (see here).
Before you read any further let’s have a quick quiz. Rank the citizens of these States and Cities in order of standard of living from prosperous to conditions of austerity. In Europe consider the citizens of Italy, Germany, Greece and Portugal. In south East Asia consider the citizens of Taipei, Singapore and Kuala Lumpur. OK, now read on.
I have repeatedly said that (see here) everyone knows that the hidden objective of Christine Lagarde’s request for an extra $430 billion firewall, to which our Finance Minister on behalf of the PAP government readily agreed to make a generous contribution, is to prop up the Euro and to support the struggling peripheral members and their insolvent financial systems. Don’t be fooled by the fiction that Minister Tharman was careful to propagate in his answer to a carefully stage-managed Parliamentary question from one of his backbenchers. Then he said “There are firm commitments to increase resources made available to the IMF by over $430 billion… These resources will be available for the whole membership of the IMF, and not earmarked for any particular region.”
Anyone who doubts that the bulk of IMF lending is going to the Euro Zone has only to look at the latest IMF quarterly report which shows that 88% of lending is to Europe and the top three borrowers are Greece, Portugal and Ireland.
New evidence has emerged that these countries may not be so meriting of our charity after all. A new study by the European Central Bank (ECB) (see New York Times report here) has suggested somewhat controversially that the Germans may be being misused. Germans considered the prosperous people of Europe, have been asked to dig deep into their own pockets to bail out the rest of the Euro Zone. But are they actually poorer than the citizens of many of the countries they are being asked to support?
More than that , when I read the New York Times article I got the eerie feeling that that author was talking about Singapore. See this extract:
“The study was based on an exhaustive survey of 62,000 households in 15 of the 17 euro zone countries, which showed that the median net wealth of German households was only half that of Greek households, less than a third of Spanish households and less than one-fifth of Cypriot households. Much of the gap stemmed from the low rate of homeownership in Germany. In the other countries, real estate was the main source of household wealth.”
While German households were well ahead on measures of income and comparative unemployment rates the survey did have some surprising conclusions such as that Italians are land-rich even if average incomes are low. However, in language that seems uncannily reminiscent of how Singaporeans live, the article goes on to say that
“The fact is that many Germans struggle economically…Although extreme poverty is relatively rare, millions of Germans live in drab concrete apartment blocks, ride the subway and do their shopping at Aldi, the ubiquitous discount grocery chain.”
Now read this and tell me whether this describes Germany or Singapore? :
“Germans are intentionally misled to believe there is less poverty at home than there actually is…People think we’re the richest country in the world, that we have an especially strong social safety net, but these are just half-truths.”
Substitute HDB for “concrete apartment blocks” and NTUC Fairprice for Aldi and the article could be describing Singaporeans. The big difference is that we are not intentionally misled to believe that we have strong safety nets. Rather we are told that safety nets will ruin us and that we need a “spur in our hides.”
Of course part of the difference in wealth stems from the lower rate of home ownership in Germany due to greater difficulty in obtaining mortgages and a large stock of rental accommodation. This may be why there is so much grassroots opposition in Germany to lending to the European countries that have been hit particularly hard by the collapse of their housing bubbles. However when they do buy the majority of homeowners own the freehold of their properties. They are not forced to buy their apartments of average to low quality but steadily decreasing size from a monopoly supplier who retains the freehold. Neither are they forced to buy from government monopolies or cosy Public-Private oligopolies when it comes to the bulk of purchasing decisions. Of course our State managed media and the PAP government relentlessly drums home the message of how fortunate Singaporeans are and how well off they are compared to the citizens of other nations. I recently saw some propaganda on a PAP support group Facebook page that said, “Just because other people are rich doesn’t mean that you are poor.”
In fact as I have pointed out here, when measured by GDP per hour worked, Singaporeans ranks near the bottom of the leading industrialized nations and well below Ireland, Italy and Spain, three of the Euro Zone economies with the most severe financial problems. (Sadly these international comparisons by the US Bureau of Labor Statistics are ceasing because of the budget cuts forced by the recent US sequestration. This means one of the most important independent comparisons of Singapore’s economic performance will be lost)
Ireland is already one of the major recipients of IMF loans under its recent debt restructuring and bank bailout. Spain has received a Euro 100 billion facility from the ECB to restructure its banks. Both Italy and Spain are likely in the not too distant future to require a similar debt restructuring to the smaller Euro Zone economies such as Portugal, Ireland and Greece. At this point both countries will probably receive support from the IMF under the new firewall arrangements. If the Euro Zone crisis worsens, and every indication is that it is far from over, Singapore’s loan commitment is likely to be called upon sooner rather than later. So just like the Germans we are lending to countries whose citizens are much better off than ours.
I cited here the 2009 survey by UBS which showed Singaporeans’ living standards roughly on a par with those of the inhabitants of KL and lagging behind Hong Kong, Tokyo, Seoul and Taipei. The 2011 report (Singapore was mysteriously dropped from the 2012 survey) showed Singaporeans’ real hourly net pay at 40.7 with New York at 100. Dublin was on 101.7, Madrid on 75.6, Milan on 75.3, Lisbon on 65.1, Barcelona on 71.6, Rome on 53.6, Athens on 59.9 and Nicosia (the capital of Cyprus to which the IMF recently lent Euros 1 billion as part of the banks’ rescue package) 93.7.
It is not even clear if net comparisons are appropriate. Though Singapore performs better on comparisons of net pay because of our lower taxes the inhabitants of these European countries receive an incomparably more generous package of welfare benefits from their governments in return for the higher taxes. Medical treatment is largely free in most of these countries and they also have old age pensions and income supports that Singaporeans can only dream of.
Of course the PAP government wants to play the role of generous benefactor internationally with our money. All authoritarian regimes crave recognition and respectability. It helps to mute criticism from foreign governments. Libya, or Gadhafi’s son, was a generous benefactor to UK universities. Our scholars are an important source of income for Cambridge University and other elite institutions. It additionally allows them to maintain the fiction of good economic governance. The IMF is all too happy to oblige.
The PAP could be likened to Robin Hood but in reverse since the rule seems to be give to the rich and keep Singaporeans in austerity. In fact when will Singaporeans wake up and realise that they live in conditions of austerity, self-imposed and completely unnecessary?
Grace Fu recently strengthened the reverse Robin Hood philosophy by condescendingly saying that the government will shoulder a greater proportion of healthcare bills but that the need for co-payment would remain in case Singaporeans were tempted into “overconsumption” of healthcare (see here).
While there should probably be some need for co-payment I believe this should be capped and reduced for those on low incomes. It is hypocritical of our government to be telling our citizens they won’t be allowed to ‘over consume’ on healthcare while contributing to supporting countries with generous welfare states where health care is not limited.
In my next post I will be showing how our government plays Robin Hood in reverse domestically. In my rebuttal of Stiglitz, I already touched on the inequity of our tax system. I will add to this with details of our government’s policies on foreign labour and the effects of its monopoly over much of the domestic economy that keeps prices needlessly high. Until then please try not to give too much money away to the already wealthy.
Singapore: From Economic Powerhouse to The Sick Man of ASEAN?
Singapore ‘s economy contracted by 0.6% in the first quarter of 2013 compared with the corresponding quarter of 2012. On a quarter-on-quarter seasonally adjusted annualized basis the economy contracted by 1.4%. Since year-on-year growth is now negative does that mean we are now officially in recession?
No. The accepted convention for defining a recession is two consecutive quarters of negative growth. And thanks to some deft footwork by the Statistics Department the government has avoided that label being applied to the economy. The result is that technically Singapore has so far been spared a double dip recession even though many Singaporeans might feel as though a thief has been double dipping from their pockets.
Singapore was in fact only saved from a technical recession by the downward revision of GDP growth in the first and third quarters of the year. Initial estimates of GDP growth at a quarter-on-quarter seasonally adjusted annualized rate in Q1 2012 were 9.8% but this was revised down to 9.5% in the fourth quarter revisions. Similarly a decline of -1.5% on an equivalent basis in the third quarter was also revised down to a decline of -6.3% (see here for details). By taking growth from the previous three quarters and putting it into the fourth quarter, the end result was that fourth quarter growth came in at a positive 1.8% quarter-on-quarter annualized rate
That might have been an end of it but there were more revisions in the first quarter of 2013. Growth in the first and second quarters of 2012 was revised down again while growth in the third quarter was revised up. This resulted in a considerably stronger fourth quarter of 2012 while keeping year-on-year growth barely unchanged at 1.3% compared to the earlier estimated 1.2% (see here for details).
Many Singaporeans have been screaming foul or using the old cliché, “lies, damned lies and statistics” to describe what goes on with our statistics. To be strictly fair there may have been good reasons for the revisions to earlier quarters. It is true that initial flash estimates of GDP growth are often revised substantially later on in other advanced countries. However in other countries an explanation is usually provided for the revisions. There has instead been a deafening silence on this point from the Statistics Department.
This is no different from our government’s silence when asked for data about our surpluses and the true state of our reserves. Though in the government’s case it goes beyond silence and borders on active obfuscation. This would not be my blog if it were not to call for reform of our culture of secrecy and for greater transparency and accountability.
In the absence of an explanation from the Statistics Department for the revisions one is inevitably tempted to suspect that there may be some massaging of the figures to prevent Singapore being classified as in a technical recession. Combined with the other dubious statistics produced by the Department to show rising real household incomes, which I have highlighted here and here, it makes a compelling case for the removal of the Statistics Department from government control so as to lessen the possibility of political interference in the calculation of its statistics. (Again, it wouldn’t be my blog if it wasn’t calling for independence from government control).
The UK Parliament in 2007 passed The Statistics and Registration Service Act 2007 which “established the UK Statistics Authority as an independent body at arm’s length from government with direct reporting to Parliament …rather than through Ministers, and with the statutory objective of promoting and safeguarding the production and publication of official statistics that “serve the public good”.
We need similar reform here coupled with a Freedom of Information Act. I have called repeatedly elsewhere for greater transparency in the general government accounts, which should include all the Fifth Schedule companies and statutory boards, in particular, Temasek and GIC.
However reform aimed at improving the transparency and independence of our economic statistics in the future does not alter the reality on the ground at present. Credit Suisse in a recent research note called Singapore “the sick man of ASEAN” and said that it “must rely on a meaningful improvement in the global trade cycle to register a reasonable recovery”.
While the services sector has held up reasonably well and the construction sector has been buoyed by government infrastructure spending, the industrial production index was by February this year some 18% below its peak in 2011 (see the Monthly Digest of Statistics for March 2013). Of course 2011 was when the government had just triumphantly announced 14% growth for 2010 driven largely by the sectors (manufacturing and pharmaceutical manufacturing in particular) that are now declining. Labour productivity fell last year by 2.6% with manufacturing leading the way. The fall in productivity is if anything accelerating if the latest figures are added in.
The government is still sticking to its forecast of 1-3% growth for this year. It has been quite effective in the past in producing rabbits out of the hat, particularly when it was able to pull the wool over our eyes by confusing GDP growth (easily manipulable when US and EU demand was growing strongly by the addition of cheap foreign labour) with growth in GDP per hour worked. With the decline in our main export markets accelerating, Chinese growth slowing and several of our main trading partners such as Japan resorting to competitive devaluation to boost exports it is difficult to see where the rabbits will come from this time. With inflation at current levels the government is not going to direct the MAS to lower its exchange rate targeting to boost the economy.
Paradoxically, just as Singaporeans have not seen the real income gains that one would expect from the high growth rates of the recent past – because most of the gains have accrued to the fixed factor of land as well as the profits and surpluses of the government and MNCs – a slowdown may not initially have too severe an effect on real median incomes. Even more so if it leads to a slowdown in inflation.
The government is fond of talking of a tight labour market and warning that business will face catastrophic cost increases if we tighten the tap on foreign labour but this is contradicted by the fact that real wages continue to lag behind inflation for the bulk of workers. This does not suggest a tight labour market.
Ultimately though rising living standards are dependent on raising productivity and here the PAP government is continuing to fail to perform. If we were moving upmarket into higher value added manufacturing one would expect average wages to be higher in the manufacturing sector than in services but in fact they are lower.
We are stuck in industries that are dependent on cheap labour and increasingly vulnerable to competition from countries with access to cheaper labour supplies while any move upmarket has to contend with similar moves by China and Korea, both with access to much greater R&D resources than us. If our economic recovery is dependent on a recovery in world trade one can legitimately question what “alpha”, or value the PAP are adding. The pejorative title of “The Sick Man of ASEAN” may well prove to be the most accurate one.
An Open Letter to The Editor of TODAY
I sent this letter to the Editor of TODAY yesterday in response to their misleading report about the IMF loan appeal published on 10 April. However I still have yet to receive even an acknowledgement so I reproduce the text of the letter below:
18A Smith Street
Singapore 054932
13th April 2013
The Editor
TODAY
Dear Sir,
I refer to the report on my appeal against the judgement denying me leave to apply for a prohibiting order in the matter of the government’s $5 billion loan commitment to the IMF, published in your newspaper on 10 April 2013.
This is an important case, the outcome of which will determine whether our citizens can enjoy the protection of rule of law and an executive bound by the Constitution. Whatever the outcome I feel it is essential that your newspaper or indeed any State media, report on the case as accurately as possible.
Your reporter Ms. Lee did approach me after the appeal to ask for a written transcript of my oral arguments. Unfortunately I did not have a transcript as my arguments were oral and not read out from a script. However I did speak to Ms. Lee on the phone later and gave her the gist of my arguments. I also sent her links to the written authorities that I had relied upon in the Supreme Court. As my oral argument had taken over an hour and I also orally rebutted several of the AG’s claims I can fully appreciate that it may have been difficult to summarise them in the limited space available.
Unfortunately upon reading the article published in Today it seems that Ms. Lee’s presentation of my argument is based only on the earlier written submissions of 28 January 2013 and does not reflect the oral arguments I actually used in court.
Unfortunately whilst I am sure this was not the intention it has produced a report of the proceedings, which is fundamentally inaccurate and misleading. Worse, it puts arguments into my mouth which I did not actually present.
This was a complex case and even Deputy Public Prosecutor (DPP) Aurill Kam requested that my authorities be excluded on the grounds that they required specialized accounting knowledge. Maybe you will allow me to clarify.
Your report says, “Mr Jeyaretnam, who represented himself in the Court of Appeal yesterday,”
It is true that I represented myself. This becomes meaningful only when you know that I felt obliged to take this course of action because of the Law Society’s previous embroilment of my counsel Mr. M. Ravi. This affected the hearing of my first application in the High Court and I could not afford the possibility that this would happen again at the appeal in the Supreme Court. As my lawyer had settled matters with the Law society by April 8th, we did apply to have him re-instated at the hearing but this was rejected.
You say, “Yesterday, Mr Jeyaretnam maintained that the Government had given a guarantee, but Deputy Public Prosecutor(DPP) Aurill Kam argued that the guarantee contemplated in Section 38 of the MAS Act is a guarantee by the Government to cover “moneys due by” the MAS.”
My arguments were based on the fact that the MAS is a government company as defined in Schedule 5 of the Constitution and that the loan commitment had been given at the behest of the government. In any case, under the MAS Act, MAS is manager of the government’s reserves and not the owner of them. I pointed out that this is identical to the UK where HM Treasury made the loan commitment to the IMF, even though the Bank of England manages the country’s reserves.
You say, “But his application was dismissed last October by High Court judge Justice Tan Lee Meng, who ruled that this article only applied “when the Government raises a loan or gives a guarantee, and not when it gives a loan”.
I argued strongly that the natural and ordinary meaning of the words strongly supports the interpretation that loans as well as guarantees required both Parliamentary and Presidential approval. The Interpretation Act supports this.
However, even if one accepted that the giving of loans were not caught by Article 144 because loans were assets, I also argued and produced conclusive evidence from a variety of authoritative sources that as a loan commitment the IMF pledge should be treated as a contingent liability. Both loan commitments and guarantees are classed as lending-related commitments and contingent liabilities under US Generally Accepted Accounting Principles. The IMF loan commitment should thus be looked at as increasing the financial liability of the government.
I went on to point out that a loan commitment could be likened to writing an option to the IMF allowing them to borrow money from Singapore at a time that was advantageous to the IMF. This interpretation is supported by the accounting rules laid down by the US Financial Accounting Standards Board No. 133, Accounting for Derivative Instruments and Hedging Activities.
The practical effect of extending this commitment was that it was most likely to be drawn upon when the IMF had suffered losses and could not borrow elsewhere. I pointed out that the very term “firewall” used to describe the new commitment suggested that it was money that was to be “burnt” or sacrificed to prevent contagion spreading from, say, a banking collapse in the Euro Zone to the rest of the world’s financial system.
You say, “Mr Jeyaretnam also argued that he has standing as a Singapore citizen and taxpayer to bring forward the application”
It is entirely misleading to report that I argued that my locus standi was based on being a taxpayer and CPF holder. I brought up taxpayer status in an, “ If… then” argument.. My point was that if Madam Vellama had standing as a resident of Hougang to bring an action for judicial review of the PM’s unfettered discretion then I had as much right to bring an action as a taxpayer and CPF holder. I pointed out the inconsistency in Justice Tan’s ruling in my case and the court’s concession of standing in Vellama’s case. The conflict between these two rulings was pointed out in an article written by Tham Lijing in the Singapore Law Gazette in February 2013. The Law Gazette is the official publication of the Law Society (See here).
I also pointed out the contradictory nature of the court’s using a distinction between public and private rights as a test of standing. It is an unjustifiable simplification of my argument to say that it was based solely on my having standing as a citizen and taxpayer.
I would be grateful if you would print my letter as soon as possible.
Yours sincerely,
Kenneth Jeyaretnam
A thought experiment. Imagine a situation where one MP from each constituency resigns, is removed or dies….
As you know, our IMF loan case appeal will be heard on Tuesday at 2.30pm in the Court of Appeal at the Supreme Court (See here for details) I hope to see you all there but if you are unable to make it let me explain what we stand to lose.
Originally this was about a $5 billion loan pledge to the IMF. I maintained that this breached our Constitution. I still maintain that.
The President pretended that it had nothing to do with him. The MOF tried to shift the responsibility on to MAS and claim it was nothing to do with them. The President and the Government contorted themselves, hid behind semantics and arcane Latin phrases and did everything they could to evade responsibility for making this loan commitment without due process. However once it got to court it was the AG defending the government and not a private lawyer hired to defend MAS. And once in court the AG brought up something truly astounding.
As every effort so far to pull the wool over our eyes had failed and as they had been embarrassed by my discovery that the President’s office had already missed one breach of Article 144, they tried to get out of arguing the case by putting forward the argument that I had no standing. In other words, that there was no case to answer because I had no right to bring one. If I were an individual and this were a private matter that would be my loss. But I was representing every Singaporean and when the judge ruled that I had no standing he ruled that every citizen had no standing, in matters that affect us all. As blogger Andy Wong said on sgwatchdog.com (http://www.sgwatchdog.com/Appeal.html), this case is not about the IMF any more. That has become a side issue.
In fact, the High Court decided that I lacked standing because it said I could not show that I had suffered special damage and had a genuine private interest. This is what has become known as the locus standi issue. Yesterday someone pointed out to me a fascinating article in the Singapore Law Gazette by Tham Lijing (Locus Standi in Judicial Review: Two Roads Diverge in a Singapore Wood).
As the author points out this decision contradicts an earlier decision to allow standing to Madam Vellama in the case of Vellama d/o Marie Muthu v Attorney General. (It is noted that the AG did not even try to contest standing here ). For those who have not read his article, I paraphrase his argument below.
Madam Vellama’s case involves Article 49(1) of the Constitution that states:
Whenever the seat of a Member, not being a non-constituency Member, has become vacant for any reason other than a dissolution of Parliament, the vacancy shall be filled by-election in the manner provided by or under any law relating to Parliamentary elections for the time being in force.
However, as Tham says, the problem is that this also involves a public rather than private right. It is difficult to see how Madam Vellama has suffered special damage by virtue of being deprived of representation in Parliament. One might say that her situation is special by virtue of her being a constituent of Hougang. But this answer cannot resolve the inherent contradiction between Vellama and Jeyaretnam.
Tham gives us the hypothetical example where one MP from every constituency resigns or is removed. In this scenario, Madam Vellama would not be “personally affected” vis-à-vis other Singaporeans. The rights of residents of all constituencies would have been equally affected. Therefore, a strict application of the “personal interest” criterion would deprive Madam Vellama of standing in this imaginary situation. This exposes the contradiction between the two decisions since how can it be that enforceability of the right to representation in Parliament depends on an irrelevant factor such as the number of by-elections involved.
This piece of judicial logic suggests, as Tham goes on to say, that had MAS offered the IMF loan out of funds that were supposed to be spent on upgrading projects in Hougang, that a Hougang resident should have been able to bring an action as she would be “personally affected” compared to Singaporeans in other constituencies. So that Hougang resident would have had standing but not me (Never mind that I do have a personal interest as a taxpayer, CPF holder and presumably a stakeholder in Temasek and GIC in preventing the government from giving away our reserves). Yet we would both be seeking essentially the same thing, viz. to enforce Article 144 of the Constitution.
To illustrate this consider a situation where a future Prime Minister gets the President to dissolve Parliament and then decides not to call elections within three months as required under Article 66 of the Constitution. Instead he decides to rule by decree indefinitely citing reasons of national security for example. This would affect all Singaporeans equally and thus no one would be able to bring an action to force the PM to hold an election and to enforce our Constitutional rights.
Recently, in relation to the Locus standi arguments,Tan Wah Piow reminded us all of Thomas Jefferson’s famous quote (see here):
“The two enemies of the people are criminals and government,
so let us tie the second down with the chains of the Constitution
so the second will not become the legalized version of the first.”
For those of you who have not heard of him, Tan Wah Piow is a famous Singapore dissident and author of “Smokescreens and Mirrors: Tracing the Marxist Conspiracy”. He was a former student and union activist who was forced to flee and seek asylum in Britain in the 1970s. Ironically he also was a good friend of our current Finance Minister when the latter studied in the UK in the 1980s.
To return to Jefferson, he is saying is that the only way to prevent a rogue government is through the Constitution or in more general terms, the rule of law. The PAP is fond of talking of rogue governments which has become synonymous in their vocabulary with another party being elected democratically. The real danger however is not one of a rogue government (Opposition) being elected but of a future government going rogue. As Noam Chomsky always says the test of democracy is not how you vote your leaders in but how you vote them out. If we lack the ability to enforce the Constitution through the courts then we do not have a Constitution and if we do not have a Constitution then we do not have a democracy.
Extending Tham’s example earlier, consider a situation where at the end of its five-year term a future Government decides to ignore the President’s attempts to dissolve Parliament and call elections within three months as required under Article 66 of the Constitution. Instead it decides to extend its term and rule by decree indefinitely citing reasons of national security or the national interest.
Many of you if not most will probably think this could never happen in Singapore. However at the time when the Hougang seat fell vacant the PM said that “there are many other issues on the national agenda right now” and noted that Singapore just had a General Election less than a year ago (see here) as a justification for not holding a by-election indefinitely. In this case no one disputed Madam Vellama’s standing to bring an action calling for a by-election and asking for a declaration that the PM did not have unfettered discretion.
If a future PM was to decide to extend his government’s term unilaterally and impose a State of Emergency on spurious grounds (rather like what happened to India under Indira Gandhi in the 1970s) this would affect all Singaporeans equally. Thus given the precedent established by Justice Tan’s decision in the IMF case, no one would be able to bring an action to force the PM to hold an election.
It is thus vital in the interests of upholding our Constitution and the rule of law that this decision be overturned on Tuesday.
I welcome your comments.
The Problem with HDB or Deflating the Housing Bubble-Part 2
In his Parliamentary speech Mr Khaw describes how the government’s asset appreciation policy had allowed some HDB owners to build up substantial nest eggs.
However, Singaporeans have actually been short-changed by their government/landlord because they have been forced to accept housing quality and densities at a cost that in a democracy would be unacceptable.
Kirsten Han a Singaporean blogger wrote about the appalling quality of the high-rise block, higher density estate and smaller albeit new unit that her mother was relocated to under SERS.
Still housing costs might be expected to rise substantially due to economic growth and limited supply. However it is vital that we understand that high cost is to a large extent a result of deliberate government policies. What the PAP refer to as their asset appreciation policy.
First and foremost is the government’s monopoly over land and its control over the supply of housing.
Second is the government’s deliberate decision to increase the population so enormously through immigration and the foreign worker policy as well as the various measures it has taken to make HDB property look more attractive than other investments.
These have helped to push up prices but have perverted the HDB’s original aim.
Mr. Khaw mentions allowing HDB owners to own private property in 1989 as well as the decision in 2003 to allow them to sublet their flats. However he omits to mention some of the other measures that the government has taken. These include allowing us to use CPF contributions to pay for our housing loans. This was effectively a big subsidy to housing investment compared to other forms because payments came out of pre-tax income and had the desired effect of pushing up prices. In addition each succeeding Budget has brought more generous grants, which were originally intended for lower-income groups but were subsequently extended, to encourage ever more over-investment in housing.
Ultimately these subsidies and grants are self-defeating because they have just had the effect of increasing prices by the present value of the subsidies (see my earlier blog, “A Bulge in the Pipeline”). As the CPF subsidy is worth more to the wealthier (though only up to the Additional Wages limit for contributions) it has the effect of diminishing housing affordability for those in most need of public housing. Indeed HDB has come so far from its original aim that it now serves an opposite function.
Supply and demand
However the biggest contributor to higher housing prices has been the government’s policies on both the supply and demand side. Despite more than a million people being added to the population between 2001 and 2010 the stock of HDB units only rose by some 11,000 units between 2004 and 2009.
USA today also wrote about this problem that the government is creating on both the supply and demand side. http://usatoday30.usatoday.com/money/economy/housing/2011-03-15-Singapore-public-housing.htm
To quote, “ From the end of 2007 through last year, Singapore’s public housing resale price index soared more than 40%.The median price for a four-room apartment rose at the same rate during that time, from $215,000 to nearly $304,000. The actual rise, however, is “more dramatic,” because public housing flats are smaller today than in the past, says Kenneth Jeyaretnam, secretary-general of the Reform Party, a liberal free-market party.
Critics blame the price increases partly on the government’s inability to keep up with demand for public flats as Singapore’s foreign population surges.
The government is the largest landowner in Singapore, meaning “it determine(s) the market value of the flats depending on how much land it releases and the amount of flats it builds,” says Jeyaretnam.” From 2007 to 2009, residential housing flats increased by less than 5,000, while the overall population climbed nearly 400,000, according to government data.
The government has ramped up construction of public housing. But the “root problems” haven’t been addressed, according to Jeyaretnam, namely that the country has too many people and not enough housing.”
Too many people not enough housing. All those extra workers had to be housed somewhere. While allowing PRs to buy flats in the resale market may have marginally contributed to higher prices the biggest contribution has undoubtedly come from allowing owners to sublet their entire flat to foreigners and to hold private property at the same time as owning an HDB (once the Minimum Occupation Period has expired). The labyrinthine and often contradictory HDB regulations present ample loopholes to be exploited and they have been with alacrity by PRs and Singaporeans alike.
Economically renting and buying are more or less perfect substitutes (meaning that price changes in one market will be reflected immediately in prices in the other) and increases in rental yields will push up HDB prices.
These policies have made a mockery of the original intention of HDB . Instead they have been a big bribe to upper middle-income groups who have had the financial wherewithal to exploit these deliberate loopholes and anomalies. This has only served to widen income inequalities.
This government’s policies should have been to remove subsidies which largely benefited those who had more capital to start with and who in a free housing market would have been able to look after themselves.
An illusion of prosperity
Naturally, the asset side of the government’s balance sheet has increased in value as land prices have risen due to inelastic supply and ever-increasing population pressure. Because of this asset price rise HDB owners have been given the illusion of increasing prosperity.
However there has been a fundamental mispricing in the HDB market in which decreasing time to expiry of the lease has not been taken into account. HDB properties can be taken back by a future government at the expiry of the lease for no compensation. Yet properties with sixty years or less to expiry trade at very similar prices to new flats with ninety-nine year leases in the resale market. This is completely different from how leaseholds on private property are valued in Singapore. This is also completely different to how leaseholds are valued in any other country in my experience.
The buyers have been sold the fiction that an asset that has to be handed back to the government in at most ninety-nine years, and in many cases much less, will somehow ignore the laws of economics and keep on appreciating forever. Let me repeat that there has been a fundamental mispricing in the HDB market.
Singaporeans have been told by PAP ministers and in particular LKY over and over again never to sell their HDB properties, as they can only go up in value. No government that I am aware of has made such an explicit promise and it can only be characterized as highly irresponsible. If a financial investment had been promoted in this way by a broker or corporation without any mention of the risks and investors had subsequently lost money, the buyers would be entitled to compensation.
In fact the financial crisis of 2008 and subsequent recession were precipitated by exactly this kind of move to urge mortgages onto buyers who used the assets to fund consumption. For many in the US and the UK as well as the Eurozone this resulted in negative equity and ultimately foreclosure.
The problem is that there is a fundamental conflict of interest between the government’s roles as provider of supposedly low-cost housing for the masses and as monopoly owner of at least 80% of the land in Singapore. This is why the PAP government has had a vested interest in pumping air into the housing bubble. Until now they have been happy to maintain the fiction that the length of the leasehold does not affect HDB valuations. This is because with the deliberate creation of huge excess demand for housing the HDB finds it profitable to acquire existing HDB blocks from their owners and pay them compensation which is close to the price of new BTO flats. That is because they can vastly increase the density of housing on that area by doubling or tripling the size of blocks and building them closer together.
To gain an exact understanding we need to know how much the state’s land holdings are worth and how this impacts the government’s finances through the manipulation of land prices. This is one reason I called for the value of these assets to be listed In the Statement of Assets and Liabilities that the Finance Minister presents to Parliament every year at Budget time. How To Make A Surplus Disappear Without Anyone Noticing”.
Mr. Khaw’s Speech and Subsequent clarification by Blog
Khaw made two main points:
- HDB prices were likely to appreciate much more slowly than in the past
- A commitment to make new BTO flats in non-mature estates more affordable by bringing down the ratio of prices to median incomes from five and a half times to no more than four times (by his calculations)
In the article on his blog he suggested several ways this could be done without affecting the values of existing HDB owners:
- Shorter leases for the new HDB apartments.
- A radically different form of lease in which leaseholders would be charged lower prices based on historic land values but then would only be allowed to sell their flats back to the government at prices related to what they had paid for them
The latter proposal is similar to the Hong Kong system for public housing in which purchasers, who have to be below a certain income level, have to sell back to the government at a lower price or else pay back the subsidy they had received between the market price and what they paid. However in Hong Kong public housing accounts for a much smaller proportion of the total housing stock than in Singapore.
It is also similar to proposals from some quarters for flats to be sold at a price reflecting only the cost of construction and not the land cost. It is hard to see how this is distinguishable from providing rented housing for lower-income groups since the flats in question can only be sold back to the HDB. Except that this ill-thought out proposal would allow those on higher incomes to benefit from the scheme and also provide a put option for existing HDB owners in the event of a crash since they could always sell their HDB flat back to the HDB for the price they paid for them and take out the difference between that price and the scheme price in cash.
Despite Mr. Khaw’s assurances that this would not affect the prices paid for existing flats it is easy to see why this is incorrect. Both measures would have serious implications for the prices of existing HDB properties.
Shorter Leases?
It is hard to see how this could be done without undermining the current fiction that
HDB properties with shorter times to run on the original lease are worth as much as newer ones. And then what would happen when the government wishes to acquire the flats with shorter leaseholds? In equity they would have to be paid less than those with longer leases. Any adjustment of HDB prices to reflect the length of leasehold is likely to have unpleasant consequences for those who have overpaid for HDB properties in the resale market based on the illusion that the government has given them an implicit promise to extend their lease for free by exchanging their existing property for one with a fresh ninety-nine year lease.
Lower Priced But Restricted Housing?
Despite the minister’s argument that this would be a separate class of housing which would not be fungible with existing HDB properties, it is likely that the creation of this option would undermine the current market prices as a large proportion of existing demand was diverted into this new option. In particular it would be likely to make the current mispricing between old and new HDB properties equally untenable.
It would also, in my view, be unattractive for all the reasons mentioned above.
Conclusion
It appears that the government has decided that it will get more support by lowering prices for new owners even if this has the effect of lowering HDB prices generally. Or else it has not thought through the implications carefully enough. There is a more sinister interpretation. This is that with slower economic growth and thus a declining need to expand the workforce through immigration the HDB will no longer find it profitable to increase housing densities by acquiring units from existing owners and paying them compensation that does not reflect the diminution in value caused by a shorter time to expiry of the lease. Singaporeans who have relied on HDB to be a secure investment that will never lose value may be in for some unpleasant shocks in the future.
In Part 3 I will discuss some solutions to the current dilemma that would allow Singaporeans to own their own homes rather than being leaseholders and dependent on the government.
The Problem with HDB or Deflating the Housing Bubble-Part I
Recent announcements by Mr Khaw Boon Wan in Parliament and on his blog indicate that he is rethinking the role of HDB in Singapore’s future. There seem to be hints that the PAP are abandoning their somewhat euphemistically entitled, “asset appreciation” policy which I call a policy of “deliberately creating a housing bubble “
I warned against the dangers of creating a housing bubble in my earlier blog, “A Bulge in the Pipeline”. There I also explained how the various government schemes for subsidies and grants were not the solution to housing affordability. Ultimately subsidies and grants are self-defeating because they have just had the effect of increasing prices by the present value of the subsidies.
Latest figures put the number of Singaporeans living in HDB estates at 87%. That’s nearly everyone. We need to examine Mr. Khaw Boon Wan’s ideas very closely as they impact on the majority of our population and as immigration policy is so closely intertwined with HDB policy.
What is the purpose of HDB?
Surely the role of public housing should be to provide low cost housing to the people who most need it and not to provide some kind of asset appreciation vehicle? The original purpose of HDB was indeed to provide affordable housing of acceptable quality for the lower income groups.
HDB was born out of the Singapore Improvement Trust set up by the British Colonial government in 1927. The main aim was to resolve the overcrowding and slum conditions downtown in Chinatown and to move people out of their traditional Kampongs.
The PAP had made public housing a central tenet of its election campaign in 1959, promising to provide low-cost housing for the poor if it was elected. After the Barisan Socialis walked out in 1965 the PAP were left without any effective opposition to their policies. The PAP duly dissolved the SIT and set up the HDB.
In most advanced countries, social housing such as HDB is aimed at the bottom 20-30% of the income distribution. Mr. Khaw did acknowledge that housing for the poor was the original intention of the HDB building programme but he quickly glossed over that to state that over time it had come to serve a different function.
There are outside observers especially Americans, acutely aware of the US prime mortgage debt debacle that precipitated the financial meltdown of 2008, who see a whole population’s housing needs being taken care of by a government as the ideal socialist big-government state. Mostly these observers have never visited Singapore, let alone an HDB Estate, so what would they know? Certainly they will not be aware of the manner in which ‘upgrading’ is used as a weapon to threaten or bribe residents into voting for the government which has, through being the sole provider of public housing, unusual power and control over nearly 90% of its population.
Other observers often pro –market liberal or small government advocates view a whole population living and being permanent lease holders in housing originally intended for the poor as being denied democratic rights to own property and even of the universal right to have freedom to live where they choose (the ethnic quota). It has been likened to a state of virtual serfdom like the Soviet Union or other Communist states.
Housing is a basic need whereas the ownership of property is a measure of the level of prosperity and democracy of a Nation.
Currently HDB housing is not fulfilling the role of public housing . The high price makes it unattainable for too many, the wait list is too long and the restrictions such as typically needing to be married or over 35 or satisfy a racial quota are too onerous. To quote Kathy Chu for USA today,
“Even so, the surging real estate market has put some pockets of public housing out of reach for Singapore residents like taxi driver Joshua Santhira, 51.
“I can find a flat, but at a price I can’t pay,” says Santhira, who wants to upgrade to a three-bedroom flat from his two-bedroom unit in Singapore’s Yishun area, 20 minutes outside the city.”
http://usatoday30.usatoday.com/money/economy/housing/2011-03-15-Singapore-public-housing.htm
HDB is also not fulfilling the requirements of social housing. On my house to house visits I have met many amputees because with the lack of universal health care and inadequate health funding diabetes is a major problem in Singapore. I remember one man all too clearly who was isolated on a floor with no lift. I say isolated but he was a virtual prisoner in his own home. A robust social housing programme would see him relocated to a disability- access friendly, purpose built unit. Not just a lift to his floor externally but wide access doorways internally, ramps and special bathroom.
Rebecca Lim for BBC news on February 17th tells the story of a Ms Ng surely a candidate for social housing.
“Ms Ng suffers from a hereditary skin condition and was only able to undergo surgery recently when a donor paid her medical bill. Her husband lost his previous job after he was hospitalised for an operation in October 2011.
In her one-room apartment she fished out unpaid bills, including one for more than S$400 owed in school fees.”
http://www.bbc.co.uk/news/world-asia-16920951
This story could illustrate many of the problems that those in need of social housing struggle with such as the cost of medical care and the lack of free school education and the reliance on charitable institutions and donations in order to survive. But what is striking here is that Ms Ng and her husband have two daughters and take care of his 12 yr old from a previous marriage yet live in a one room apartment.
Whatever purpose it now fulfills from the time of the PAP government’s expropriation of much of the land in Singapore in the 1960s to now, the original purpose has become perverted far from its original intention.
Government as Landlord
In fact HDB has been turned into a means of both bribing and controlling the majority of Singaporeans. The government through its ownership of most of the land has effectively monopolized the supply of housing to everyone but the top decile of the income distribution. That elite landowning or freehold-sharing decile includes most of the government which is making the decisions affecting the other 90%. The ivory tower they inhabit is not just a metaphor. Such has always been the case with Landlords versus Tenants.
Never has there been a more clear demonstration of the gap between have and have nots in a population. Singaporeans are left with very little chance of ever moving up the property ladder to freehold ownership, and an obstacle to the building of a prosperous middle class and a further squeezing of the sandwich classes across generations. This is of course exactly what the PAP want which is to keep most of the population in a state akin to serfdom. It is impossible to have a democracy under these conditions.
With the PAP as both unfettered government and landlord the people are extremely vulnerable to deliberate government policies and conflicts of interest as well as from the usual mis- steps and U turns. Beware then the housing bubble, uncapped immigration, insufficient supply of housing stock and now it seems interference in the market value of leases.
In Part Two, I shall deal with:
Mr Khaw’s policy proposals which have made a mockery of the original intention of HDB and which have shortchanged Singaporeans
The government’s asset appreciation policy and the illusion of prosperity that HDB owners have been given.
Poor housing quality and high densities at a cost that in a democracy would be unacceptable
The supply and demand problem of too many people and not enough housing created by the PAP.
The dangers of Shorter Leases and Lower Priced but Restricted Housing?
And the fundamental mispricing in the HDB market
The danger of a government/ leader ( LKY) / landlord who urges you to never sell.
Now we have to make up our minds about the role that we want HDB to fulfill. Do we want to continue in a situation where 87% of the population live in government-supplied housing and are virtual serfs because they can never really own their HDB? Or do we want HDB to revert to its role as a provider of social housing for those at the bottom?
How To Make A Surplus Disappear Without Anyone Noticing!
It will come as no surprise to those who regularly read my blog that I am going to start critiquing this year’s budget by drawing attention to the various subterfuges that Singapore’s PAP ruling Party uses to disguise the true state of its government’s finances. As usual the budget is an exercise in opacity and smoke and mirrors type illusions.
Not Progressive
The PAP has also touted this year’s budget as a progressive Budget aimed at fostering a fairer and more inclusive society. Sadly, I could not find any evidence of this progressive attitude. Progressive and efficient would mean taxing both employment and investment income equally and also capital gains. It would also mean abolishing special tax breaks and one-off tax holidays. With a broader tax base rates could be lower. Better still would be moving towards a progressive consumption tax in which savings would not be taxed.
There was a lot of noise about a slightly more progressive property tax structure but the net changes were relatively small. The Finance Minister claimed that Singapore’s property taxes are relatively efficient and preferable to other forms of tax. In economic theory this is because the supply of land is completely inelastic and thus economic growth which raises demand for land increases the wealth of landowners without them having to undertake any productive activity. However this would only be true of our property taxes if they taxed just the rise in the value of the land and not any improvements to the land in the form of buildings or other structures.
Of course the state owns 80% of the land so increases in land values directly affect its wealth. I have suggested before that this is the likely motivation behind the government’s obsession with economic growth from population growth rather than from working more productively (see “About Your Landlord”). However the value of its land holdings is not disclosed in the government’s balance sheet despite the fact that this wealth, expropriated with little or no compensation which would be unconstitutional in many countries, belongs to all Singaporeans.
Apart from that, Budget 2013 merely continued an established tradition of a limited number of ad-hoc handouts.
There is nothing progressive or long term or effective in the budget that I can see that would help the majority of Singaporeans. Yes, no surprises here. The PAP continues to rigidly adhere to a disastrously flawed economic policy and by failing to provide the necessary transparency hopes to prevent discovery of the true state of the finances.
No room for spending?
The PAP continues to insist that it is running a balanced budget with no room for additional spending without going into deficit.
I would like to be able to contest that assertion irrefutably but unfortunately the data is not provided as this year’s Budget again fails the basic tests of transparency. (For a breakdown of how last year’s budget failed the basic tests of transparency I humbly refer you to a paper I wrote then that you can find on the Reform Party website here. I hasten to add that this is not a political blog and has no partisan political view but that paper remains the only authoritative break down of the budget for last year.)
There is an accepted format for the layout of budgets prescribed by the IMF. Last year I asked why the Budget could not be set out in the format prescribed by the IMF. In July 2012 I wrote an open letter to Christine Lagarde (see here) asking this question in more detail and that latter was published by the Huffington Post. I said there that :
The foreword to the IMF manual sets out an analytical framework for budgets and states that one of the aims of the framework is to provide an early warning system as to when things start to go wrong.
It is particularly relevant because Tharman was appointed Chairman of the International Financial and Monetary Committee of the IMF. One would expect that these positions would be given to the finance ministers of nations which demonstrated best ( IMF) practice. But maybe Lagarde gives these positions to those nations who will most be able to support her political agenda. Singapore’s lack of transparency must be especially comforting to her in that case.
Specifically lacking in Budget 2013 are the figures for net interest earned and investment gains or losses on financial assets and liabilities. It also does not include a value for the state’s land holdings or for receipts from land sales.
The only information available to us is the Statement of Assets and Liabilities that is more than a year out of date. This barely helps us gain some picture of the true state of the government’s financial position and the size of our net assets particularly as it comes without any explanatory footnotes or an explanation as to what accounting policy is followed.
As the stocks of financial assets and liabilities are more than twelve times the flows represented by revenues and expenditures any losses in the former can easily dwarf any surpluses in the latter. We see no reason not to have full transparency, as secrecy can only be conducive to lack of accountability, even to mismanagement and potential corruption.
The Monthly Digest of Statistics shows a government surplus of $36 billion for 2012. This is not the general government surplus, a wider measurement of the surplus that is shown In the Yearbook of Statistics. In 2010 it was about $28 billion while the government surplus was “only” some $15 billion. This suggests that the general government surplus for 2012 is likely to be considerably bigger. Leaving aside the question of discrepancies in the accounts and possible doubts over the veracity of these surpluses, and also whether GIC’s performance has been extremely poor (which I have raised elsewhere), it is clear even under the most conservative assumptions that the Finance Minister has considerable room for additional spending.
Even on the basis of the limited and partisan information presented in the Budget, one can clearly see that the Finance Minister has been extremely tight-fisted. The PAP has taken back a chicken while giving out a drumstick. The Basic Surplus in 2012 was $3.6 billion. At a very minimum this should have been carried over for additional spending/transfers or tax cuts this year. And that is before the Net Investment Returns Contributions (NIRCs).
Smoke and Mirrors with the NIRCs?
Despite the fact that the 2012 NIRC, which at $7.65 billion is roughly 20% of the government surplus for that year, is supposed to be available to fund current spending, this contribution is again almost entirely offset by the Finance Minister’s top-ups to Endowments and Trust Funds. In 2012 the Finance Minister transferred $7.40 billion into Endowments and Trust Funds. Most of this money is not spent. For instance in 2012 the Minister transferred $2.95 billion into the GST Voucher Fund and proposes to transfer $3 billion this year. Yet the cost of the GST Voucher Scheme was funded out of Special Transfers, which come out of current spending. Indeed it just seems to be an accounting book entry to keep these funds reinvested in our SWFs without ever having to sell or realize any investments. Thus Singaporeans do not see much immediate benefit from the NIRCs. In 2013 the FM has again allocated $5.59 billion to top up these funds.
By moving so much money into these special purpose funds the objective of Parliamentary scrutiny and accountability over their use is defeated. The performance of these funds does not appear to be debated in Parliament even if the FM is required by law to put the accounts before Parliament and the President. There is not even a line entry for the $2 billion National Productivity Fund in the Government Statement of Assets and Liabilities despite an Act of Parliament being required to set it up. Neither is it possible to find accounts for either the Productivity Fund or the National Research Fund even though they are required by law to submit their accounts to the Auditor-General and the Finance Minister is required to present them in Parliament as soon as practicable.
I had previously written about this topic here raising these points. Yet again, the Budget debate has come and gone without any MPs, whether PAP or Opposition, probing the lack of transparency in the government’s accounts and the true state of our reserves.
Lies, Damned Lies and Statistics
I am highly sceptical of the government’s claims that its measure of real incomes per household member accurately tracks the experience of most Singaporeans. If real wages have risen that would suggest the PAP have miraculously managed to repeal the laws of economics. An elastic supply of labour, brought about by the PAP’s immigration and foreign worker policies, coupled with an inelastic supply of land is likely to lead to falling returns to labour, exacerbated by lack of competition and stagnant productivity growth. Firstly, falling numbers of children and the high cost of housing is likely to have resulted in households with more working members and this would naturally boost incomes per household member perhaps quite significantly. Secondly the CPI undoubtedly understates the real rise in housing costs, which is a big component of the index. This is because the Statistics Department uses an imputed rental for owner-occupied housing, which is not an accurate way of capturing the rise in housing costs. In line with the practice in other advanced countries the Statistics Department should use an index of mortgage costs plus depreciation and maintenance costs. However Singaporeans do not own their housing but hold it on a 99-year leasehold. Therefore any measure of housing cost would have to factor in lease amortization, which is likely to be much higher than depreciation. As HDB prices have risen over the last five years so will the amortization costs, which need to be factored in. Thirdly the large number of new citizens and PRs, who would likely be on higher real incomes than native Singaporeans and have fewer dependents, is also likely to have a positive bias on this measure.
Nor can I find any foundation for the government’s claims that over a lifetime a young low-income family with two children can expect to receive more than $600,000 in benefits. Firstly is this figure net of taxes paid? Secondly much of this benefit figure does not represent real costs for the government but are a consequence of its monopoly control over much of the economy. Land costs are inflated because the government owns most of the land and uses its monopoly power and immigration policies to keep prices much higher than they would otherwise be. So Singaporeans are forced to pay considerably more for housing than they otherwise would. It is like saying you can only shop at one store which charges prices 100% more than anywhere else but then offers you a 10% discount and calls that a subsidy. The same goes for many other costs that are inflated because of the scarcity of land but the returns to land go to the PAP government. Thirdly the figure of $600,000 fails to take account of the taxes and other contributions that their children will make over their lifetime.
Conclusion
Without full transparency, the yearly Budget presentation is a meaningless exercise. If the government’s Statement of Assets and Liabilities and its surpluses buried in the Yearbook of Statistics have any connection with reality then it is hard to understand why it needs to save so much and cautions incessantly about the need for tax rises if we are to have more generous social safety nets. This is particularly the case if one considers the enormous value of the state’s land holdings which should be on the balance sheet. It is especially puzzling because the government’s plans to boost the working age population through continued mass immigration will be likely to swell the basic surplus in the future, especially as there is no burden on the current generation of workers of having to cover unfunded pension liabilities or health benefits for retirees.
Singaporeans would surely be better off curbing the growth of new citizens so as to prevent their shares in the state’s assets being diluted especially given the sacrifices they have made to build these up. However the PAP government is only interested in maximizing the size of the total assets not in maximizing the value of assets per citizen. If the bribe of citizenship makes individuals more likely to vote for them then the PAP have an additional incentive to do so. I have likened this in the past to a game between corporate management and shareholders. The management tries to dilute the shareholders by issuing more shares to their allies if the existing shareholders try to make the management pursue policies that maximize the value of their shares rather than policies that benefit management such as increasing the size of the company (because this means they get paid more).
Despite all the talk about a strong Singaporean core that must be precisely why the PAP is creating so many new citizens. There can be no other explanation otherwise the government’s policies do not add up. Meanwhile a policy of secrecy and obfuscation, as exemplified once again by Budget 2013, conceals the real size of the cake and the (poor) performance of the managers of the cake. Even money supposedly available for current spending is recycled back into the pool of assets and locked up again. We are constantly told that the only way to have greater spending or transfers is either through higher taxes or more immigration.
It is time to nail this lie once and for all. That is why I have consistently advocated the privatization of Temasek and GIC and the distribution of shares to Singaporeans with a certain number of years standing to create a shareholder democracy (see Chesapeake and Temasek: A Tale of Two CEOs and Shareholder Democracy
The PAP’s White Paper on Population reveals that the government has all the benefits of surround sound and a wide screen picture at the cost of losing the plot
For the last three years the Reform Party has been saying that the PAP has only one economic idea. That they have rigidly adhered to this idea for fifty years despite all the evidence that the idea itself is bankrupt. Far from producing an economic miracle the PAP government has no plan for making Singaporeans better off or providing our citizens with a brighter future. In fact they have subjected us to twenty years of austerity and denied us even the most basic financial safety measures as enjoyed by citizens of countries without our wealth. We the citizens of Singapore have built up that wealth through the sweat of our brow for our old age, our children’s and our grandchildren’s future and we have yet to see any return on our investment. We do not enjoy free health care. We do not even have the right to free schooling and we have little chance of paying off the mortgages on the HDBs that we do not really own.
This one big idea that the PAP has is to produce high GDP growth. This economic growth is generated purely by adding more inputs of labour and not using those inputs more productively. In other words population increase is not something that is planned to improve our lives but that is absolutely necessary to keep the PAP economic model from stalling and failing. It is an extensive model and as long as there is surplus labour somewhere in the world it can continue to run. However it is becoming clear that in their view there is no upper bound to Singapore’s population as long as they can feed the machine of GDP growth with inputs of cheap labour.
The ultimate irony is that the GDP figures themselves are not ones that any government would even boast of. When GDP per hour worked is used instead of GDP per capita that the PAP likes to extol. Even the PAP themselves are beginning to admit what the Reform Party has been saying for three years: namely that our productivity is abysmally low.
In fact the proposed population increases will only serve to make our lives more miserable and offer no benefits whatsoever.
We are not surprised that the Population White Paper has set a new target for total population of 6.5 million to 7 million. The former figure is almost certainly an underestimate in any case since if we extrapolate from the population growth rates over the last two years we reach a figure of close to 9 million by 2030. It shows that the ruling party is completely incapable of any original economic thinking.
In the 1990s Paul Krugman pointed out that Singapore’s economic development was based largely on adding more inputs rather than using those inputs more productively and that growth would slow down. However by relaxing the labour constraint the PAP government has kept the profitability of capital from falling despite the dismal productivity record and kept economic growth rates relatively high. This has had little benefit for the median Singaporean worker (http://votingrp.wordpress.com/2010/08/05/gdp-growth-the-living-standards-of-average-singaporean/)
In my rally speech in the by-election I drew attention to a survey from UBS in 2009 (UBS mysteriously dropped Singapore from subsequent surveys), which found the average Singaporean worker’s real income to be around the same as his counterpart in KL and substantially below those in four other Asian cities (Tokyo, HK, Seoul and Taipei). Since 2009 the Reform Party has continually drawn attention to the fact that Singapore’s high rates of economic growth are no miracle, being based not on underlying productivity growth but merely fuelled by an enormous increase in imports of cheap foreign labour (http://newasiarepublic.com/?p=16013).
There is also a more sinister implication. With the big planned increase in population the people become more dependent than ever on the government to ensure that enough homes are built and infrastructure is improved. Certainly combined with the subsidies for housing that we have criticized, this will continue to push up property prices which is undoubtedly the government’s intention as the ultimate monopoly owner of land in Singapore.
The Government’s Justification
The real economic reasons for the government’s undiminished eagerness to allow in large population inflows have been briefly discussed above and will be the subject of another article to appear shortly.
However the justifications given are full of fallacious reasoning and non-sequiturs.
The White Paper begins by stating the obvious fact that productivity growth is the only way to generate real increases in incomes. The Reform Party has always said that. However the Paper sets a target of 3-5% GDP growth p.a. from now to 2020 without providing any explanation as to why this is necessary or desirable. It then works backward from that to say that with productivity growth of 2-3% p.a. (over ambitious given Singapore’s poor productivity record-GDP per hour worked rose by only 0.1% p.a. over the period 2007-2011 according to the US Bureau of Labor Statistics and the bulk of that appears to have been due to some highly suspicious revisions of prior year data that our Department of Statistics have yet to explain) to say that we will need workforce growth of 1-2% p.a. to reach that target. But why this target in particular? Presumably the likely shortfall in productivity growth will provide an excuse for an even bigger population increase. At our stage of development and given our limited resources of land there is little justification for economic growth to be much in excess of productivity growth plus the growth in the domestic workforce. We are not against allowing in more skilled immigrants and entrepreneurs who can create higher value-added jobs for Singaporeans or immigration to offset our fertility rate which is so far below replacement rate. However the PAP seem to have plucked this growth target out of thin air to justify their projected population levels.
The White Paper cites three pillars of the new plan:
- Maintaining a strong Singaporean core
- Creating Good Opportunities for Singaporeans
- High Quality Living Environment
Maintaining a Strong Singaporean Core
The government proposes to convert up to 25,000 PRs into citizens every year while admitting the same number of PRs so as to keep the number of PRs unchanged. The ostensible purpose is to address the falling birth rate with our fertility rate (TFR) now having fallen as low as 1.2 per woman. This will result in an enormous rise in the ratio of retired people to the working age population over the next twenty years. However the PAP were the engineer of this precipitous drop in the birthrate when they adopted the Stop at Two policy in the 1970s and the even earlier One is Enough slogan aimed at lower-income mothers with encouragement for sterilization and penalties for having more than two children. Changing trends in fertility rates has been likened to turning a supertanker. It takes a lot of time and effort. This policy was abandoned in the 1990s and efforts were made to encourage women to have more children. However until very recently the whole thrust of government has been to encourage more immigration rather than invest significantly in encouraging mothers to have more children.
Our spending on education has been among the lowest as a proportion of GDP of advanced countries. Our education system has been neither universal nor free. Despite the recent increase in subsidies the cost of pre-school education continues to be a major concern for many middle-class parents along with the high cost of tuition fees that are seen as necessary if children are to stand a chance of competing in our test-driven system. The recent enhancements to the Marriage and Parenthood package do not begin to go far enough to address these disincentives. In addition the subsidies are oriented more towards those who are already well off through tax breaks like the Working Mothers Child Relief and the Parent Tax Rebate as well as the Child Development Account.
In any case, even if fertility rates do not rise, the reasoning behind the idea that we need a big increase in the total citizen population to reverse a projected drop in the working age population is faulty. We should always try to attract talented and highly skilled workers and those who are creating businesses that employ Singaporeans However it is difficult to see why we need to create many more new citizens than needed to maintain the pool at current levels or allow for modest growth.
Firstly we can to some extent draw on the pool of senior citizens who are currently under-employed to make up for the shortfall in the number of workers below 65. At the moment many of them would like to work for longer but face competition from younger foreign workers. Advances in medicine on the horizon are likely to continue to extend the numbers of years in which they enjoy good health, probably considerably.
Secondly productivity gains may more than offset any labour shortfall, particularly if simultaneously we make more use of the pool of older workers. Allowing business unlimited access to supplies of cheap foreign labour will act as a disincentive to productivity gains. In addition advances in robotics may mean that even unskilled assembly operations can be competitive in high-wage countries and replace low-skilled service workers in some areas while advances in intelligent software mean that even relatively skilled jobs can be automated. For example there is a big hollowing out of the legal profession in the US because of software advances that replace the need for much repetitive work.
Thirdly at present we do not have a welfare system akin to that in the social democratic countries of Europe or Canada or even the US. Given the austerity that older generations of Singaporeans have endured to build up the assets of Temasek and GIC, it is arguably discriminatory to enfranchise a large number of new citizens who have not made the sacrifices but can expect to reap the rewards of the dividends from those assets.
The policy of admitting so many new citizens also discriminates against our male citizens who have endured the economic loss of two years of National Service for which they are paid slave labour rates. The new male citizens, unburdened by NS reservist obligations and younger than their Singapore counterparts, are also likely to be more attractive to local employers.
Thus the PAP government’s case for admitting so many additional citizens is tenuous at best. It is completely fallacious and betrays a poor understanding of economics to jump from the assumption that with a smaller Singaporean workforce employers may not be able to find enough workers to the conclusion that our young people will have to leave for jobs elsewhere. In fact with fewer workers wages are likely to rise and this may encourage people to have more children thus reversing the decline in fertility rates.
Creating Good Opportunities for Singaporeans?
Another non sequitur is the government’s claim that it is creating good opportunities for Singaporeans through this policy. The argument is that allowing in less skilled workers allows Singaporeans to move up into higher value-added occupations. While specialization and division of labour are obviously key determinants of productivity growth and higher living standards, foreign workers do not just take jobs Singaporeans do not want. Employers can also bring in an unlimited number of employment pass holders and the minimum salary for this starts at $3,000 for young graduates. They thus compete directly with our graduates despite the men not having had to do NS. The MOM provides no breakdown of how many Employment Pass holders there are within the total number of foreign workers.
In any case, despite the growing number of Singaporeans with tertiary education and in the PMET category, tertiary education is increasingly becoming a minimum level qualification in the global labour market. On top of that there are still a large number of low-skilled Singapore workers and these compete directly with foreign workers. While it may be true theoretically that the gains from replacing them with cheaper foreign workers could compensate them for their job losses or lower incomes this is based on an assumption of full employment and that the government compensates them for their loss. The first assumption does not apply in the real world while the second is not borne out in practice.
The White Paper also cites Singapore’s poor productivity record and makes reference to government efforts to improve it. It is hard to see the connection between that and population policy. In fact they are inversely correlated since cheapening the cost of labour through making it much easier for businesses to bring in foreign workers is likely to dampen the need for productivity improvements.
High Quality Living Environment
It does not follow logically that in order to create a high quality living environment we need to add another 1.5 million people to our already crowded island. Most Singaporeans would agree that it is rather the reverse. The implication from reading the report is that we have to accept the increase in population or we do not get the investment. The PAP government is still playing catch-up in terms of infrastructure to cope with the current levels of population and many of the figures given imply that they will barely keep pace with the projected rise. For instance the White Paper says there will be a 30% rise in the number of acute hospital beds by 2020 but is silent on plans beyond that. This is just in line with the projected rise in population up to 2030 but which is likely to be a considerable underestimate. In addition it says land has been set aside for 700,000 new homes without indicating that they will be built.
The White Paper is noticeably silent on how much green space will actually be left after the projected increase in population and how much new land area will be developed.
The RP’s Alternative Policies
A Rational Immigration Policy
While acknowledging the desirability of importing low-skilled workers to allow Singaporeans to be redeployed to higher value-added jobs the reality is that foreign workers compete with Singaporeans across the board and increasingly in PMET occupations. Therefore we would adopt a cap on the total number of foreign workers above a certain salary level that could be varied in line with economic conditions. Entitlements could be auctioned by the government ensuring that they go to the most productive sectors in a manner similar to the way COE is auctioned today.
Minimum Wage
The Reform Party would introduce a minimum wage and stricter regulation of working conditions to protect our low-skilled workers. This would also act as a spur to get employers to use labour more productively.
Child Benefit
We would alter the current Marriage and Parenthood package to reduce the tax breaks and incentives given to better off mothers. In particular we would abolish the Working Mothers Child Relief, which is a big tax break for the wealthy.
At the same time the RP would increase the help given to lower-income families with children through such measures as child benefit payments for lower-income families. We would abolish fees for education from pre-school through to the end of secondary school and introduce universal health insurance, which would be a big improvement on the current patchwork.
If necessary we would raise taxes on single people and no-child families to fund the additional help given to families with children though this would await a review of the true state of the government’s finances.
Invest More in Education
The government currently spends only around 2.8% of GDP on education which is one of the lowest in the world. By comparison Sweden spent some 8% of Gross National Income in 2005 and the UK and the US both spent over 5% of GDP. The Reform Party would raise education spending, make education universal, free and compulsory up to secondary level. We would also look to broaden access to and improve the quality of tertiary education here so that more of the population can study here without having to go abroad which contributes to the brain drain.
The RP would also increase the resources devoted to retraining older workers so as to make use of this underemployed pool
Conclusion
The paramount focus of any government should be making its citizens better off. The best way to do this is through accelerating the productivity growth of the existing workforce through encouraging automation and investment in education and training. Singaporean business should be encouraged to move into higher value-added activities paying higher wages.
This White Paper signally fails to make any case for why we need to increase our population so markedly to achieve the objective of making the people better off. In fact it is likely to lead to the reverse. A series of non-sequiturs and glossy photos does not convince anyone. In fact the PAP government is being typically disingenuous in not disclosing the real agenda behind this White Paper.
Kenneth Jeyaretnam
Secretary-General
Filing of Our Submission in the IMF Loan Case
Today I was at Madame Netto’s office to file my appeal in the case of the IMF Loan Commitment (Civil Appeal No. 154 of 2012). I expect the appeal to be heard sometime in April and hope for your support, both financial and moral. There are of course important constitutional issues involved, such as the sovereignty of Parliament and the function of Parliament and the Executive Presidency (EP) as a check on the Executive. There is the need to achieve greater transparency and accountability over how our government uses our reserves and particularly over its management of Temasek and GIC. There is also the moral question of why we should be prepared to commit $5 billion of our hard-pressed citizens’ precious money to support the profligate lifestyles of Eurozone members. While Singaporeans have had fifty years of never-ending austerity the citizens of these countries have long enjoyed a full-blown welfare state with free medical care, old age pensions and other benefits not available to us. $5 billion is more than our government spent on health in 2012.
Unfortunately our case failed at the first stage. The judge held that not only did the government not have to obtain Parliamentary and Presidential approval for a loan but that we did not have the locus standi to bring a case since it affected all Singaporeans. In so doing he removed an important constitutional right. He also opened the door to a possible future rogue government being able to give away all our reserves without any citizen being able to do anything about it.
Our appeal is on both these points. Not only do I think that the judge erred in agreeing with the AG that we had no locus standi to bring an action but I believe that even if you agreed with the government’s interpretation of Article 144, the IMF loan commitment is in the nature of a guarantee not a loan. Furthermore the IMF will pay close to zero interest should they draw on the loan. It involves almost certain loss for our taxpayers and CPF holders and thus the loan commitment should be viewed as a liability rather than an asset.
It will be interesting to see how the Court of Appeal views our arguments. I hope to be arguing the question of whether this is a liability or guarantee rather than an asset myself while M. Ravi should be arguing the locus standi issue. He has certainly done a lot of work on this.
2012 stats in review
The guys from WordPress.com stats prepared some stats for me which I am sharing with you. Sadly November, December and January have been largely inactive due to IMF appeal work and holidays. Happy New Year everyone!
Here’s an excerpt:
19,000 people fit into the new Barclays Center to see Jay-Z perform. This blog was viewed about 150,000 times in 2012. If it were a concert at the Barclays Center, it would take about 5 sold-out performances for that many people to see it.
Why I will be appealing the IMF Loan Judgement
Issued by Kenneth Jeyaretnam on 22 November 2012
FOR IMMEDIATE RELEASE
On 22 October 2012 Justice Tan Meng Lee decided to dismiss my application to have Singapore’s $5 billion loan commitment to the IMF quashed on the grounds that it violated Article 144 of the Constitution. The learned judge chose to rule that Article 144 did not apply to a loan commitment. On this I believe we have good grounds for an appeal. A loan commitment cannot be regarded as anything else other than a liability akin to a guarantee.
Locus Standi
Unfortunately in fighting to stop an action based on an ambiguous aspect of our Constitution a completely different aspect of our Constitution was thrown into peril. The learned judge ruled that I had no Locus Standi to sue the government on an issue that affected all Singaporeans equally. In this a vital constitutional right was removed from the citizens of Singapore almost as an aside, causing a well known legally qualified commentator to refer to the judgement as, “ The day our Constitution died” .
What we have achieved so far.
Even without an appeal this case has established on public record several important points:
- We have proven that the Office of the Elected President is toothless and that his Excellency’s office can be completely unaware of constitutional breaches by MOF as in the case of the promissory note to the World Bank. That the Office of the President is without a clear frame of reference is demonstrated by the fact that my letters to the President were erroneously referred to the MAS.
- The MOF initially relied heavily on its assertion that MAS is an independent entity that can do as it wants with our money. We argued that MAS as a schedule 5 corporation was under the jurisdiction of the MOF and in this we were right. It is unlikely that the MOF will ever again try to claim that MAS is an independent entity.
- We have shown that the Constitution is so ambiguous as to be open to different types of interpretation yet one of the fundamental elements of Rule of Law is that the Law must be unambiguous so the discretion of public officials is removed. The AG must surely now recommend that Article 144 be re worded so as to fulfil one of the fundamental conditions for rule of law.
- We have forced a potentially embarrassing ruling demonstrating an ignorance of the accounting definition of liabilities and assets, to go on public record where it can be scrutinised globally.
- We have shown that the AG on behalf of the MOF would rather fight a case through semantics and narrow technical definitions than do the right thing by the people and err on the side of democracy by taking the loan commitment back to Parliament and the President for approval.
Taking into account the enormous risks and costs involved and having achieved so much already I have considered whether there is any merit in launching an appeal. Conversely if the Court is correct it matters not how blatant, how transparent or how deliberate the breach of such a constitutional provision is; the simple and inescapable consequence is that no citizen may challenge it. The learned Justice Tan’s judgement on Locus standi must be of grave concern to all citizens of Singapore and of the common wealth.
Such a conclusion does not sit easily with a country that, at least in the eyes of the West, aspires to be thought of as a democracy and I believe that on this point at least there are good prospects that the Court of Appeal would not uphold the judgment of the single judge.
Seven days ago I announced via social media and my blog that the cost implications of losing an appeal were enormous and that the AG was asking for security of S$20,000. The public immediately began pouring thousands of dollars into a fund for an appeal, Ordinary citizens of Singapore, already squeezed by two decades of austerity, have given this money in sums as small as $2:00. There never could be a greater demonstration of public interest and concern about our constitutional rights.
After much thought and taking into consideration the advice of legal experts and considering the enormous amount of public interest and support I have reached the following decision. The ruling regarding locus standi is of such paramount public interest that it demands an appeal. Also, if the learned judge’s interpretation of Article 144 is allowed to stand, then any future government can take heart from knowing that they can give away our entire reserves without fear of being challenged and that the President has been shown to be unable to stop them.
Notwithstanding the huge risks and the struggle ahead I feel it now behoves to me not to let our citizens down. These good people of Singapore have ensured that we have enough money in the appeal fund to lodge security and file with the courts today.
Let us now hope that Mahatma Gandhi was right when he said,
“First they ignore you, then they ridicule you, then they fight you, and then you win.”
Kenneth Jeyaretnam
Links
http://sonofadud.com/2012/11/19/1131/
http://sonofadud.com/2012/11/15/1122/
http://sonofadud.com/2012/11/12/statement-on-the-imf-loan-judgement/
http://article14.blogspot.sg/2012/10/the-day-constitution-died-again.html
Presidential Candidate Tan Kin Lian speaks out on unconstitutional IMF loan, donates $1,000.
IMF Pledge
Mr Tan Kin Lian has previously written twice about the constitutionality of the loan that Singapore made to the IMF. He is kinder than me in his writing style but he comes to the same conclusions. And this is a man whom the select panel deemed fit to run for President of our Republic! He thinks the loan was unconstitutional and he wants to help me appeal it on behalf of all Singaporeans.
On July 07th 2012, Tan Kin Lian had raised the issue of constitutionality of the loan here:
http://tankinlian.blogspot.co.uk/2012/07/did-imp-pledge-violate-singapore.html
Of course he did. As an EP candidate how could he keep quiet? He said, “I am surprised that MAS would give the above type of explanation – as it seemed to defy logic and common sense.”
On July 12th 2012 he wrote an open letter to the Straits Times forum. Here is some of what he said:
” I am. therefore, amazed by the arguments put forward by the Monetary Authority of Singapore that the pledge given to the IMF, as it now stands, did not breach the Constitution. If the position of MAS is correct, it is better for the Constitution to be re-written to reflect the position taken by MAS.
Spelling Out the Implications of the Learned Judge’s Ruling for Our Rights and Why We Cannot Let It Go Unchallenged
For those of you who may have found the legal language of my statement on the IMF loan case judgement difficult to follow, I will spell it out in simpler language as far as possible. You have lost your right to challenge decisions of the government even where it has acted unconstitutionally as long as the violation of your constitutional rights applies to everyone.
A moment’s reflection should suffice to convince you that this cannot be the case. The learned judge has made a spurious distinction between public and private rights. He uses the example, taken from the Court of Appeal’s ruling in the case of Tan Eng Hong, of a law banning a particular race from using public transport and cites this as a case of a personal right applying to a particular section of the community. In that situation the Court of Appeal said that only members of that race would have sufficient standing to sue the government because only their constitutional rights had been violated. However the learned judge is guilty of a logical fallacy. It does not follow from the conclusion that, in cases where only one group’s rights have been violated that group are the only ones who can bring an action, to the much more general rule that therefore where everyone’s rights are affected that no one has the right to sue.
This is quite apart from the fact that it is difficult to draw a line separating the violation of the rights of a particular group from the violation of the rights of the wider community. While in the case of Tan Eng Hong, it was the constitutional rights of the gay community which were violated, it could be argued that the violation of these rights affects all of us as it makes it possible for any group to be singled out in an arbitrary and capricious manner and destroys the basis for rule of law.
The learned judge also found that the government did not act unconstitutionally in not getting Presidential and Parliamentary approval for the IMF loan commitment. However this relied on a technicality that is debatable. One of the definitions of a liability in the accounting literature is a commitment to make a monetary payment to another party in the future which is to be made at a time that is potentially advantageous to the other party. The IMF loan commitment clearly falls under that definition. Thus this judgement has the capacity to render Singapore a laughing stock in the eyes of the financial community. Perhaps when our Minister of Finance chairs another IMF meeting, he might be quizzed on whether he understands the difference between an asset and a liability.
By shutting out any future challenge to the government even when it acts unconstitutionally, this judgement unfortunately plays into the hands of an elite who would do anything to avoid open debate on the issues on a level playing field. Through mechanisms like the GRC system and the other marks of an electoral system that is neither free nor fair, the PAP have marginalized the Opposition and ensured that Parliament is completely ineffective as a check on the Executive. The learned judge quotes Diplock, “they [the departments of central government]are responsible to a court of justice for the lawfulness of what they do, and of that the court is the only judge” only to dismiss this later on.
A future government, whether PAP or Opposition, can take heart from knowing that they can give away our entire reserves without fear of being challenged and that the President has been shown to be unable or unwilling to stop them.
I have pledged an advance of $10,000 towards the security for costs that we need to put up if we are to mount an appeal. This is in addition to the $5,000 I have paid Violet Netto and Co for disbursements and the $3,000-$4,000 for independent non-pro bono legal advice from a London QC. While donations have been encouraging (including $1,000 from Mr. Tan Kin Lian) we are still about $3,500 short of our target. We only have two days left if we are to file notice of appeal! Come on, lets show that we will not allow any further erosion of our rights to go unchallenged!
“I find this argument highly insulting and hugely dangerous”
A very good opinion piece has just gone up on TR EMERITUS about how the learned Judge’s ruling in the IMF case effectively means that a member of one race cannot speak up for a member of another race.
As the author Andy Wong says:
I find this argument highly insulting and hugely dangerous.
I have pasted the article here but it is well worth going over to TRE in order to read the comments attached. http://www.tremeritus.com/2012/11/15/why-i-am-donating-to-support-kenneth-jeyaretnam/
Why I am donating to support Kenneth Jeyaretnam
November 15th, 2012 | 
Author: 
“First they came for the communists,
and I didn’t speak out because I wasn’t a communist. Then they came for the socialists,
and I didn’t speak out because I wasn’t a socialist. Then they came for the trade unionists,
and I didn’t speak out because I wasn’t a trade unionist. Then they came for me,
and there was no one left to speak for me.”
- Martin Niemöller (A German pastor who talked about the inactivity of German intellectuals following the Nazi rise to power and the purging of their chosen targets, group after group.)
I read with interest the judgement in Kenneth Jeyaretnam’s IMF loan case [1]. Whilst there are many aspects of the ruling that trouble me, for now I would like to speak on just one point. The ruling brought to mind a famous poem by Martin Niemöller [2] titled “First they came … “, which speaks eloquently of the need not just to speak up for our own rights, but also for the rights of all members of our society. You have just read it above. If we do not do something to protect others in our society, we will have no reason to expect ourselves to be protected in the future.
The relevant section of the judgement in Kenneth’s case is paragraph 47, it is about “locus standi” and who, if anyone, has the right to challenge the government if they pass an unconstitutional law. It quotes a previous case and includes the follow argument:
Every citizen has constitutional rights, but not every citizen’s constitutional rights will be affected by an unconstitutional law in the same way. For example, if there is a law which provides that it is an offence for any person of a particular race to take public buses, this law would clearly violate Art 12. [...]
However, the mere holding of a constitutional right is insufficient to found standing to challenge an unconstitutional law; there must also be a violation of the constitutional right. In this fictitious scenario, the only persons who will have standing to bring a constitutional challenge against the unconstitutional law for inconsistency with Art 12 will be citizens who belong to the race that has been singled out as only their Art 12 rights will have been violated. Persons of other races will not have suffered violations of their Art 12 rights and will thus have no standing to bring a constitutional challenge in this scenario.
I find this argument highly insulting and hugely dangerous. The reasoning is that I, as a member of one race, cannot speak up to protect the rights of my friends of another race. But are we not all Singaporeans? Do we not have national service to protect all Singaporeans, regardless of race? If a Chinese lady, married to an Indian gentlemen for example, cannot speak up to protect the rights of her husband, then what have we become? But the argument in this case is not really about race, it applies equally to any way to identify and categorise those people who may, versus those who may not suffer some loss in the face of an unconstitutional law. To paraphrase the poem that I begun with:
First they came for the newspaper men,
and I didn’t speak out because the high court of Singapore ruled that only newspaper men can speak out for other newspaper men, and I as an accountant do not have locus standi to speak out on this topic.
But my husband is a newspaper man, imprisoned without trial for seventeen years, and I fear I will never speak to him again.
I am not a lawyer, but from reading what has been published, I understand that this argument regarding locus standi is what Kenneth (at least in part) seeks to overturn in appeal. I will donate to his cause not only because I think this is an extremely important legal principle, but also because I feel strongly in protecting the rights of all people in our society, not just any one particular group.
.
Andy Wong”
Andy Wong has hit the nail on the head. What kind of society will we living in if this judgement goes unchallenged? And make no mistake that the implication is that even if the government has acted unconstitutionality_ yes, that’s right, when the government HAS broken the constitution, you can’t challenge that if it is a constitutional breach that affects all Singaporeans or a race or group of which you are not a member. Because you need to prove personal damage to be considered to have Locus Standi.
Do you want a Singapore where the high income groups will not speak out against unjust laws that hit the worse off because they haven’t suffered any personal damage?Landed property owners not challenging though a legal suit an HDB illegal policy because it doesn’t affect them. It makes a mockery of our way of life , our society, our multi ethnic mix, the basic principles of our representational government if each individual Singaporean is not also representative of all Singaporeans.
Statement on the IMF loan judgement and appeal for donations
On 28 June 2012 I wrote to Christine Lagarde, Managing Director of the IMF (http://sonofadud.com/2012/07/01/an-open-letter-to-christine-lagarde-managing-director-of-the-imf/). In the letter I warned her of the consequences for the future of democracy of trampling on the constitutional rights of Singaporeans for the sake of expediency in obtaining commitments to the IMF’s new global firewall.
I then challenged Singapore’s loan to the IMF in the courts as a last resort after a protracted period when the President and the Minister of Finance refused to respond to my perfectly reasonable letters.
On 22 October 2012 Justice Tan issued a judgement in my suit which must be of grave concern not only to all citizens of Singapore but to citizens fighting for democracy wherever they happen to live.
Let us not forget that the amount of money being loaned to the IMF by Singapore is at $5 billion dollars, more than the entire health budget allocated to all of our citizens for the year 2012 and is substantially more than three times the per capita contributions from Australia and the UK. There was no debate on the loan in our virtual one party parliament.
Prior to the judgement, Eugene Tan, a Nominated Member of Parliament, was quoted on 18 July 2012 in an Australian radio broadcast (http://www.radioaustralia.net.au/international/radio/program/asia-pacific/singapores-fourbillion-dollar-loan-to-imf-challenged-in-court/982490) as saying about the action:
“It would also ensure that Singaporeans who are concerned with certain decisions on policy of the government, you know, have an avenue by which they could challenge it, in a process that would be seen as democratic in way that would engender greater confidence and trust within the whole system of governance that we have in Singapore”
The learned judge has, in dismissing my application for judicial review, has effectively closed that avenue. It is a move which prompted a prominent local legal blogger to write that it was the “the day the constitution died”, (http://article14.blogspot.co.uk/2012/10/the-day-constitution-died-again.html).
Legal Statement
This judgement should be of concern to all citizens of Singapore.
This is because the Court held that I had no right to bring a constitutional challenge in respect of an alleged breach by the Government and Monetary Authority of Singapore of Article 144 of the Constitution in giving a loan to the IMF without either the Parliamentary or Presidential approval specified in Article 144.
It is crucial to distinguish the two reasons why my challenge was dismissed. Most importantly, it was dismissed because I could not show any special damage flowing from a breach of Article 144. The Court therefore implicitly held that even if, in its view, I had made out an arguable case it would still have rejected it.
My case was also dismissed because the words in Article 144 ‘no guarantee or loan given or raised’ did not mean what they appear to say but, rather, meant ‘no guarantee given’ or ‘no loan raised’. On that reasoning, if a loan was given as opposed to being raised this fell outside Article 144 and so such loan – however precarious, however improvident – did not require the constitutional protections afforded by Parliamentary or Presidential oversight.
This short summary, which I will now expand upon, explains why I make this appeal for donations.
No right to challenge the constitutionality of a breach of Article 144
The learned judge did not refer to a clear authority from any court in Singapore to endorse the proposition that a constitutional change to a provision of the Constitution that has no relationship with private law rights can only be challenged if special damage is proved.
If the Court is correct, it means that although Singapore purports to be a democracy with a constitutional separation of powers, there is in truth no means by which a citizen can challenge a provision in reliance on a constitutional provision such as Article 144.
A moment’s reflection suggests that this is unlikely to be correct. Assuming it to be a requirement that special damage has to be established to bring some forms of constitutional challenges, it does not follow that special damage must be proved where breach of a constitutional provision affects all citizens equally and as a matter solely of public law illegality.
If the Court is correct it matters not how blatant, how transparent or how deliberate the breach of such a constitutional provision is; the simple and inescapable consequence is that no citizen may challenge it.
Such a conclusion does not sit easily with a country that, at least in the eyes of the West, aspires to be thought of as a democracy and I believe that on this point at least there are good prospects that the Court of Appeal would not uphold the judgement of the single judge.
Article 144 applies to the giving of a loan
My case was rejected because the court decided to give a purposive interpretation to the words of Article 144.
However, I believe that a purposive approach reinforces rather than weakens my argument.
Put shortly, the purpose of Article 144 is to safeguard the citizen against the creation of substantive liabilities by requiring Parliamentary and Presidential oversight before such liabilities may be created.
The court held that a loan was a benefit rather than a liability. But this does not grapple with the fact that many loans may, in substance (and sometimes in form) constitute a liability.
An IMF loan commitment is akin to a guarantee or a standby letter of credit that Singapore will lend money to the IMF when it has exhausted its borrowings from other sources. In this respect, there is no material difference between this and a bank providing a company with a standby letter of credit that in the event that it is no longer able to borrow in the short-term credit markets, the bank will step in and provide funding. This cannot sensibly be distinguished from a guarantee that is given or a loan that is raised which are undoubtedly within the scope of Article 144.
Conclusion
In my letter to Christine Lagarde, I said that in a robust democracy a government does not hide behind technicalities and dispense with the need to make itself accountable to the people. Unfortunately, by his ruling, the learned judge has enabled the government to do just that.
A note on the Appeal and Costs
The learned judge also saw fit to dismiss my application with costs awarded to the AG. As you all know I took this action as a private citizen, an ordinary Singaporean with CPF savings contributing to the central pool. In this respect although acting on behalf of all of us in the public interest, I have shouldered the costs of this action so far entirely from my own pocket. This was only possible with M. Ravi and his team offering their services Pro Bono. I am now faced with the AG’s costs as well.
I have been asked whether I plan to appeal. The fact is that even with continued Pro Bono legal support, I will certainly be unable to fund the costs of an appeal on my own, however good the grounds. Whether I appeal or not will depend on the public.
I also need help with the costs of the action so far. I therefore ask all Singaporeans who are concerned about the erosion of their constitutional rights and who want to see the government held fully accountable for its actions, to make a donation.
As this is not a political campaign, non-Singaporeans can also donate money. No donation is too small, even the price of a Starbucks or a meal in a hawker centre.
We need to raise a minimum of $ 20,000 to provide security for costs and to pay our lawyers if we are to launch an appeal. Payment can be made to the PayPal account in my name, using my email address kjeyaretnam@gmail.com:
https://www.paypal.com/sg/webapps/mpp/make-online-payments
Alternative you can send a cheque made out in the name of Kenneth Jeyaretnam – to the office of Violet Netto:
L F VIOLET NETTO
101 Upper Cross Street
#05-13 People’s Park Centre
Singapore 058357
Please do not send money directly to the lawyers due to strict regulations governing legal fees and income.
The account will be closed once the target is reached and should there be any excess this will be donated to charity.
MICA’s Response Fails to Reassure
A few days back there was a comment posted on my blog by @Lengyiren drawing my attention to a posting on www.gov.sg saying that the government had rebutted my claims about the reserves. The link to the so-called rebuttal is http://www.gov.sg/government/web/content/govsg/classic/factually/factually-041012-istheresomethingwrongwithourreserves.
This portal is maintained by the brave people at MICA who defamed me in the WSJ by claiming that I had misrepresented basic facts about my father’s bankruptcy and ensured through their control of the media that their version was printed while my right of reply was denied. One can see the MICA trademarks of sloppy editing and elementary grammatical mistakes such as saying “are flowed to” instead of “flow to”.
Actually they do not mention me directly referring instead to “some online postings.” And in fact since it was Christopher Balding and not me who made the mistakes to which they refer, perhaps the post was solely directed at him. Nevertheless I felt it important that I respond lest readers think that I am guilty of the same errors.
Read the rest of this entry
Hard Truths or Plain Racism?The Government’s Hypocritical Outrage over Amy Cheong
While we can all condemn Amy Cheong for the unthinking racism of her remarks, we should wonder whether they just reflect the tone of institutional racism that is projected from the very top of the government. Her crime was perhaps that she took her cue from the frequent racist utterances from of our former Minister Mentor which instead of being condemned are labelled “hard truths to keep Singapore going.” Recently even the Australian PM praised MM Lee for his “straight talk” from three decades ago and said “We never forgot his warning that without reform we would be the “White Trash of Asia”
She obviously did not realise that the latitude accorded to the gods do not apply to mere mortals such as her. The PM was quick enough to jump on the bandwagon of condemnation from PAP ministers but has been noticeably silent about his father’s remarks. That surely ranks as hypocrisy or double standards to say the least.
She undoubtedly violated her corporate code of conduct. However she was dismissed without being given a chance to defend her actions by going through the company’s usual disciplinary procedure. Should not a reprimand or a written warning have been the first stage as she had already issued an apology? It was a salutary reminder of how few employment rights Singaporeans have. As Subra points out in his Article 14 blog (http://article14.blogspot.sg/2012/10/race-responsible-speech-and-hasty.html) it is particularly shocking, or would be to a naive observer, that a so-called government trade union should dispense with due process.
The question of whether she should be prosecuted is another matter. Most countries ban hate speech directed at an individual or group on the basis of their race, religion, gender, sexual orientation etc. The US is perhaps alone in protecting hate speech under the First Amendment to the Constitution dealing with the right to freedom of expression.
One must be careful not to curtail free speech rights just because they give offence to a particular group (for example fundamentalist Christians would no doubt wish to stop the teaching of evolution theory on the grounds that it is offensive to their beliefs). However against the belief in an absolutist right to free speech there is an important argument that hate speech undermines a public good which Waldron (“The Harm in Hate Speech”, reviewed in the NYT, http://opinionator.blogs.nytimes.com/2012/06/04/the-harm-in-free-speech/) “identifies as the “implicit assurance” extended to every citizen that while his beliefs and allegiance may be criticized and rejected by some of his fellow citizens, he will nevertheless be viewed, even by his polemical opponents, as someone who has an equal right to membership in the society. It is the assurance — not given explicitly at the beginning of each day but built into the community’s mode of self-presentation — that he belongs, that he is the undoubted bearer of a dignity he doesn’t have to struggle for.”
To quote Waldron again, “In its published, posted or pasted-up form, hate speech can become a world-defining activity, and those who promulgate it know very well — this is part of their intention — that the visible world they create is a much harder world for the targets of their hatred to live in.”
But postings like Amy Cheong’s do not occur in a vacuum. It is no accident that we get these numerous instances of hate speech in Singapore. There is not only Amy Cheong but also Shimun Lai, Sun Xu and Jason Neo. A few years back there was the case of Chua Cheng Zhan, the PSC scholar, who made racist remarks about Indians dominating the Singapore association (perhaps he could not stand the competition!). Yet he was allowed to apologise and let off whereas Amy Cheong was sacked for saying something much milder!
Before that there was the case of MP Choo Wee Khiang who said in Parliament that “One evening, I drove to Little India and it was pitch dark but not because there was no light, but because there were too many Indians around.” Surely, if they had not been protected by parliamentary privilege, his remarks could have been construed as inciting racial violence. They are qualitatively in a different league from Ms. Cheong’s. I myself have had to endure an onslaught of anonymous online postings calling me “ape-man” and “son of Ah Meng”.
It is because of a climate of institutional racism that is fostered from the very top and that is explicit in the racist attitudes and utterances of Lee Kuan Yew himself. If every citizen should have an implicit assurance, as Waldron puts it, that he will be viewed as someone who has an equal right to membership in the society, then this is lacking in the case of minorities in Singapore, and in particular in the case of the Malay minority. The latter have always been viewed with suspicion as potential fifth columnists. Many Malays were excluded from national service or when they were enlisted assigned to low security classifications or part-time service. This served and continues to serve to stigmatize them in the eyes of employers.
Similarly the Ethnic Integration Act treats minorities as second-class citizens by denying them the right to live where they want. It also penalizes them economically because they are often unable to sell their property to the highest bidder if the quota has been filled.
The proportion of minorities who are selected as government scholars is also so much lower than their share of the population (and many of those classified as minorities are new immigrants or children of mixed-race parentage). From 2002-2010 the proportion was 5.8% (http://theonlinecitizen.com/2011/02/government-scholarships-a-case-for-greater-representation-of-minority-races/) but of these only 2.3% were Indians and 1.2% Malays. Surely in any country that wanted to portray itself as not institutionally racist there would be an inquiry and steps taken to either remove cultural bias in the selection process or remedy deficiencies in the education system.
It was only in 2009 that MM Lee gave an interview with National Geographic (http://www.news.gov.sg/public/sgpc/en/media_releases/agencies/pmo/transcript/T-20091228-1.html) where he said about Malays that “The influence from the Middle East has made them have head-dresses for no rhyme or reason.” Later in the same interview he said “Well, we make them say the national pledge and sing the national anthem but suppose we have a famine, will your Malay neighbour give you the last few grains of rice or will she share it with her family or fellow Muslim or vice versa?”
In January 2011 the Association of Muslim Professionals felt obliged to issue a statement in response to LKY’s book “Hard Truths to Keep Singapore Going”:
The Association of Muslim Professionals (AMP) deeply regrets certain comments made by Minister Mentor (MM) Mr Lee Kuan Yew in his book Hard Truths to Keep Singapore Going. These comments are in relation to the practice of Islam by the Malay-Muslim community (MMC) where MM Lee had urged the MMC to be less strict in their practice of Islam in order to facilitate integration, and in relation to the issue of gaps between the MMC and other communities in Singapore, where MM Lee opined that the MMC will never catch up with the other communities. We note that these views of MM Lee are not new. It is not clear why MM Lee has chosen to repeat them at this point.
Some of LKY’s other memorable quotes may be found at http://en.wikiquote.org/wiki/Lee_Kuan_Yew.
His pseudo-scientific theories of racial superiority were acquired apparently from Toynbee, a British historian of the early twentieth century, who published “A Study of History”. While it is now universally discredited and hopelessly out-of-date, it still seems to command a certain support among members of the PAP elite, judging by quotes on George Yeo’s FB page when he was a minister. Toynbee naturally put the white races at the top. Lee Kuan Yew has modified this by putting East Asians at the top above the whites, South Asians in the middle and South-East Asians at the bottom. From his often-quoted comments on the IQ Bell curve, he clearly believes Africans are some way off being human which makes me wonder how he got on with President Obama when they met.
In this climate of officially condoned institutional racism, it is not surprising that Amy Cheong should have felt that her posting was acceptable. PM Lee was quick to condemn a little person like Ms. Cheong:
“Fortunately the person has promptly apologised for her grievous mistake. But the damage has been done, and NTUC did the right thing in terminating her services.”
However it is regrettable that he did not adopt the same moral tone in dealing with his father’s comments. Perhaps he should consider setting up a commission of inquiry into what has led to this climate in the first place and what steps can be taken to remedy it. It would seem difficult for the police to act against Ms. Cheong when they have turned a blind eye to some of MM Lee’s more outrageous comments.
How to Make A Small Fortune in Banking (A Further Note on Behind Chamber Doors)
Any day now we can expect the judgement in the IMF loan suit to be announced. I have already written about the absurdity of the AG’s arguments in a previous post, “Behind Chamber Doors” (http://sonofadud.com/2012/10/01/why-wait-for-the-judgement-in-the-imf-loan-case-the-state-media-have-already-decided/).
The AG has written that the IMF loan is an asset and that Article 144 of our Constitution is intended only to catch transactions that increase the government’s liabilities. I have argued that the natural and ordinary meaning of Article 144 is that both loans and guarantees require Parliamentary and Presidential approval. This is irrespective of any semantic arguments over whether a loan is an asset and a guarantee a liability. However even if the judge accepts those arguments as valid, which flies in the face of all logic and any reasonable reading of the words, there is a further telling reason why the IMF loan commitment should not be considered an asset. This is that the government will certainly lose money on it even if the money is eventually repaid.
Consider a thought experiment
A Case of the Pot Calling the Kettle Black?
Recently the Wall Street Journal reported that Temasek Holdings, with no sense of irony, was pressing Standard Chartered to appoint more independent directors (http://online.wsj.com/article/SB10000872396390443768804578034210943017432.html?KEYWORDS=standard+chartered). The article went on to say that, despite earlier reports in the FT, Temasek did not have any immediate plans to sell its stake in the bank. I discussed a possible sale of Temasek’s stake in “Roach Motel or Investing for the Long Term: You Decide What Best Describes Temasek’ s Investment Strategy” (http://sonofadud.com/2012/09/26/roach-motel-or-investing-for-the-long-term-you-decide-what-best-describes-temaseks-investment-strategy/).
The WSJ article quoted “a person close to Standard Chartered” who said “the dispute stems from Temasek’s desire for the bank to have a supervisory board consisting of just one Standard Chartered executive, with the rest of the board made up of independent directors.” The article went on to say that in its latest annual report Temasek had added a section about governance saying “To provide effective oversight of management on behalf of all shareholders, we advocate that boards be independent of management. We do not support excessive numbers of executive members on company boards.”
While these are admirable principles in practice the sentiments made me wonder how many of Temasek’s board could be said to be independent of the company or its 100% shareholder, the government. I decided to look at the background of the other members of the board, apart from the Chairman, Mr. Dhanabalan and the CEO, Madam Ho Ching, to see how many were truly independent. I also compared Temasek’s governance framework with the Norwegian Sovereign Wealth Fund to see how far we were following what could legitimately be called best practice.
Straw Men and Paradigms: A Response to Alex Au’s Recent Article
In a debate one tactic which often works is to ascribe to your opponent a position that he does not hold, which is easy to refute, and then demolish that. Or else to quote his arguments out of context or associate him with a group who superficially might seem to be saying the same thing but actually are not. This is what is called the “straw man” fallacy presumably because you set up an argument which you proceed to easily demolish and by doing so claim you have demolished your opponent’s arguments.
While I always enjoy reading Alex’s writings, which are frequently intelligent and provide a genuinely fresh perspective, he is guilty of deploying the straw man fallacy against me in his latest blog (“In the national conversation, some kinds of talk don’t come cheap”, http://yawningbread.wordpress.com/2012/09/30/in-the-national-conversation-some-kinds-of-talk-dont-come-cheap/). This is taken from his speech at a recent SDP forum entitled the National Conversation Roundtable (though strangely the only attendees apart from SDP were the usual civil society suspects). The main thrust of his argument was that, however much his fellow speakers might think more social spending was necessary there was no easy way to pay for it without substantial rises in taxes, in fact a doubling of rates.
This argument is not new. It is in fact the conventional wisdom, or as Alex puts it “paradigm”. Any deviation from the PAP’s paradigm is termed politicization or polarization. We must avoid this at all costs because it is one step from there to gridlock followed by chaos! Yet historically societies that have tried to shut out creative destruction and competition have collapsed. Imperial China and the Soviet Union spring to mind.
Thus in the 2012 Budget, the Finance Minister absurdly warned that income taxes would have to rise to 60% if we were to double healthcare spending.
The First Straw Man
While I will point out some errors in Alex’s analysis later, my immediate concern is where he brings my name into the debate over how to fund increased social spending. First he quite rightly dismisses those who think that cutting ministerial salaries will release enough resources. Though this is a particularly light straw man as surely no one who reflected on it for more than a few minutes would think it was the case. The “cut ministerial salaries” line is more about anger at obscene pay packages and the lack of correlation with improvements in median incomes than about freeing up resources for increased social spending.
The Second Straw Man
After similarly dismissing land sales as a large enough source of revenue, Alex then passes on to the subject of our sovereign wealth funds and their assets. Asking the question, “What about all the money in our sovereign wealth funds” he says:
The above question is often asked with a hint of anger. This especially as Christopher Balding and, more recently, Kenneth Jeyaretnam, have raised questions about the accounting. A more dispassionate discussion however, requires us to distinguish between asset values and annual returns on investment. Glittering though the hundreds of millions in asset value may be, spending away the principal is far from wise. We should spend no more than what we earn from investing the principal sums.
There are several inaccuracies here. Firstly he puts Chris Balding first in bringing this to Singaporeans’ attention. In fact I have been drawing attention to the lack of transparency and accountability in the management of our reserves since 2009. I proposed privatizing Temasek and GIC, listing them on the stock market and handing out shares to Singaporeans as a solution (see http://sonofadud.com/democracy/are-foreign-investors-scared/ for a reproduction of my debate with YPAP about that time). More recently, in the Reform Party’s response to Budget 2012, (http://thereformparty.net/about/press-releases/budget-2012-part-one/) published on 23 February, I drew attention to the opacity of the way in which the PAP presented the budget and the discrepancies that existed, particularly the way the full surplus number was not disclosed.
However, to characterise my concerns about Temasek and GIC as merely accounting issues, is a complete travesty. My concern is with the management, or rather apparent mismanagement of our reserves. As a start I worked out what the theoretical level of gross and net assets should be. My conclusions, discussed in “Where Have Our Reserves Gone” (http://sonofadud.com/2012/09/07/where-have-our-reserves-gone/) were that gross assets should be close to a trillion S$ and net assets about $600 billion as opposed to the $316 billion shown in the last SAL. I went on to conclude that one would have to reduce the rate of return earned by GIC on our Primary Surpluses and government borrowing since 1980 to about 2.5%, while keeping the rate the government pays on its debt at 3.5%, to get to the current level of net assets, once notional revenue from land sales and Temasek’s assets were taken into account (“An Unappetizing Picture”, http://sonofadud.com/2012/09/25/an-unappetising-picture/). Thus leverage seems to have had a negative effect on returns which flies in the face of what a theoretical leveraged fund should have been able to achieve over the same period.
Alex completely ignores the question of why the reserves are so low or whether they have been mismanaged. Instead he sets up another straw man by criticizing those whom he says would raid the capital as an easy source of revenue for increased welfare spending. He says “we should spend no more than what we earn”. But that is precisely my point. If the reserves are being mismanaged then we are earning much less than we could be earning. Without transparency and accountability, we are getting much less than we deserve for the consumption we are forced to forego. That is why I advocated Singaporeans being given shares in the SWFs to ensure that as risks were being taken with their money they should share in the rewards.
Alex points out that we are already benefiting from the Net Investment Returns Contribution to the government budget of some $7 billion a year and we cannot stretch that to $50 billion a year, which is what it would take to double government expenditure as a proportion of GDP. However, as I pointed out in “Smoke and Mirrors in the Government’s Accounts”, (http://sonofadud.com/2012/08/11/smoke-and-mirrors-in-the-governments-accounts/ ), the NIRC has come out of the reserves but then most of it has gone straight back in, in the form of Top-ups to Endowments and Trust Funds which are not spent in the current year and over which there is little Parliamentary scrutiny and accountability. In any case a 1% return from Singapore’s gross assets is very poor and if we were to raise the returns through better management then Singaporeans would see the benefits in the returns on their shares.
Succumbing to the Government’s Paradigm
It is ironic that Alex criticizes the National Conversation as far too limited in its determination to rule out any challenges to the existing PAP paradigm. Unfortunately he also is guilty of this. We have never had a proper debate on the appropriate size of the reserves. As I pointed out back in July 2009 in “Who holds the sovereign wealth of the nation and why?” (http://theonlinecitizen.com/2009/07/who-holds-the-sovereign-wealth-of-this-nation-and-why/):
Singaporeans need to be asking, particularly in the light of the recent investment losses, why Singapore even has not one, but two, SWFs. Singapore does not meet the criteria for the first type of SWF since we do not need to manage a windfall from any natural resources. If Singapore had expanded its domestic investment and consumption over the last 30 years it would have had smaller current account surpluses and thus smaller foreign exchange reserves needing management. MAS already has sufficient foreign exchange reserves necessary to manage the Singapore dollar. No second SWF was needed to fulfil this function.
It is worth remembering that we do not have such high reserves through shrewd investment management or even a natural resource windfall but through our people going without. Through the government not providing value for money in that it took in much more than it gave back in services like education, health and insurance protection. The burden has fallen disproportionately on those least able to bear it.
I am an economic liberal. I do not believe we should adopt the Swedish model of welfare state. This is despite the research suggesting that it does not harm productivity growth and may even help it, through high levels of spending on education for example. However it is hard to see why we need to continue running such large surpluses (the general government surplus rather than the Primary Balance which is misleadingly presented to Parliament every year). This is particularly true as technological change ensures that each succeeding generation is wealthier than the last. At present the general government surplus appears to be running at between 5 and 10% of GDP if we believe Singstat’s numbers.
Three More Fallacies
Alex’s analysis is faulty in at least three other respects:
- He assumes crudely that it is necessary to double government spending as a proportion of GDP in order to achieve an acceptable social safety net. However we are really only talking about substantially increasing the amounts spend on education, health and also social services. Obviously items like Defence and Home Affairs should not need increasing. As a rough estimate we are probably talking only about another $15-20 billion of expenditure annually. Even with the current poor levels of returns on our reserves this should be covered by the current general government surplus.
- He cannot just assume that you need to double tax rates to double revenues. In fact, as any first year economist will know, there will be second-round effects through the Keynesian multiplier. Thus part of the higher government expenditures will come back in the form of higher tax revenues through increased domestic employment and incomes. This is what is called the “balanced-budget” multiplier effect and is used in most econometric models.
- Increased health expenditures would to a large extent replace private expenditures that are not covered by the existing 3Ms (Medisave, Medishield and Medifund. Under a comprehensive health insurance scheme, such as I have advocated, it may be possible to achieve savings through the pooling of risks and better preventive care while preserving competition. In total the majority of Singaporeans may not end up paying much more than they do at present.
Conclusion
The majority of Singaporeans pay little or no income tax but it would be a mistake to assume that we are lightly taxed or that we are getting value for money. The high cost of housing is the effect of the government having control over the supply of land and deliberately choosing to under-provide in the face of a fast-expanding population, again the result of government policy. In many areas we pay more than consumers in other countries for the same bundle of goods and services because of government monopolies.
Median earners in other advanced countries also pay little or no income tax (we know from Mitt Romney’s gaffe that 47% of Americans pay no income tax) but they get a much better deal from their governments in terms of services provided.
For the reasons outlined above I therefore find Alex’s assertion that tax rates will have to rise substantially if we are to have significantly higher investment and social spending unconvincing. It is a pity that he too seems stuck in the PAP paradigm. Even if, in extremis, they have to rise slightly, which I dispute, this is unlikely to (a) affect the majority of Singaporeans and (b) necessarily act as a drag on growth and productivity. Our record on the latter hardly serves as an advertisement for extremely low tax rates.
Kudos anyway to Alex for putting the issue out there so we can at last have a rational debate, which is something the ruling party are unwilling to do. The “National CONversation” (http://sonofadud.com/2012/09/12/national-conversation/) is not about a dialogue at all. It is about a National Monologue in which they sit behind a pane of glass and warn us about the dire consequences of deviating from the PAP script while shutting out anything that they do not want to hear.
Behind Chamber Doors. (Why wait for the Judgement when the State Media have already decided the IMF Loan Case outcome?)
As most of us are aware the government controls the media both directly, through Temasek’s ownership of MediaCorp, and indirectly, by its power to appoint the senior management and the editors of SPH or any newspaper company under the Newspaper and Printing Presses Act.
Thus when we read a report about a political case like the IMF loan suit we can be sure that we are getting instructed in the way the government wants the result to go. Usually the objective is to give precedence to the government’s arguments and by doing so to give the public the impression that no sane and reasonable person could not agree with their interpretation of the legislation. While maybe not technically contempt of court it strays a long way from balanced reporting.
In the IMF loan case the Today report on the hearing on 20 September ( http://www.todayonline.com/Singapore/EDC120921-0000051/No-open-hearing-on-Spores-loan-pledge ) starts with the use of the emotive term “thrown out” to describe the court’s dismissal of our application to have the hearing moved to open court. The effect is to try and give the impression that our suit is frivolous and has no grounds. While it may not be “ordinary practice for application for leave to be heard in open court”, as Today put it, I felt that there were enough issues of importance to Singaporeans to warrant the case being held in open court. At least Singaporeans would have been able to attend and hear the arguments rather than have them filtered through the State media. It may be ordinary practice but that is in democracies where there is a free media and certain standards of objective reporting. In particular newspapers in those countries would have to grant me the right of reply which is denied me by the State media here.
The State media carried little of my case apart from a brief comment from me when I was doorstepped outside the courtroom after the hearing. The ST reported me as saying that the case was about accountability and my right as a citizen to question the use of our monies. The breach of the Constitution and the fact that the Auditor-General had already agreed with my interpretation of Article 144 was not mentioned. This was in the case of the issue of a promissory note to the International Development Association by MOF which did not receive the President’s approval. MOF apologized. They blamed it on a junior officer in the MOF and retroactively obtained the President’s concurrence.
In order to counteract the impression which might have been given in the state media that we had no answers to the government’s defence, I will rebut their arguments here.
Today: The Attorney-General, represented by Senior Counsel Aedit Abdullah, argued in his written submission that the purpose of Article 144 is to capture transactions which increase the financial liability of the Government or lead to a drain on its past reserves.
The government is arguing that a loan is an asset and therefore does not increase the liability of the government. However it is absurd to argue that a loan is without risk, however good the credit standing of the borrower. As we know from the sub-prime mortgage crisis, billions of AAA rated collateralized mortgage obligations subsequently proved to be worthless and had to be completely written off. Many banks in the UK and the US as well as major insurance companies like AIG would have gone bankrupt were they not rescued at considerable cost to their taxpayers. These assets were rated AAA by the same agencies (Moodys and S&P) that have given the IMF a AAA rating. I have said in my affidavit that I am more concerned with general principles than with the IMF per se but even the IMF is dependent on its member governments for support. Our loan commitment to the IMF is likely to be drawn down only when it has exhausted its other resources. At that point it is theoretically possible that the IMF may no longer be considered AAA. These extra resources are targeted at the Eurozone countries that are in a vicious downward spiral of austerity to try just to get to budget balance let alone to a surplus situation where they can begin to think about servicing their debts. At some point the population will decide that they are better off defaulting on their debts. No wonder a British Conservative MP characterised his country’s 10 billion pound contribution to the IMF as like taking the money and throwing it in the nearest rubbish bin (http://www.guardian.co.uk/politics/2012/apr/21/george-osborne-10bn-funding-imf). Even though the British government did not need a vote, because it had already got approval for an increase in Britain’s IMF contribution some time back, the Opposition still accused it of running scared of parliamentary scrutiny.
Tharman makes much of the IMF’s protected creditor status which means it ranks first for repayment in the event of a bankruptcy. However how does one liquidate a country should it decide to default on its debts? Also in order to get the private sector to commit new money to these countries and existing lenders to play nice and roll over their loans into virtually perpetual obligations the IMF, like the ECB, is likely to have to give up its preferred creditor status.
The government makes much of the fact that the IMF will pay interest on Singapore’s loan should it be drawn down. However the only way these Eurozone countries can pay interest to the IMF at the moment is likely to be through new loans given that they are still some way even from basic balance before debt service costs. Spain for instance ran a deficit of over 9% of GDP in 2011 and will have one of close to 8% in 2012. The debt reduction targets are largely wishful thinking.
So the government is being disingenuously facile in its arguments that lending is an asset and is therefore without risk. The government has accused me of lacking knowledge of basic accounting. However they are either trying to mislead the court and the public or they really do lack understanding of basic risk management as well as accounting. The counterpart of an asset is always a liability and in this case the liability is the reserves which belong to the people of Singapore. If there is a loss on any loan by the government then that will have to be charged off first against the current surplus and then against the reserves. Similarly borrowing increases liabilities but the funds borrowed would show up on the asset side of the balance sheet if they were invested and not spent. If the government is so worried about liabilities then why does it continue to borrow so much from CPF presumably to be invested in GIC and Temasek?
It seems axiomatic that borrowing is less risky than lending and therefore it is inexplicable why Article 144 should be interpreted as allowing the government to lend recklessly with no controls while borrowing needs Parliamentary and Presidential scrutiny. Surely the presumption must be that we want tighter financial controls not looser.
Also how is a guarantee qualitatively different from a loan commitment? A guarantee is like a put option in that the guarantor will be obliged to pay out in the case of some trigger. Usually then it will become an obligation of the guarantee against whom the guarantor can proceed for repayment. Singapore’s loan commitment to the IMF should similarly be treated as a derivative since it is an option that the IMF has the right to exercise. The US Federal Accounting Standards Board requires loan commitments to be marked to fair value in certain circumstances. If the credit deteriorates then this would require the institution concerned to establish a reserve for the potential loss on the liability side of the balance sheet.
Today: It would be an “absurd construction and impractical way” for the Government to function should the Article be engaged when loans of any amount are given, he said, adding that the issue had also been dismissed by Parliament previously.
However, as far as I have been able to discover with my limited resources, the loans that the government gives out are as part of programmes established through the Budget and on which Parliament has voted in the form of a Supply Bill. Otherwise they would be ultra vires. Subsequently the President will have given` his approval. For example in 2009 Parliament approved the setting up of the Bridging Loan Programme and the enhancement of the Micro Loan Programme as well as the Local Enterprise Finance Scheme. There is the Tuition Fee Loan Scheme which was set up in 1991 by Parliament. In any case these schemes are more in the nature of guarantees since private financial institutions provide the funds and the government bears 80% to 90% of the risk in return for being paid a fee.
The government has maintained that Article 144 only applies to guarantees and not to loans given. Article 144 makes no mention of the quantum of the guarantee or loan. Is the government now saying that it is an “absurd construction and impractical way” for Article 144 to be engaged when guarantees of any amount are given?
The AG argued that the question had been dismissed by Parliament in 1997. However that was the opinion of the government’s own legal officer, the former CJ Chan Sek Kheong and upheld by the Minister of Law. It was never challenged in the courts. It would be a sad day for accountability and the rule of law if the government were allowed to have unfettered discretion in the interpretation of the Constitution and they were not to be subject to the jurisdiction of the courts.
Today: Mr Aedit also said that the verbs “given” and “raised” used in the Article are specific to each financial instrument described and are not to be used interchangeably.
But Mr Jeyaretnam’s lawyer, Mr Louis Joseph, said in a written submission that “a literal and dictionary reading” of the Article would “lead to no other conclusion”.
Quite right. Not only a literal and dictionary reading but any reasonable argument from a risk management and control perspective can lead to no other conclusion.
Though not mentioned in the newspaper article there were two other arguments that the government deployed.
One was that the monies for the IMF loan would not come from the government but from the MAS.
That is patently absurd. MAS is a Schedule 5 company wholly owned by the government which is only able to operate because the government guarantees its obligations. Its chairman and board of directors are appointed by the government. In 2009 the government was forced to inject $16.9 billion into MAS because of losses during the previous year. The resources that the MAS uses in its foreign exchange operations come from the S$ that the government deposits with MAS so it is not right to say that the resources for the MAS loan will not come from the Government Budget. Indirectly they do as it is only because of its persistent surpluses that the government has S$ to deposit with MAS.
The other argument was that I did not have locus standi to bring the action as I do not have sufficient interest in the IMF loan and I had not suffered or was not likely to suffer any loss from it
As a non-lawyer I am not sure I am qualified to comment. However courts in the UK have generally been interpreting the sufficient interest requirement liberally. To quote Lord Diplock:
“[i]t would…be a grave lacuna in our system of public law if a pressure group…or even a single public spirited taxpayer, were prevented by outdated technical rules of locus standi from bringing the matter to the attention of the court to vindicate the rule of law and get the unlawful conduct stopped.” (http://en.wikipedia.org/wiki/Standing_(law)#United_Kingdom)
I would hope that the judge will reject the defence’s locus standi argument here.
As I have said before, the reason for the suit is about the general principle of the government’s accountability to Parliament and the Constitution rather than with the merits of the IMF loan as such. In 1997 the PAP government took refuge behind a technicality to avoid accountability. It would be a shame if this were to be allowed to happen again particularly as their arguments are so weak. Whatever happens, the State media have already made a ruling for the government appear a foregone conclusion.
Roach Motel Or Investing for the Long-Term: You Decide What Best Describes Temasek’s Investment Strategy.
A “Roach Motel”, originally a term used to describe a cockroach trap, has become a metaphor used by hedge fund managers to describe an investment that is too large in relation to the size of the company’s equity capital or the liquidity of the stock to allow the manager to exit without taking an unacceptable loss. For better or worse, the manager is locked into the stake and the only exit is normally either through a sale of the company, which is fine as long as a price higher than the entry price is achieved, or else through bankruptcy and the loss of the entire investment.
Roach motels sprang to mind when I read this morning that Temasek Holdings is selling a 2.5% stake, or 400 million shares in SingTel with the option to sell another 100 million shares
Read the rest of this entry
An Unappetising Picture
I thought a comment from someone calling themselves “Sotongmee” raised enough interesting points to merit reproduction in full in the blog together with my response. This person addresses me as “sir”. I would like to say once again that that is unnecessary and far too formal. I would much prefer if you would just call me Kenneth.
Their comment is as follows:
Sir, permit me to point out that both yourself and prof Balding have used the primary surplus as the sole inflow into the government’s asset under management (AUM) to derive the theoretical asset size (after factoring the annualized 20 year return which GIC claimed). There is however a big portion of reserves, the foreign exchange surplus, which is managed by the MAS, which might have been left out.
From Singstat’s database, in the last decade between 2001 and 2011, the government’s total financial portfolio assets flow amounted to SGD$96b (presumably all were placed with GIC), compared to foreign exchange reserves accumulated of SGD$262b managed by the MAS. The MAS’s website show the official exchange reserve position at $308b as of end 2011. Even at the current 30 year US Treasury yield of 3%, the annual investment income would exceed $10b. In reality the MAS probably invested in a combination of sovereign bonds over time and the yield is likely to be several % points higher.
Last, another interesting point I observed on 2 different sets of data of the official foreign reserves: MAS’s data showed that the year 2011 OFR was $308b compared to year 2000 OFR of $138b, or an increase of $170b. Singstat’s data however showed total OFR inflows over the same period of $167b. The difference cannot possibly be the yield the MAS has received on such a huge sum of foreign exchange reserves, which as estimated above, total at least $10b a year. Where is the missing investment income for the last 10 years?
Sources: MAS: https://secure.mas.gov.sg/msb-xml/Report.aspx?tableSetID=IV&tableID=IV.7
Singstat: http://www.singstat.gov.sg/stats/themes/economy/bop.html
I hope this thread gets more attention, more qualified and curious people than myself should comment and point out any errors or omissions and hopefully shed more light on the subject. There is surely more than what we are being told and keeping quiet hoping for the best is like traveling on MRT hoping we won’t be late for work.
My response is below:
@Sotongmee, you paint an unappetising picture.
Sherlock Holmes And The Case Of The Missing ( Or Merely Hidden) Reserves
Recently one of my articles, “Where Have Our Reserves Gone” (http://sonofadud.com/2012/09/07/where-have-our-reserves-gone/) was taken down by TOC without explanation. When I pushed Mr. Pillai for an explanation he said that they had received a phone call from a representative from Temasek Holdings objecting to my use of the word “Ponzi” in relation to the CPF scheme. I then wrote TOC an open letter asking them to provide details of the alleged tip-off as Mr. Pillai put it, and which of the editors they had spoken to (An Open Letter to TOC in Response to Their Removal of My Article “Where Have The Reserves Gonehttp://sonofadud.com/2012/09/17/an-open-letter-to-toc-in-response-to-their-removal-of-my-article-where-have-the-reserves-gone/) I said there that:
Meanwhile the summary removal of my piece has damaged my reputation suggesting as it does that I would write material that was defamatory and untrue. It goes to the heart of my credibility.
This has been reinforced by Mr. Pillai’s actions. Instead of answering the questions that I reasonably posed he has put up some comments on FB that my article is “eraneous (sic) and misleading” because of my allusion to a Ponzi scheme. He also says that “there are other literature to suggest that our reserves are much larger than what they are reported.”
I will deal here with these two claims.
Reserves Larger Than Reported?
An Open Letter to TOC in Response to Their Removal of My Article “Where Have The Reserves Gone”
Dear TOC,
Last Thursday, I was contacted by several readers who asked me why my article “Where have our reserves gone?” had disappeared from TOC. This alone was alarming and unusual but TOC compounded the problem by failing to put up any note by way of explanation for the article’s sudden disappearance.
When TOC did finally respond to my queries, Mr. Pillai informed me that the article had been taken down after “one of the other editors” had received a call. Apparently this call was a tip off from Temasek Holdings advising that legal action was going to be taken against me because they objected to the term ‘Ponzi Scheme.’
This is not a criticism of Mr. Pillai whom I have always found to uphold the highest standards of editorial transparency and impartiality. However who is this unknown editor and why should we believe a word of this unlikely tale until the editor in question comes forward and identifies himself? It could just be professional jealousy and a likely story to get my article removed. I have been further informed by Mr Pillai that a lawyer is reviewing the article. No need, just consult with me and then remove the sub heading, ‘Ponzi Scheme’ if it is offensive. Removing that phrase doesn’t alter the meaning or harm the article one bit.
I entered a good faith agreement with TOC. I allow you to take my articles wholesale off my blog and allow you the special privilege of not having to comply with the copyright conditions which normally apply. This works both ways. You gain content and whilst I lose reader stats, my pieces reach a far wider audience in cooperation with TOC. However that good faith is broken when you remove my article with no warning, consultation nor explanation.
The alleged conversation that your editor had or did not have with Temasek remains pure hearsay. I myself have received no communication from Temasek or anyone else. Temasek Review Emeritus are also running the article and have received no objections. If Temasek Holdings did indeed contact you then it is a matter of great interest and needs to be aired. My article continues to remain up on my blog at http://sonofadud.com/2012/09/07/where-have-our-reserves-gone/
A Short Note on Where Have Our Reserves Gone?
After I published this piece it was brought to my attention that the IMF have revised their figures for Singapore’s general government surplus once again for the years 2003-2010. In the process they have reduced the figure for the cumulative surplus over the years 1990-2010 from $429 billion back to $271 billion which is approximately where it was in April 2012 when they revised it upwards.
However this second revision begs more questions than it answers. I have not had time to study the figures in-depth but the net lending figure (which is the general government surplus) for the years 2003-2010 looks much too low given the level of assets already accumulated. It also does not alter the conclusion of my article that the level of net assets is far too low given the operational surpluses, the claimed rates of return for both Temasek and GIC and the likely revenues from land sales. I will be writing more on this soon after I have been able to analyse the figures.
Talking about conversation diverts attention from bombshell!
I have highlighted articles from blog spot Article 14 previously on Rethinking the Rice Bowl. ”Subra” states on his blog to be a Singaporean lecturer in law here and he clearly has the talented teacher’s skill of setting out complex subject matter in a simple, easy to understand manner. Several very good reasons why everyone should read his latest article: http://article14.blogspot.co.uk/2012/09/everybodys-talking-about-talking.html But he has added a twist that I didn’t notice.
National CONversation
National Conversation? LOL, as the youngsters would say. It is just propaganda. The outcomes are pre-decided, the PAP model is rigidly entrenched, it has no parliamentary mandate, it is an exercise in deflecting us away from building a functioning democracy. How much tax payer money will be spent on this PAP propaganda machine? It’s not even an election campaign period so doesn’t come out of their own party coffers.
Personally for me the National Conversation is a continuation of the National Silence that I am so used to. Well, until Jim Sleeper of Yale started to make a bit of noise that is. No sooner had he posted an article detailing how I was excluded from National University forums, the National televised debates for GE 2011, National Media and so on than an invite arrived to appear at a forum from the earnestly co-opted NUSSPA. Thanks Jim! I am sure Jim causing embarrassment from Yale is also behind the sudden magnanimous decision by the PAP to accept Soon Juan’s offer of a $30,000 payment of his fine. Or the PAP have finally realised that they risk not only embarrassment but the creation of another National Martyr under virtual house arrest in the manner of Aung San Suu Kyi, if Soon Juan is not able to join us in a proposed visit to Yale later this year.
http://www.huffingtonpost.com/jim-sleeper/yale-into-the-abyss_b_1678428.html
Where have our reserves gone?
“Let me tell you the truth, as spending increases significantly sooner or later taxes must go up too.” Thus spake the PM in his National Day Rally Speech. Apart from that so-called truism, the NDR speech was totally without interest being the usual PAP message of austerity for Singaporeans ( what the PM calls being tough as individuals) but largesse for everyone else.
Let me tell you, the PM’s truth is actually just one opinion and I believe it is far from the truth. Firstly, we should have enough money in savings to pay for all conceivable heath care needs even with an ageing population. After all in Singapore all health care and the cost of an ageing population is on a pay as you go basis where costs are almost entirely borne by the individual. In fact our population is not increasing, native-born Singaporeans are declining and the New Immigrants are all young. So spending should not be increasing on a scale to make a tax hike necessary.
Secondly we should have enough savings.
Auditor General: MOF breached Constitution Article 144 in January 2012.
The Auditor General’s Report for the financial year 2011/12. arrived in the President’s in- tray in July of this year and is now publicly available. The objective of the report is stated clearly in the mission statement that precedes it.
“MISSION
To audit and report to the President and Parliament, in accordance with the law, on the proper accounting of public moneys (sic) and use of public resources so as to enhance public accountability.”
It’s a long report almost all of it vital and essential but my attention was drawn in particular to Part 1B which is an audit of Government Ministries, Organs of State and Government Funds. Astonishingly the AGO observes that the MOF breached Article 144 of the Constitution.
Under the heading, ” Ministry of Finance, you will find the report headed: President’s Concurrence Not Obtained for Promissory Note issued…..
Who Holds the Purse Strings?
Plaintiff: Kenneth Andrew Jeyaretnam: 2nd: /08/2012
IN THE HIGH COURT OF THE REPUBLIC OF SINGAPORE
Originating Summons No 657 of 2012 )
In the matter of the Government’s US$4 billion loan commitment to the International Monetary Fund
And
Order 53 of the Rules of Court (Cap 322, R 5, 2006 Rev Ed Sing)
And
Article 144 of the Constitution of the Republic of Singapore (1999 Rev Ed)
And
Section 9 of the Bretton Woods Agreement Act (Cap 27, 2012 Rev Ed Sing)
And
Sections 24, 26 of the Monetary Authority of Singapore Act (Cap 186, 1999 Rev Ed Sing)
Between
KENNETH ANDREW JEYARETNAM
(NRIC No S1396458J)
…Plaintiff
And
ATTORNEY-GENERAL
…Defendant
AFFIDAVIT
I, Kenneth Andrew Jeyaretnam (NRIC No S1396458J), of 17 Evelyn Road #29-07 Singapore 309306, do affirm and say as follows:-
1. I am the Plaintiff in these proceedings.
2. The facts and matters deposed to herein are within my personal knowledge and are true to the best of my information, knowledge and belief.
3. I have read a copy of the affidavit of Quah Ley Hoon filed herein on behalf of the Defendant on 1 August 2012 in support of its position (hereinafter referred to as ‘Quah’s Affidavit’) and I make this affidavit in reply thereto.
4. With regard to the propriety, in the first place, of Quah’s Affidavit in the circumstances of this matter before the Honourable Court, I take umbrage and great exception to the fact that the reply affidavit (that is to say, Quah’s Affidavit) on behalf of the Attorney-General (and, in effect, indeed, on behalf of the Government of Singapore (GOS)) was filed – no doubt on the direction of the Ministry of Finance (MOF) – by a lowly official in the International Relations Directorate of Monetary Authority of Singapore (‘MAS’) to my affidavit filed on 6 July 2012 (‘My Affidavit’) and addressed to the GOS.
5. The matter being pleaded before this Honourable Court is one of basic accountability of and transparency in the GOS and goes to the heart of the Rule of Law, a central plank of the Constitution of the Republic of Singapore (1999 Rev Ed) (‘Constitution’) and parliamentary democracy. It is vital to ensuring that the Executive is accountable to the Legislature and to the people of Singapore and that our democracy works for the people. It is disingenuous and inapposite of the GOS to attempt to circumvent and sidestep this matter of national importance by referring it down to a “relationship director”.
Update: In the Supreme Court of the Republic of Singapore. Pre-Trial Conference.
IN THE SUPREME COURT OF THE REPUBLIC OF SINGAPORE
PRE-TRIAL CONFERENCE
IN THE HIGH COURT
BEFORE THE SENIOR ASSISTANT REGISTRAR YEONG ZEE KIN
TUESDAY, 21 AUG 2012, AT 9:00 AM, CHAMBER 2-6
_________________________________________________________________________________________________
9. OS657/2012 KENNETH ANDREW
JEYARETNAM
(L F VIOLET NETTO)
ATTORNEY GENERAL
(ATTORNEY-GENERAL’
S CHAMBERS (CIVIL
DIVISION))
FOR LEAVE TO APPLY
FOR A QUASHING
ORDER
_________________________________________________________________________________________________
http://app.supremecourt.gov.sg/data/registrarHearing/08_21082012_OS.pdf
So, the pre-trial conference for my case to request a quashing order on the IMF loan listed for Tuesday morning, is now in the public arena. The AG has taken what I am told is an unusual step in ‘choping’ the 9:00 am slot. Apparently the more usual form or procedure is to turn up and get in line for a time slot. My guess is that they don’t want any Press hanging around and want to get in and out as quickly as possible. Then again they may just be hoping that the early bird avoids the Wong. That is the Law Society’s Mr. Wong who has a habit of turning up whenever M. Ravi is due in Court or even Chambers. Actually, to be fair to the poor misguided soul, he has given a verbal assurance that he will stop stalking us in future.
With National Day fresh in our minds it is timely to have a quick recap. The PAP may be able to recite the National Pledge but they are oblivious to the meaning of the words and clearly not a one of them understands what ” Democracy” means.
Smoke and Mirrors in the Government’s Accounts
SMRT’s quarterly results brought into focus the Finance Minister’s decision to set up yet another new fund, the Bus Services Enhancement Fund, with $1.1 billion being set aside out of current spending.
Rather than set up this fund, I believe it would have been more beneficial for our Finance Minister to have chosen to provide an annual subsidy to the bus operators. This could have incentivized them to lower costs and raise productivity. Instead, without providing any economic cost benefit analysis, he chose to set aside a huge amount, far more than the capital costs of 550 new buses that the government said it would purchase.
Of course if he was not challenged by the Opposition, the NMPs the NCMPs or his own backbenchers in Parliament to provide a rationale or any cost benefit analysis for a fund as opposed to other methods, then why would he?
It is a perplexing question why the PAP government would choose to set up so many funds. At 31 March 2011, the following funds had been set up in addition to the Consolidated Fund, the Development Fund and the Government Securities Fund:
Rethinking MPECHB
REFORMING FOR A MORE JUST SOCIETY By Koh Kee Sen MatthewSingapore is a peaceful country. We are not situated in a war-torn region; Singaporeans live within ASEAN (Association of South East Asian Nations), a group of peace-loving nations. The government should lay aside the “siege mentality” with regard to defence. I agree peace should not be taken for granted. However too much of our budget is spent on defence. Defence spending should be reduced and more money channelled to help the marginalised like Mental Patients, Ex-convicts, Handicapped, Bankrupts. (MPECHB). I call this group in short, using the acronyms, MPECHB.
There is lot of publicity about the “Yellow-Ribbon Project”. However, how far does it help the Ex-convicts? Are there enough jobs to go around for them. Are the ex-convicts confined to certain menial jobs like cleaners, movers and etc? Ex-convicts who have served time in prison have paid for their crime. They shouldn’t be discriminated against by employers who demand to know on job application forms whether they are ex-convicts.
Another group persecuted by Employers are the Bankrupts. Often, job application forms demand to know if a person is an “Undischarged” Bankrupt. These bankrupts who already face financial difficulties will be denied of a job if they admit to it in most likelihood. So how are they going to redeem themselves?
Rule of Law – Dirty Tricks?
This is my comment on the attempted action by the Law Society of Singapore against Lawyer M Ravi which I witnessed in court today.
When I ran my Hedge Fund I had a “global” remit meaning that I had permission to trade on any and every stock exchange. Potential Investors would usually query that, asking whether I would really take a position in any country. My answer was that I would only invest in trades originating in Nations where there was a legal framework that I was familiar with ( UK or US model) and where there was also demonstrable ’Rule of Law’. Although I had legal consultants on retainer for the details, I needed those basic pre conditions before I would consider a position.
Press Release From M. Ravi’s Office in Response to Today Online and to Straits Time Report on the High Court Filing for Judicial Review of US$4 Billion Loan to IMF
This response was sent out today from M. Ravi’s office on behalf of their client Kenneth Jeyaretnam who was responding to the reports in the Mainstream Media over the weekend:
Statement of Kenneth Jeyaretnam…..
You Ask Me I Ask Who?
Recently as you all know, I have been playing Singapore’s favourite question game, “You Ask Me I Ask Who”.
The Finance Minister, the MAS , the President are all avid players.
Even the Stats Department turned out not to have the stats and went somewhere else. When they told me
“Dear Mr Jeyaretnam,
We would like to clarify that we were unable to provide you with data …as these are not available in our database. We have since checked from other data sources for the data series for 1980 to 1997.”
That changed the game to “I asked you, you asked who?” Seriously! The stats dept checked other data sources for our stats.
“You asked who? The CIA?”
But I suppose the President won this game when his office was snookered into responding to my second letter.
His secretary’s secretary literally replied, “You Ask Me I Ask Who”.
An Open Letter to Christine Lagarde Managing Director of the IMF
18A Smith Street
Singapore 058932
28th June 2012
Ms. Christine Lagarde
Managing Director
International Monetary Fund
700 19th Street, N.W.
Washington D.C.20431
USA
Dear Ms. Lagarde,
I am the Secretary-General of the Reform Party in Singapore. I am also an economist with a double First Class Honors BA and an MA in Economics from Cambridge University. I have almost 30 years uninterrupted experience in the global finance industry in both Asia and the UK with an unblemished record of registration with the FSA. I am therefore writing to you as an economist, as an advocate for democracy and also as an ordinary Singaporean citizen.
I note your press release dated June 19 2012 at the conclusion of the G20 summit in Mexico. One of the countries you announce as having immediately pledged additional resources towards your goal of building a US$456 billion global firewall is Singapore with a commitment of US$4 billion. In your communiqué you give some of the credit for the successful outcome of the talks to our Finance Minister, Tharman Shanmuguretnam, in his role as Chairman of the International Monetary and Financial Committee.
Meanwhile here in Singapore since February, I have been raising the issue of opacity in our government’s budget, failure to adhere to IMF standards and grave concerns over the constitutionality of our country’s pledge to the IMF, to the same gentleman amongst others, albeit with a considerably less successful outcome.
Under our Constitution our government is required to obtain both Parliamentary and Presidential approval before a loan commitment or guarantee of this nature is granted.
The parliamentary record shows that Parliamentary approval was not sought. In addition the aforementioned Minister of Finance has failed to respond to any of my open letters raising questions and has failed to reasonably provide any accountability or transparency. His Excellency, President Tony Tan Keng Yam, did respond and referred my letters to MAS thereby confirming that Presidential approval had not been sought. The MAS is merely the manager of the official foreign reserves on behalf of the government and not the owner of the reserves. But in any case they have now failed to respond.
Given our grave concerns over the constitutionality of our republic’s loan commitment. I believe that the IMF cannot rightly accept these funds. At least not until the citizens in the Republic from whence it originated have received an assurance that the proper democratic and constitutional steps have been followed.
“Singapore is (R)evolving”
I recently wrote to the New York Times to protest against Ms .Chan Heng Chee’ s letter. I thought it timely to bring up Orwellian newspeak being so close to the 62nd anniversary of the publication of 1984.
Note how these days our civil servants and ambassadors like to come out in support of our vibrant, robust or healthy democracy. (I believe my old friend Michael in the UK wrote a similar missive to the papers defending Singapore’s record on the death penalty and spoke of a robust debate). It’s as though they read 1984 and mistook it for one of those books, “ dictatorship for dummies” or some such. Well they lost no time adopting the idea of a ministry of double speak.
In November 1978 there was a sensational defamation trial held in Singapore. The defendant a Singaporean, engaged a famous British barrister and author John Mortimer. John Mortimer argued that the defendant’s remarks were fair comment. Indeed he went on to tell the court that the ability to engage in robust debate was the essence of democracy. He lost of course.
The ability to engage in robust debate is the essence of democracy.
Knowing that robust debate might lead to democracy , the PAP put a stop to it and then with no sense of Orwellian irony went around claiming to be supporting it on the International stage. Ta Dah! Back home of course, they call a Spade a Kate and tell us we aren’t ready for Westminster style destructive democracy. Here’s the letter.
23rd June 2012
The Editor
The New York Times
Dear Sir,
I refer to Chan Heng Chee’s letter dated 21st June entitled “Singapore is Evolving”. Ms. Chan is the Ambassador and her taxpayer-funded time should not be used to produce spin on behalf of the ruling party.
It is ironic that she talks about “a vibrant democracy.” But then the PAP are past masters of Orwellian newspeak. Is it a vibrant democracy when by law all media outlets must be government controlled; when state resources are used to buy votes and the threat of withdrawal of state resources is used to intimidate voters; when Opposition parties are harassed by oppressive restrictions and Opposition leaders are bankrupted through the use of defamation suits; and when the Elections Department is just an arm of the Prime Minister’s Office without even a charade of independence?
Ms. Chan says other countries have anti-terrorist legislation. However Singapore must be alone among robust or vibrant democracies to have detained individuals for over twenty years merely because they refused to give up their fundamental human right to engage in peaceful politics.
Yours sincerely,
Kenneth Jeyaretnam
Secretary General
The Reform Party
18A Smith Street
Singapore 058932
+65 65349641/+65 91461976
The Truth about that IMF Loan
Yesterday I received confirmation from the President’s office that his permission had not been sought for our republic’s loan to the IMF.
So now we know three things in addition to the recent confirmation by the President.
- We know that parliamentary approval was not sought because it is not in the Hansard
- We also know that Article 144(1) of the Constitution governing loans has not been followed because this requires the President to concur with parliament. Both in fact must approve.
- We know that the government is going to pass this over to the MAS because the President’s letter tells us so.
Actually we know a lot more than this. We also know that the President can’t give a simple yes or no answer to a letter about the role he was elected to do. In fact he cannot give an answer at all unless snookered into it. I am not proud of having to resort to that but as the PAP has sewn up every avenue and imposed a blackout on me in the media, I was left with no choice. I had to exhaust that option before I could make any progress.
These three things tell us a whole other bunch of stuff, most of which is not fit to print here but check out the comments on TRE and TOC if you want to know more. Above all else these three simple facts tell us that we should have fought harder against the introduction of an EP in 1991. Mr. Jeyaretnam senior and Mr Chiam did their best but it was not good enough. Luckily we have video evidence of the debate to refer to and I would urge everyone to have a look on Youtube and see what was said at that time.
This IMF loan issue has taught us the EP role is an impotent one. It is the executive who should be accountable to the people through a sovereign Parliament. It is you who elect them to that role and you have every right to expect them to take care of your money and to be transparent about where it is and what it is used for.
The final fact we can glean so far is that the Ministry of Finance has tried to completely evade Parliamentary accountability by making use of the MAS as the vehicle to loan money to the IMF. Yes, we are not a democracy. They do not care to be accountable. Why should they? They have eroded your rights over the decades and tightened the invisible grip of fear until they can act with impunity.
Leaving aside the issue of their high handedness and their arrogance and silence, has the executive acted correctly in using the MAS or have they in fact acted unconstitutionally?
First a bit of context.
Back on 20th April 2012, ( Yes, two whole months ago and my release on discrepancies in our budget goes back to February) the IMF Committee announced the decision to raise the IMF’s lending capacity and thanked Singapore for its contribution. I first noticed it then and later the government-controlled media carried a short piece and I wrote about it at more length in my blog at www.sonofadud.com on 25th April and 28th April 2012. The article noted that Singapore had agreed to contribute to the fund and that China and the US had not. The manner in which this was announced in the foreign press as a done deal certainly made me feel that the loan had not gone through the necessary safeguards and that the manner in which it had been agreed could not have been constitutional.
A lot of people, including lawyers, straight away told me,” don’t be silly the PAP will have sought Presidential approval.” But rather than cast wild aspersions I decided to write to the Minister of Finance and ask him to explain. There followed a deafening silence. I wrote again. Silence. So I write to the President again twice and now of course it turns out that his approval was not sought and that he is leaving MAs to deal with it.
Let us visit the relevant Acts that could explain this starting with Article 144(1).
The giving of loans and guarantees is governed by Article 144(1) of the Constitution which states as follows:
144.
—(1) No guarantee or loan shall be given or raised by the Government —
(a) except under the authority of any resolution of Parliament with which the President concurs;
(b) under the authority of any law to which this paragraph applies unless the President concurs with the giving or raising of such guarantee or loan; or
(c) except under the authority of any other written law.
We know from the record that Parliamentary approval was not given and neither was the President’s so that rules out (a).
Article 144(3) of the Constitution provides a list of the laws to which (1) (b) applies. However the only one relevant in these circumstances is the Bretton Woods Agreements Act which governs Singapore’s relationship with and subscriptions to the IMF. This is the amount of gold and local currency that the country deposits with the IMF. This in turn governs its votes as a member of IMF and also the amount it can borrow in foreign currency should it need to.
This Act itself has an inbuilt lack of accountability since it says that the MAS can accept a subscription increase at the IMF on behalf of the Government with the approval of the Minister of Finance. No resolution of Parliament is required though Presidential approval is still required.
However the IMF itself has stated that this new round of commitments is over and above countries’ current subscriptions to the IMF. Therefore Singapore’s loan commitment does not fall within 144 (1) (b). I put this in an open letter to the Minister of Finance dated 29th May 2012 ( http://thereformparty.net/about/press-releases/an-open-letter-to-the-minister-for-finance/):
As the IMF communiqué and your own answer make clear, the contingent loan is not part of an increase in Singapore’s quota at the IMF and therefore is not exempted from the necessity for Parliamentary approval under the Bretton Woods Agreements Act.
This leaves 144 (1) (c) “except under the authority of any other written law” as the only way in which the government can sidestep the need for Parliamentary and Presidential approval of the IMF loan commitment.
By stating that the President has referred my letter to the MAS for an answer we can see the way this is going.
MAS may now attempt to argue that this is within their powers because the IMF loan commitment falls with Article 24 of the MAS Act. I reproduce this below:
24. The funds of the Authority may be invested in all or any of the following:
a) gold coin or bullion;
b) notes, coin, money at call and deposits in such country or countries as may be approved by the board;
c) Treasury bills of such government or governments as may be approved by the board;
d) securities of, or guaranteed by, such government or governments or international financial institutions as may be approved by the board;
e) such other securities, financial instruments and investments as may be approved by the board.
It is quite clear from this that it is intended that MAS can only invest in tradeable securities and liquid instruments such as Treasury bills commensurate with its role as the central bank. Loan commitments are not securities.
Only (e) seems to provide a loophole.
Financial instruments are defined under the Securities and Futures Act (Cap. 189) as:
“financial instrument” includes any currency, currency index, interest rate instrument, interest rate index, share, share index, stock, stock index, debenture, bond index, a group or groups of such financial instruments, and such other financial instruments as the Authority may by order prescribe;
Again this pretty clearly does not include loans.
That leaves investments.
The OECD discusses various definitions of investment (http://www.oecd.org/dataoecd/3/7/40471468.pdf). Most would seem to include loans but this is qualified normally by the inclusion of the qualification that there has to be some degree of control exercised over the institution to which the money is lent. The Canadian model does not include loans unless they count towards regulatory capital (quasi-equity) at the financial institution to which the money is lent. This is not the case here where the IMF has requested over and above Singapore’s quota at the IMF, which determines our shareholding at that institution.
However, rather than engage in a semantic debate with the government over whether this loan commitment is covered by the definition of investment, there is a more fundamental objection to the use of the MAS to evade Parliamentary and Presidential scrutiny.
Article 24 states the “funds of the Authority.” MAS acts as the manager of the official foreign reserves of Singapore but this does not mean they are the Authority’s funds just as when I managed a hedge fund the investors’ money did not belong to me. The actual funds of the MAS are the General Reserve Fund ($41 million as of 31st March 2011) and the Currency Fund Reserves ($7,340 million as of the same date).
This makes it obvious that the loan will not be coming from the MAS’s own funds but from the official foreign reserves which MAS manages on behalf of the government when it is drawn upon. The Finance Minister has admitted as much when he said in his stage-managed Parliamentary answer designed to give the illusion of accountability to the IMF:
“However, there will be no change in OFR if the loan is drawn on by the IMF; what would happen is a conversion from a foreign investment asset to a loan to the IMF, which will still count towards OFR.”
Clearly then this loan commitment falls under Article 144 (1) (a) which states that “(No guarantee or loan shall be given or raised by the government) except under the authority of any resolution of Parliament with which the President concurs .
The Finance Minister should definitely have sought both Parliamentary and Presidential approval before he made this loan commitment particularly given his conflict of interest as head of the International Monetary and Financial Committee of the IMF. In democratic countries Ministers have been summoned before Parliament and forced to resign if they were found to have misled Parliament or broken the Constitution.
The conclusion that flows from this is: The Minister appears to have broken the Constitution and misled Parliament by not submitting this loan commitment for approval. He should be summoned before the House and asked to explain.
Until that happens, I believe that the IMF cannot accept our republic’s contribution. I shall be writing to Madame Lagarde to explain my reasons.
For the record I attach my four letters below . You will see that in addition to refusing to acknowledge my concerns over the IMF loan, MOF have also refused to acknowledge or answer my queries as to discrepancies in the Budget. I will come to that next.
_______________________________________________________________________________
29th May 2012
An Open Letter to the Minister for Finance
Mr. Tharman Shanmuguratnam
Ministry of Finance
100 High Street
#10-01 The Treasury
Singapore 179434
Dear Minister,
I note that a question in three parts was tabled during the Parliamentary sitting on 14th May 2012 by Mr. Desmond Lee, MP for Jurong GRC, on the subject of our republic’s US$ 4 billion loan commitment to the IMF.
I have checked the Parliamentary record and I can find no mention of Parliament having been told about this loan previously or asked to give its approval. I first noticed it when the IMF Committee of which you are Chair announced the decision to raise the IMF’s lending capacity on 20th April 2012 and thanked Singapore for its contribution. The government-controlled media carried a short piece a day later and I wrote about it at more length in my blog at www.sonofadud.com on 25th April and 28th April 2012.
It may be argued that it was not unconstitutional to promise our money without first asking Parliament’s permission. However I would like to contrast your approach to our funds with that taken by a fellow IMF member, another small nation with a similar population and with two sovereign wealth funds, namely Norway. On May 15th 2012 the Norwegian Finance Minister asked Parliament for approval of a contingent loan of up to US$9.2 billion from the Norwegian Central Bank to the IMF.
Turning to your answers to Mr. Desmond Lee’s question, in answer to Part a you state there that in the event Singapore’s commitment is called upon, the $5 billion loan will be coming from the Official Foreign Reserves of the Monetary Authority of Singapore and not from the Government Budget. I wonder whether you would kindly explain what you mean when you say:
“However, there will be no change in OFR if the loan is drawn on by the IMF; what would happen is a conversion from a foreign investment asset to a loan to the IMF, which will still count towards OFR.”
I hope you will excuse my ignorance but I am afraid I do not understand how a contingent loan or loan guarantee is a foreign investment asset. Should it not rather be treated as a contingent liability until such time as it is actually drawn down? And by saying that it will be converted from a foreign investment asset to a loan are you not admitting that it falls outside the scope of Section 24 of the MAS Act?
If this is the case, then does it not require Parliamentary approval? I cannot see that there was any resolution of Parliament to approve it. As the IMF communiqué and your own answer make clear, the contingent loan is not part of an increase in Singapore’s quota at the IMF and therefore is not exempted from the necessity for Parliamentary approval under the Bretton Woods Agreements Act.
May I also ask whether Presidential approval was obtained since this is required in any event unless the loan commitment is covered by Section 24 of the MAS Act?
Part b of MP Lee’s question asks whether the loan will go to bail out Greece and the other periphery Eurozone countries. Your answer in effect is: yes, it will. In your words, “The aim is to give the IMF the strength and credibility to help prevent a worsening of the [Eurozone] crisis and limit the risk of contagion”.
With reference to Part c, I am not questioning whether at this stage there is any risk that MAS will not be repaid since the risk of the IMF becoming insolvent must be fairly small. However this is mainly because the members of the IMF would be expected to step in to support the IMF should the borrowers default or require more financing if they are to avoid default. Even if the loan commitment is given by the MAS rather than the government the government ultimately stands behind the MAS as guarantor. In your answer you admit that the enhanced resources are to deal with the Eurozone crisis even though it is not specifically earmarked for the Euro area. Thus it is likely that if the financial position of the Eurozone continues to deteriorate and additional resources are required, the IMF will look to Singapore for a share of any future increase in its lending capacity.
The Reform Party is not in principle opposed to increasing Singapore’s commitment to the IMF though we note that both the US and China have so far failed to agree to do so. However one of our main objectives is to ensure that there is effective Parliamentary scrutiny of the Executive with the aim of ensuring transparency and accountability in government. This objective is surely in line with the IMF’s own standards for good governance.
I would like to note for the record that Mr. Desmond Lee of the PAP’s question followed my two blog articles:
http://sonofadud.com/2012/04/25/659/
http://sonofadud.com/2012/04/28/royal-elephant-shoots-part-2/
These were the first to raise questions about the need for Parliamentary and Presidential approval of Singapore’s loan commitment to the IMF. May I ask whether the timing and content of his question was in any way influenced by this?
Finally as an aspiring first world nation do you not think our Parliament should aspire to the highest levels of transparency and accountability and follow Norway’s lead and in so doing go beyond the minimum levels of transparency and best practice prescribed by bodies such as the IMF?
Kenneth Jeyaretnam
Secretary General
_______________________________________________________________________________
1st June 2012
An Open Letter to the Minister for Finance
Mr. Tharman Shanmuguratnam
Ministry of Finance
100 High Street
#10-01 The Treasury
Singapore 179434
Dear Minister,
I wrote to you on the 29th May raising concerns about our republic’s recent loan commitment to the IMF. In particular I questioned whether the necessary resolutions under Article 144(1) of the Constitution had been obtained. Even if the loan was entirely constitutional and it was not necessary to seek Parliamentary or Presidential approval, I argued that Parliament should still have been consulted in its role as a check on the Executive.
I am writing to you for a second time to raise legitimate questions about the way the Budget is presented to Parliament. I raised these questions in the Reform Party’s response to Budget 2012 but the state-controlled media declined to print them. I provide the link here in case you have not seen it (http://thereformparty.net/about/press-releases/budget-2012-part-one/)
In particular I have questions about the following:
- Why is the Budget not set out according to the IMF framework? As Chairman of the International Monetary and Financial Committee of the IMF, surely we need to set an example of transparency and go beyond the minimum standards set by the IMF?
- Why does the Budget not include the figures for the General Government Finance surplus which is obtainable only from the Yearbook of Statistics which is a year out of date? How is this prepared? Does it include all investment income and capital gains or losses on financial assets?
- Would you not agree that by only presenting the Operational Budget Balance including top-ups to Endowments and Trust Funds and only up to 50% of the Net Investment Returns you are giving a misleading picture of the government’s finances?
- Even if the current government is barred by the Constitution from spending past reserves without the President’s permission, should Parliament still not have access to the information about the performance of those reserves?
- Why is there no statement to Parliament of the total net investment income including capital gains or losses and the amount that will accrete to past reserves?
- Under the Constitution you are required to present an audited Statement of Assets and Liabilities to Parliament at the same time as the Budget. Why is there no information as to the basis on which the statement has been prepared or the valuation policies used?
As I state above, it is the figures for the General Government Finance surplus which are relevant. I am much obliged to the helpful staff at the Statistics Department for sending me the figures dating back to 1980. I assume that these figures include net investment income but there is no information as to whether they include capital gains or losses. I have looked at these in conjunction with the Statements of Assets and Liabilities (SAL).
I have the following preliminary questions:
- What is responsible for the big rise in government indebtedness between the SAL balance sheet dates of 31st March 2009 and 31st March 2011?
- Why was the rise in net assets (defined as Total Assets minus the Government Securities Fund and Deposit Accounts) only some $14 billion between 2009 and 2011 or some 4% of net assets at 31st March 2009? During this period global equity market indices rose by over 60% and Temasek reported a return of 22% annualized over this two year period.
- The data on general government surpluses between 1980 and 2010 add up to approximately $340 billion. Yet at the SAL balance sheet date of 31st March 2011 the total net assets of the government are shown as only $326 billion defined on the basis above. Do the surpluses include capital gains? If they do not, then the net assets total seems much too low given the rise in global equity markets and falls in interest rates since 1980.
To quote from my Budget response:
The foreword to the IMF manual also said that one of the aims of the analytical framework was to provide an early warning system as to when things started to go wrong. The other side of the coin of the lack of transparency with regard to the government’s true net asset position is that Singaporeans will never find out till it is too late if the reserves have been squandered due to bad management.
I am confident that there is a simple explanation for these apparent discrepancies and that you will easily be able to reassure Singaporeans and set their minds at rest.
However for a country aspiring to be in a leadership position at the IMF and for a person whose name has been mentioned as possible future head of that body, it is imperative that we go beyond basic standards of transparency and accountability and have ones that are at least as rigorous as those in other First World nations such as Norway, the UK or the US.
I look forward to your response.
Kenneth Jeyaretnam
Secretary General
_______________________________________________________________________________
1st June 2012
An Open Letter to the President of Singapore
His Excellency Tony Tan Keng Yam
Office of the President of the Republic of Singapore
Orchard Road, Singapore 238823
Dear President,
Firstly I would like to thank you for your gracious response to our invitation to the JBJ Memorial event last year, even though you were unable to attend due to a prior engagement.
On 29th May I wrote to the Finance Minister asking whether Parliamentary approval had been obtained for our republic’s recent loan commitment of S$5 billion to the IMF. I asked also whether Presidential approval had been obtained as would appear to be required under Article 144(1) of our Constitution. I enclose a copy of my letter to the Finance Minister for your reference.
As I have not received a reply from the Finance Minister I am writing to you to ask whether you would kindly enlighten me as to whether Presidential approval was ever sought or given for this loan commitment.
Yours faithfully,
Kenneth Jeyaretnam
Secretary General
_______________________________________________________________________________
16th June 2012
A Further Open Letter to the President of Singapore
His Excellency Tony Tan Keng Yam
Office of the President of the Republic of Singapore
Orchard Road, Singapore 238823
Dear President,
I refer to my letter of 1st June 2012 in which I asked whether Presidential approval had been sought or given for our republic’s loan commitment to the IMF under Article 144(1) of our Constitution.
I received no response to that letter which puzzles me considering the speed with which your gracious decline of our invitation to the JBJ Memorial Event was received.
With the greatest respect there is a great deal of public interest in this matter and I feel it is entirely reasonable that the President be called upon to clarify his role even if that clarification is merely to state the case that presidential approval was not necessary.
I must therefore take it that your failure to respond in order to set the record straight and clarify that Presidential approval was indeed sought and obtained, is confirmation that it was not. Unless you are good enough to deny that this is indeed the case by Wednesday 20th June 2012, (a reasonable interval since the date of my original letter), then I will be guided by that confirmation in attempting to gain transparency as to the constitutionality or otherwise of the IMF loan commitment.
Yours faithfully,
Kenneth Jeyaretnam
Secretary General
Chesapeake Energy and Temasek: A Tale of Two CEOs and Shareholder Democracy
Recently Chesapeake Energy, the second biggest US gas producer, has been much in the news. The company has been having cash flow problems since the CEO, Aubrey McClendon, took a wrong bet on the direction of gas prices and bought back its hedges. This has left it exposed to a big decline in natural gas prices in the US and a market glut.
Why this is a cause for concern is that the company has large spending commitments which leave it facing a liquidity crisis. It has said it must sell assets worth between US$11.5 billion and US$14 billion this year to pay down debt and finance its capital requirements. Shareholder unhappiness with the performance of the CEO and some of the sweetheart deals and excessive compensation he has received from the company boiled over at the AGM on 8 June. The two directors on the company’s slate standing for re-election were overwhelmingly rejected by shareholders. A majority of votes were also cast in favour of a nonbinding proposal to allow major shareholders to nominate board candidates. In another manifestation of shareholder anger, 80% of shareholders voted to deliver a stern reprimand to the company over its pay to and supervision of the CEO, Aubrey McClendon.
McClendon recently also had to settle shareholder lawsuits over the company’s preferential treatment of him in 2008 when he faced margin calls on the stock he had borrowed to buy. This included having to pay the company back the US$12 million it paid him to buy his collection of antique maps which now adorn Chesapeake’s boardrooms. And very fine maps they are too, or so it appears. Perhaps Temasek’s management have been lucky enough to see the maps when they visited the company! However I am confident that the excitement of seeing these fine examples of early cartography did not cloud the excellent judgement of those entrusted with managing our citizens’ forced savings.
The upshot of Chesapeake’s liquidity crisis is that unless the company achieves its asset sales targets it may have to declare bankruptcy in order to get out of its capital commitments. The problem is that when a company faces cash flow problems buyers tend to hang back in the hope that they may be able to get the assets cheaper if those problems get worse. Of course they face the risk that a competitor might step in to buy them but by waiting they might also learn of new potential contingent liabilities that might affect the value of the assets. Another possibility is that a suitor steps in to buy Chesapeake and makes what is known as a “takeunder” offer where the price is less than where the stock price is currently trading. The well-known activist investor, Carl Icahn (who is almost as venerable as our dear former Minister Mentor), clearly is hoping for a much higher takeover offer or a bidding war because he has accumulated about 8% of the company. However there is still the risk that a bidder might wait for the company to enter bankruptcy and then make an offer at an enterprise value that leaves nothing for equity holders.
This brings us to Temasek and its holding in Chesapeake. It must sometimes seem to Singaporeans that the management of Temasek and GIC have an unerring ability to find every banana skin in the room and promptly slip up on it. That would be amusing if it was a slapstick movie but not so entertaining when you know that these investments are financed through your taxes and lack of free education and healthcare while citizens in countries that you are helping to bail out receive theirs free. They have also been financed by the relentless rise in government debt. In his Economics Society speech PM Lee hinted this debt will have to be paid off through tax increases down the road because our overseas investments have not done as well as expected.
Actually Chesapeake does not look quite as bad as some of the other notoriously poor investments by Temasek and GIC that have been the cause of so much scorn from Singaporeans for the management of these companies. Temasek’s investment is at least in the cumulative convertible preferred stock which ranks above the common equity but carries no voting rights. The preferred stock pays a fixed dividend of 4.5% which might seem attractive in comparison to a common equity dividend yield of around 2%. However, unlike straight debt where a failure to pay the coupon would be an event of default entitling the holders to put the company into bankruptcy, the company can pass on the dividend if it does not have the cash to pay it. Missed dividends on the preferred stock accumulate and the backlog must be paid off before the company can resume paying dividends on the common shares.
So there is relatively weak protection for the preferred holders. It does have the benefit of being convertible into common stock. However the strike price for the conversion is around US$43 so at the last traded price of US$17 the equity option is quite far out of the money. Thus movements in the stock price will not have a big effect on the convertible price. This will be mainly determined by the likelihood that the company can continue paying dividends.
Temasek’s 2011 annual report says that they purchased S$700 million of the cumulative convertible preferred during the course of 2010. It traded between US$80 and US$100 over that period. Assuming they bought it around US$90, then at the last traded price of US$78.76 Temasek has ONLY lost around 12.5% of its investment (and that is before taking account of the dividends it has received since 2010).
However, even if Temasek is able to get out with only a small loss or, miracle of miracles, to break even on its investment, there are still several lessons that we should learn. It is instructive to contrast the power of shareholder democracy in shining a spotlight on management conflicts of interest and excessive compensation with our own powerlessness in finding out what is the real picture at our own sovereign wealth funds. Of course an incorruptible government ensures that there is no egregious wallowing at the corporate trough, like the shenanigans at Chesapeake, even though the PAP elite believes it is not in our interests to be told very much of what is going on. Even our (s)elected President has little power, and seemingly little interest, in keeping an eye on the investment performance of our SWFs, despite his choice of a pair of spectacles as his electoral symbol. He has still not replied to my straightforward question as to whether presidential approval was sought or given for our republic’s loan commitment to the IMF. Presumably this is because it is not in the public interest for anyone outside the ruling elite to know the answer to this question, just as Tharman said it did not serve the public interest to tell us why Chip Goodyear would not be taking up his post as CEO of Temasek.
Recently I wrote an open letter to the Finance Minister asking him to explain some apparent discrepancies between the governments’s annual Statement of Assets and Liabilities (ALS) and the reported general government surpluses. Using the IMF’s own figures as well as those kindly provided (after much prodding, to be explained in a separate post) by the Department of Statistics, I pointed out in my letter that the total reported surpluses are of the order of S$429 billion since 1980. This contrasts with my calculations from the ALS which show that real net assets (excluding land) are only some S$280 billion as of 31st March 2011.
Yet much of the valuation of the net assets is underpinned by an enormous rise in the value of unquoted investments which have gone from S$53 billion as at 31st March 2004 to S$172 billion as of 31st March 2011. Since 2008 the price of KKR stock, which is a private equity fund manager and thus a good proxy for the value of the funds it manages and has equity in, has halved from over US$20 to around US$12 today. At the same time government debt has increased to over 110% of GDP.
It might be argued that the increase in debt is merely the result of the government’s sterilization operations to mop up the liquidity stemming from our current account surplus of over 20% of GDP. However in that case why does Norway, which runs a large current account surplus of about 15% of GDP and whose sovereign wealth fund has over US$600 billion in assets, have a debt to GDP ratio of only some 50%. Saudi Arabia, which also had a current account surplus of around 24% of GDP in 2011, has a debt to GDP ratio of around 7%.
So far the Finance Minister has not deigned Singaporeans important enough to need to know the answers to these questions. An American political economist in Hong Kong, Chris Balding, has been asking the same questions, though in a much blunter manner (Americans are not used to what we feel is a need to continually abase ourselves before our servant leaders due to our fear of defamation suits, even as we agree to pay these servant leaders millions of dollars). So far there has been only a deafening silence.
The productivity of civil servants at the Ministry of Finance is clearly much poorer than those who work at MICA. There the Minister was able to use state resources to fire off a malicious and defamatory rebuttal of my letter to the WSJ within days. Past precedents, where trade restrictions were invoked by LKY against foreign newspapers and their countries took no action to protect their legitimate trade interests seem to have been enough to cow the WSJ into not printing my response.
Since I entered politics I have been consistent in calling for transparency and accountability in the management of Singapore’s reserves and in particular at our SWFs. In fact since 2009 I called for their privatization and listing on the stock market with equity to be distributed to Singapore citizens. However my proposal has not been reported in the State media which has had a permanent media blackout on me since before the GE.
Interestingly, when TJS called for the dismantling of our SWFs, which I think would be a disaster and rife with conflict of interest problems if done too quickly, his proposal was immediately picked up by the State media. Clearly the PAP elite are continuing their long-standing policy of favouring an approved Opposition, while denying the oxygen of publicity to anyone they think might pose a threat to their hegemony.
This deliberate favouritism was also seen when the former civil servants and government scholars, who moved from WP to RP and then found a more congenial home, at least for now, at NSP, asked some questions about the high levels of Temasek’s administrative expenses. In stark contrast with the lack of response to my questions, there was a swift response from Temasek that this also included the equity accounting of the expenses of group companies like SIA, PSA and others.
However the answer to this question (which should have been obvious by looking at the accounts) makes it plain that as a first stage to transparency and the privatization of our SWFs we need to separate the stakes in domestic companies from foreign investments. Temasek should be split in two. In fact if it had been a listed company in the US, for instance, management would have taken that route in order to raise shareholder value. With the split, the market is likely to value the two successor companies as a whole more highly than the original. This is because of the improved management focus and transparency resulting from the split. As a rule investors prefer to construct their own bundles of different businesses rather than have to invest in a company where management have made that choice for them.
Another reason for privatizing and listing Temasek and GIC is so that management compensation and incentives can be made transparent. Shareholders can check whether the incentives of management then are in alignment with the objective of increasing shareholder value. If there is excessive compensation for mediocre performance, then shareholders can vote against management at the AGM just as at Chesapeake. In the last resort they can vote with their feet by selling their stock which is why companies with poor corporate governance trade at a lower multiple than similar companies, ceteris paribus.
While Temasek makes much of high-sounding phrases in its discussion of its Compensation Framework in its Annual Report, it does not actually provide any details. Though it says prior year bonuses are clawed back in bad years, there does seem to be a gaping disparity between Temasek’s glowing self-description of its performance (22% p.a. annualized over two years and 17% p.a. annualized since inception) and the bigger picture as shown by the ALS. With a listing and independence from the government, we would be able to see the full compensation of all the management, including the CEO, and also demand their removal in the event of poor performance.
The shareholder revolt at Chesapeake shows us very clearly the accountability we as shareholders in Singapore Inc. have a right to expect and should be demanding from our government and the management of our SWFs. Without privatization of our SWFs and a change of government we are unlikely to get it. PM Lee has already promised us higher taxes. If we do not take action now who knows how bad the situation will be with a further five or ten years of poor investment performance. I am prepared to accept that I may be completely wrong and our investment managers are the best since Warren Buffet. However if that is the case why will the Finance Minister not answer my perfectly reasonable questions? Since he clearly will not respond to me my suggestion is that as many of you as possible write to him to urge him to answer my questions.
Mental Patients Have Rights Too by Matthew Koh
The Alarming Implications of PM Lee’s Speech to the Economic Society of Singapore
Recently I have asked some questions about discrepancies in our national accounts. These seem to indicate that our reserves are not as buoyant as we might have been led to expect by past surpluses and the supposedly class-leading returns achieved by our sovereign wealth funds. No answers have been forthcoming. Instead there has been a deafening silence from the State media. Whether our reserves have been depleted through poor management or were never there in the first place or whether there is a relatively simple explanation is something we can only speculate about.
The PM’s speech to the Economic Society of Singapore did not set my mind at rest. Instead it exacerbated my previous concerns. Already Tharman, in his 2012 Budget speech, said that not much more could be spent on health by the government without tax rates rising significantly. He said that doubling health expenditures as a proportion of GDP would require a top income tax rate of around 60% and a GST rate of 25%. My immediate thought was that this did not square with what the government has told us about its cushion of assets built up through years of austerity. However I put this down to nothing more than the PAP government’s usual desire to hide the crown jewels from the peasants.
It was thus even more alarming to hear much the same story from the PM. The PM talked about taxes needing to rise in the medium term if we were to deal with an aging population and rising healthcare expenditures. He also said that returns from investing our past reserves only contribute about 2% of GDP (or S$6.5 billion approximately). This does not square with the total level of assets (about S$700 billion). Neither is it compatible with Temasek’s reported annualised return of 17% p.a. since 1974 or even GIC’s reported long term returns of around 7%. I have already pointed out in my letters to the Finance Minister the alarming and rapid increase in public debt. This is now some S$367 billion according to the latest Monthly Digest of Statistics. Why would the government be borrowing so much? Particularly when it only seems able to achieve a return of less than 1% of total assets which is less than it pays on its debt. I said earlier that if the reserves had indeed been depleted through bad investments and were not sufficient to repay the CPF then the government had two alternatives. It could print money but in view of the likely implication for the currency it was more likely to raise the money through a combination of higher taxes and more borrowing. This seems to be becoming an increasingly probable scenario.
You would think that the government would want to reassure the people that all is well. However all we get is a deafening silence. Like when Tharman said we did not need to know the reasons for Chip Goodyear’s resignation as CEO-in-waiting at Temasek. The stunning arrogance of a government that thinks we are its employees and is not answerable to us.
I have already ridiculed the PM’s use of those well-worn phrases “An Inclusive Singapore” and “Politics That Works” in a separate article. Here I will devote the remaining space to a critique of the rest of the PM’s speech. In particular I will focus on his assertion that the Nordic model will not work in Singapore. What is remarkable is that despite new buzzwords the PAP model remains the same one of adding more inputs to produce higher output. This has not changed for fifty years. The only way the government knows of keeping the growth rate up is by bringing in more cheap foreign labour. In the section entitled “A Successful, Growing Economy” there is the seemingly deliberate confusion of raw growth with what should be the relevant measure which is productivity or growth in GDP per hour worked.
Where Are We Today?
This was the usual blend of misleading statistics to buttress the PM’s case that PAP policies have worked well. Given the fact the flaws in these statistics have been apparent for some time you would think that the PM would come back with slightly more sophisticated arguments. Instead he has opted to use the same old discredited statistics.
The PM starts with a comparison of GDP per capita. It is true that this puts Singapore nearly at the top if measured on a Purchasing Power Parity (PPP) basis. However if we then normalize this as GDP per hour worked (Singapore both has a high employment to total population ratio because of the large number of foreign workers and one of the highest numbers of hours worked) then the reality is more prosaic. Singapore is near the bottom of the international league table when it comes to GDP per hour worked.
Even the lowly position it has owes much to a highly suspicious enormous one-time jump in productivity in 2010 of 11.1%. This happened right after I criticised Singapore’s poor productivity performance way back in 2009. After that we had the report of the Economic Strategies Committee which was all about the productivity problem. Subsequently Tharman devoted most of the 2010 Budget to the issue. And then this was followed almost immediately by a massive jump in productivity. The gain is enough of an outlier given Singapore’s historical record to arouse suspicion. It seems to stem from a revision of the way Singapore’s PPP exchange rate is calculated. This has had the effect of pushing up the value of Singapore’s output. Could it be connected with the fact that our CPI does not track the rise in housing costs accurately? Even if there has been a genuine underestimation of Singapore’s PPP output, the Statistics Department allocation of the change to a single year rather than spreading it out over past years looks fairly dubious.
The PM goes on to say that the appropriate comparison for Singapore is with other cities. He is absolutely correct. On that basis Singapore’s economic success looks distinctly pedestrian. We fall out of the top 20 down to number 40 or so in the Brookings Global Metro Monitor of the top 200. The top positions are all held by American or Nordic cities. However again the PM does not normalize the figure for GDP per hour worked. This would surely push Singapore’s position further down the rankings.
The PM also says that our real median wages have risen in the last decade. I am not so sure. Firstly, if like Tharman in the Budget speech, he has used income per household member this has not been corrected for changes in the number of dependents per household. Secondly there has been a big rise in the number of new citizens and PRs whose incomes you would expect to be higher than native Singaporeans and who have fewer or no dependents. However I believe the real problem lies with the way housing costs are calculated in the CPI which uses imputed rents. Tharman himself pointed out that this may not be an appropriate measure when most Singaporeans are leaseholders. I wrote about this in “Inflation a Problem? Just Change the Way You Measure It.” Since HDB properties are leasehold, capital costs strictly should be amortized and included in the calculation of total housing costs.
An Inclusive Singapore and the Nordic Model
Just as, not surprisingly, foreign heads of MNCs are happy to sing the PAP’s praises if a generous tax break or two is tossed their way, so in the question and answer session that followed this speech we had the usual sycophantic foreigners ready to jump in and say that the freedoms and benefits their countrymen enjoy are not appropriate for Singaporeans.
When the Danish ambassador says that Singaporeans have decided that the Nordic model does not work for Singapore he should qualify that by saying that Singaporeans have never had a choice. Much as it pains me to say it, the Scandinavian countries also do not support the view that high levels of taxation and an overly generous welfare state destroy incentives to work and innovate. They have historically been among the top performers in innovation and growing new start-ups and world class companies. This may have something to do with the fact that all of these countries spend more than double what Singapore spends on education as a proportion of GDP.
PM Lee’s arguments that the Nordic states enjoy many natural advantages over Singapore which allow them to have generous welfare states can easily be refuted. At the very least it can be shown that Singapore has equal and offsetting advantages. Norway sits on huge oil reserves which Singapore lacks but then the other Nordic states lack oil as well. Much of their land area is frozen and unsuitable for human settlement. They are on the periphery of international trade routes whereas Singapore sits in the middle of the busiest shipping lanes in the world. Far from being a malarial swamp as LKY would have gullible Westerners believe, Singapore was already the second richest city in Asia after Tokyo at the time of independence.
Norway in any case manages its oil reserves, which are of course exhaustible, by transforming them into a permanent stock of capital in the form of its sovereign wealth fund. The fund, in contrast to our SWFs, is a model of transparency and accountability. Norwegians know exactly where their fund is invested whereas, as my two open letters to the Finance Minister have shown, Singaporeans are treated like the proverbial mushroom farm.
Other than saying that the Nordic model was not right for Singapore, the PM spent the rest of this section of his speech trying to show how PAP policies have worked towards a more inclusive Singapore. However I fail to understand how spending less on education than any major developed country as a proportion of GDP is “equipping people with the skills and ability to do well for themselves”. Singapore fares poorly on any measure of private sector innovation or new start-ups. Almost all the growth comes from foreign MNCs lured here by cheap labour and low tax rates and from the GLCs.
While welfare spending may have risen marginally it still remains very low as a proportion of GDP, particularly when compared to what we spend on defence. It may just be that the PAP elite are against greater welfare despite a steadily growing positive net asset position. However a less charitable explanation is that the assets are much smaller than we thought and that the money simply is not there.
Instead the PM says that the government has concentrated on raising assets more than incomes. However rather than being a source of uplift the HDB programme has become a means of converting Singaporeans into serfs. It has also historically been a useful tool in intimidating the people into voting PAP for fear of losing upgrading. The government has used its monopoly over the supply of land to deliberately create a housing bubble which it has further inflated through immigration and subsidies. It has cost them nothing but instead boosted their profits from land sales. It is misleading of the PM to boast that households in the lowest quintile have on average over $200,000 of equity in their flats. Firstly they cannot monetise that equity easily because otherwise they would have nowhere to live. Secondly if a significant proportion tried to sell at the same time that equity cushion would disappear and quickly become negative just as has happened in the US and Europe. This could happen even faster if Singaporeans wised up to the fact that what they own is a 99 year leasehold property that will revert to the government at the conclusion of the lease.
Conclusion
The PM’s speech was shocking on several levels. It showed the PAP are bereft of ideas on how to transform the economy other than continue the same old tired policies of extensive growth. Just as was the case with the Soviet Union, a fear of creative destruction and losing their grip on power will prevent the PAP from taking the steps necessary to foster innovation and new technologies.
Even more alarming were the hints that perhaps the government’s reserves are not as big as we have been led to believe. If this is the case will Singaporeans fall into line like the animals in Animal Farm when their dam collapsed and meekly accept they would just have to work harder to rebuild it? It is to be hoped that instead it will finally bring about the democratisation that Singapore so desperately needs if we are to have inclusive prosperity.
Lee’s Speech to the Economic Society of Singapore and an excerpt from my latest book.
An Excerpt From my Upcoming Book aimed at Benign Dictators and would be Benign Dictators across the Globe.
“Chapter one: Politics That Works
Do you control a military regime that has run its own economy into the ground? Are you a dictator whose people are revolting on the streets threatening to overturn you? Maybe you are Communists and the internet is wrecking havoc with your established control of the flow of information. Or are you a far right group in a robust democracy looking for some statistics and an economic model that on the surface will support your questionable ideology. Maybe your problem is minorities? Those pesky types who wear headdresses for no rhyme nor reason or those chaps who make little India seem dark mid afternoon? Would you love to know how to be able to segregate your ethnic types, control them completely AND trumpet an inclusive harmonious society?
Don’t despair. My book will tell you how to do all this and more. Once you have read my book you too will understand how to make the central planning, socialist policies of a totalitarian, plutocratic regime look like democracy, meritocracy and free market capitalism. Yes, you too can make politics work for you rather than for your people. Imagine total power for not just 10, not just 20 but 50 years and more! All this for just $5:99 , available now from any dodgy bookshop. Just $5.99 but look at our money back guarantee! If after implementing the ideas in my political primer your salary isn’t five time that of a leader of an advanced democratic nation, I promise you a total refund.”
What are we to make of PM Lee’s address to the economic Society of Singapore on Friday? I’ll be addressing the economic implications and critically what I see as warning signs that our reserves have in fact been frittered away for a piece due out on The Online Citizen tomorrow morning. Here today I’m going to touch on the humbug and a marvellous catch phrase. By repeating a phrase often enough and having it reverberate in the State media, the government hopes that most Singaporeans will accept it as truth. On Friday, phrases such as , “inclusive society”, “collective well being”, “social cohesion” scattered with frequent references to ‘global’ and ‘advanced countries’ were used in this speech to persuade us that this was a warm and fuzzy PM putting Singaporeans first and in the lead!
One phrase that made me laugh out loud was, “Politics That Works”. You see the PAP doesn’t have any new ideas. Not whilst LKY and his carefully groomed successors are in power. All they can do is keep defending their one big, rigid, idea and tweak the message to make it look like it is adapting with the times. ‘Politics That Works’, brings two things to mind,
- The previous message of democracy that works – for us. (in other words not democracy)
- That classic PAP book from the mid 1970’s, ‘Socialism That Works.
“Socialism That Works” was a collection of essays edited by Devan Nair with an essay of that title by Dr Goh Keng Swee (credited with being the economic architect of modern-day Singapore). Whether LKY was a socialist or a fascist at the time is a matter for elsewhere but his Party was about to be expelled from the Socialist International based on complaints by the Dutch Labour Party. They resigned before they could be pushed and produced the book as an answer to those complaints.
Backtrack to 1961 and Dr Lim had founded the Barisan Socialis Party putting Singapore firmly on track for a classic two Party model of democracy. However, in 1963 half of the Barisan and about 100 left-wing activists and journalists, were arrested and detained under Operation Cold Store allegedly aimed at clamping down on communists and their sympathisers. With Dr Lim and others in prison The Barisan were neutralised, and we have had a one Party state ever since.
‘Socialism That Works’ justified those heavy-handed techniques as being necessary and pragmatic for the survival of the state in early nationhood, portraying Singapore as being virtually at war with Communists. Fast forward to 2012 and strangely the communists have gone but the repressive policies are still in place. However, the editor of that book subsequently became one of the biggest critics of the PAP model and died in unhappy circumstances in exile.
No wonder the PM wants to dissociate himself from Socialism That Works, apart from the blindingly obvious fact that socialism does not work. Even though academics such as Michael Barr have pointed to evidence that early era LKY was going to, or at least said he was going to, abolish CPF in favour of a welfare state, a clear socialist move, the PAP today doesn’t sit happily with that label. Instead LKY effectively nationalised land, ensuring that the bulk of Singaporeans became serfs of the state (with 99 year leaseholds) and ensured that the state, rather than the private sector, controlled most of the economy that was not owned by MNCs.
Dr Lim made one of the strongest statements in support of democracy for Singapore in our history, from within prison. After being incarcerated for 9 years he was asked to sign a statement in return for his release saying that he was committed to supporting the democratic system in Singapore and would agree not to participate in politics. He rejected the trade-off. He pointed out the contradictions in the two statements and he stood on his honour and principle and refused to sign. He refused to give away his rights to participate in politics and the creation of a true democracy.
We should always remember Dr. Lim when we come across the PAP, its cronies and the media it controls talking about trade -offs. Usually backed up by foreigners touting how Singaporeans gave away their freedom in exchange for prosperity. The Danish former ambassador speculating wildly about what Singaporeans would give away, clearly has a vested interest in making Singapore’s politics work for the PAP. How else would he be unaware that our so-called economic miracle is based on the negative restrictive practices of socialism for locals combined with an open welcome and a low tax regime for foreigners and their successful by products of capitalism, global corporations? The trade-off is that they, the foreign talent, shore up a repressive totalitarian regime in return for a share of the pie or the fruits of capitalism that the locals are denied.
“Politics That Works” of course means letting the PAP keep their monopoly over political power and turning a blind eye to the reality that their supposed mandate is nothing of the sort. Elections where the ruling party has total control of the media, uses state resources to intimidate voters into voting for them and turns what should be an independent Electoral Commission into a poodle of the Prime Minister so it can gerrymander the electoral system to its advantage are anything but free and fair. The fact that, despite the tilted playing field, 40% of the people chose to vote for non-PAP candidates means that their claim to a mandate is essentially fraudulent.
Dr Lim’s example reminds us all that we gave away nothing and that entering into a trade-off makes us look like willing collaborators in our own downfall. Democracy was removed from us at terrible cost and in the one party state that followed we have no choices or bargaining power. We live under an authoritarian regime where our basic rights to assemble and to speak freely have been removed and where crony capitalism and faux democracy are supported by elites, an exploited ordinary citizenry and by growing numbers of foreigners imported to prop up economic growth and give the impression of progress to the outside world. It is an economic model that can’t work long term but because the political model keeps the PAP in power, we are helpless to expose it.
After socialism that works, or socialism the PAP way came the next catch phrase, ‘Asian style democracy’ or ‘democracy the PAP way.’ That phrase too has been discredited, if not entirely blown out of the water. Not least because no-other democracy in Asia practices Asian style democracy, the Singapore way. So it was clearly BS. When I entered politics only three years ago it was common to hear that democracy wasn’t right for Singaporeans, that we weren’t ready and needed our own Asian style, that the two-party Westminster system was destructive. Let me be clear that it was common to hear this from within the Opposition and even the Party that I had joined. Luckily, like LKY and his gang resigning from Socialist international before they could be exposed ,our gang of faux- democracy advocates also resigned leaving the true democracy ideology intact, albeit unpopular and isolated.
But it will take more than a handful of years to expose the message for the fake that it is and it still frequently pops up. Most recently amongst certain sectors of the Opposition the, “democracy that works in our Asian society” message has morphed into ‘not opposing for opposing sake’ (again a catchphrase I used to hear a lot in the 1970s to argue why Singaporeans should reject JBJ) and ‘working with the PAP’ in a ‘constructive’ way ( i.e. being a coalition in a one party state rather than opposition in a two party state)
So the PAP too has morphed and has come up with its best catch phrase to date, Politics That Works. “Politics that Works for Whom?” might be a more pertinent question. Conveniently this phrase, by not defining the type of politics, allows them to be authoritarian, arch capitalist and ardent socialist all at the same time. Politics is a word so wide, so all encompassing, so vague and difficult to define that is should last them 20 years at least. In fact the gazetting of TOC proves that politics can’t be defined legally. This phrase sits so nicely with the faux opposition message of not wanting to strip the PAP of their monopoly of not opposing for opposing sake that it is almost as if they had sat down together to come up with it.
It always puzzles me when people say they aren’t interested in politics. But if you ask a Singaporean woman,’ not interested in politics’ ,whether she believes that her male colleague should be paid 35% more than her for the same job because he is a man? She will most certainly have an opinion on that. If you ask another Singaporean whether he believes that as he is in good health he should give his CPF savings to someone else, he’ll most certainly have an opinion. If you ask Singaporeans whether they should pay higher taxes because the investments of our foreign reserves haven’t quite worked out, then they’ll have an opinion. It turns out that they are in fact, interested in politics. If I choose not to buy clothes made in illegal sweat shops or carpets made by child slaves, to recycle, or to buy my food locally rather than from a multi- national corporation or to use public transport then I am also getting involved in politics.
The PAP would like you to stay apathetic, to believe that only the PAP should be working in politics so that politics works for them. Politics That Works, is the kind of humbug and hypocrisy that a self-serving elite use to mask the fact that they have a monopoly of power. This power then becomes a means of ensuring that the economic playing field is tilted in their favour which in a kind of vicious circle once again reinforces their political power. You went through all that austerity to keep the PAP economic model working and now taxes are going to rise. Are you interested in politics yet? Do you see that you have been working for (partisan PAP) politics all this time whereas politics should have been working for you?
Balding Blog, Hair-raising development
Do you love a conspiracy theory? Or do you like to say there’s no such thing as a coincidence? Monday, as you know, saw the anniversary of the Tiananmen Square massacre. June 04th 1989. There are a lot of things I could say about that. I was in Hong Kong over the weekend meeting with the Democratic Party of Hong Kong amongst others and the Democratic Party were busy gearing up for a press conference about a peaceful demonstration for the Tiananmen anniversary. The overriding feeling this left me with (in addition to the terrible, unforgettable memories of that time) was that Hong Kong citizens enjoy more democracy than we do in Singapore. Not that they were allowed it but that they demanded it.
The eventual demonstration attracted tens of thousands, larger than ever this year . This probably was a function of fear over the new pro -mainland China, Chief Executive for Hong Kong due to be sworn in on July 01st. Pro-democracy groups are talking of more Mainland Chinese attending demonstrations and of receiving more donations in RMB, the currency of Mainland China. This is clear evidence of support and participation of people from Mainland China. Again my feeling is that China will reach democracy before we do.
Enter the first conspiracy theory. On Monday the Shanghai Stock Exchange opened at 2,346. 98 and closed 64.89 points lower. It opened at the 23rd anniversary of the date backwards 4/6/89 and closed at 6/4/89. There can only be four explanations for this. Hackers, Manipulation ,( which would require enormous power, influence and wealth) , a pure albeit, eerie coincidence, or help from a being from another world or a deity. Take your pick. China responded by blocking the terms on the internet.
Whilst in Hong Kong I also met up with some economic think tanks as I am in the process of setting one up. Finally I spent some time with the HSBC Business school Assistant Professor Chris Balding. Originally he came to Hong Kong and then I went over to him in Shenzhen, China.
Those that read his blog will know that he wrote about meeting me. Why did I go over there? Well a few weeks ago I was alerted to some pieces he had written on his blog about our SWFs Temasek Holdings and GIC. In fact my first response to Singaporeans, who emailed me agitatedly, was along the lines of, “seriously?” I’ve been speaking out about the lack of transparency in Temasek for three years specifically and calling for transparency and accountability in general since day one. In fact one of my first moves as leader of the Reform Party was to put the script,
“ transparency plus accountability equals democracy“
across the top of our website.
One of the manifesto pledges I made was to call for Temasek to be publicly listed and for the shares to be distributed to citizens. This would focus our SWFs on benefiting the citizens whose money it took to build up its holdings in the first place. But most importantly the public listing would ensure transparency.
Two years ago an interview I did with Reuters caused waves and was reproduced in the press all over the world. http://in.reuters.com/article/2010/03/12/idINIndia-46873320100312
Opposition chief tells Singaporeans: Don’t be afraid
“PRIVATISE THE WEALTH FUNDS
The Reform Party proposes the possible privatisation of Singapore’s two multi-billion dollar state wealth funds — Government of Singapore Investment Corp and Temasek — to allow more transparency.
“Obviously if they were privatised and listed on the stock market then they will have to ensure higher standards of disclosure,” said the former banker, whose background is more akin to the PAP’s scholarly leaders.
“It is unusual that we have seen big losses during the financial crisis yet no heads appear to have rolled among senior management.
Last February I set up this blog. The theme of the blog was a follow on from my earliest message that you do not need to give up on freedom to have prosperity. You can have both but crucially, freedom is actually your best guarantee of prosperity.
This blog also attempts to pull apart the PAP claim, as do all my economic writings, that Singapore is a free market economic miracle. That somehow they have managed to make totalitarianism go hand in hand with prosperity. There are no free markets in Singapore and the only miracle I contend is how successfully they use certain tools to turn the peoples into sheeples.
I examine the PAP propaganda that the repressive regime is necessary because of this precious porcelain rice bowl that they have given you. That your noses must be kept to the grindstone because you will never be given the iron rice bowl of socialism, the free education, the national health service, the welfare state. In short how they attempt to convince you that the meat and rice in your bowl comes entirely from them not from you and you had better be obedient, careful and grateful. Hence the name “Reinventing the Rice Bowl”, looking at solutions which are neither the iron rice bowl of socialism nor the one precious, porcelain rice bowl of LKY.
I also like to examine our so-called growth. Our productivity is abysmal and the GDP growth is driven by bringing in cheap foreign labour from LDCs at the bottom who are willing to work for virtually nothing (and are often treated shamefully.) There is no economic miracle no free market and LKY didn’t start from a malarial swamp.
I can’t blog on economics, competition and free markets without also focusing on freedom. Freedom of information, freedom of expression, social freedom, free markets and a free market in ideas. So I write here extensively on the need for transparency, accountability and freedoms.
- I have addressed the fake free market system where everything leads back to a GLC here, ( http://sonofadud.com/market/another-round-of-monopoly-anyone/)
- How we have no transparent market in housing the government being the major landowner here (http://sonofadud.com/market/how-to-create-a-housing-bubble/)
- In addition to our official Party stance on Temasek I have brought up Temasek and GIC and CPF frequently in articles such as, (http://sonofadud.com/market/what-lessons-does-the-olympus-saga-hold-for-singapore-and-our-swfs/) and (http://sonofadud.com/market/gic-ubs-and-the-death-spiral-of-your-cpf-funds/).
Three months ago I wrote an article for Wired Online which was well received globally and quoted all over the world, popping up in articles from Yale professors to geek aggregators. The theme of that article was that the hi-tech island miracle we were promised back in the 80s had not materialised. No surprise to me. Totalitarianism and innovation cannot exist together.
http://www.wired.com/opinion/2012/04/opinion-jeyaretnam-disneyland-death-penalty/2/
In my role as leader of the RP, I wrote a three-part response to the Budget – not reported anywhere ?? (because the Budget responses of non economists will always be so much more compelling? Or because I pointed to discrepancies?) In particular I reported that the Budget was a model of opacity and that there were unexplained discrepancies. Part three has not yet been written because I am still awaiting the statistics that will allow me to write it.
SO, I have been on this theme for quite some time. Then along comes Chris Balding. Naturally my first thought was that this guy had read about me in Wired had then read this blog which is linked from Wired and seen my budget response. How could someone else be writing about discrepancies and Temasek when I was the only one in Singapore who had dared to bring it up. Let’s not even ask why the forum agitators and keyboard warriors stand to attention when one of the foreigners they spend the rest of their time deriding, points out what a son of the soil has been saying for three years. Of course they have swallowed the govt character assassination so well that the same people on the forums who complain every time I release a statement that my style is too technical or scholarly, have in the last few days been writing in our forums that I couldn’t have written the letters/posts myself because…..wait for it… the style is too technical and scholarly!
In fact, although Chris’s recent work had only come to my attention a few weeks ago it seemed he was a bona fide academic with a long history of research and published papers on SWFs. It really did seem that we had both independently, coming at it from different directions, reached the same conclusions, namely that there is something rotten in the state of Denmark. In the most simplistic laymen’s terms he has done with our SWFs over the long-term what I did with the budget 2012 in part 1. He has taken the figures available added them up and found they don’t match. The fact that neither one of us previously knew the other or was aware of the other’s work but were reaching the same conclusion is significant.
I can’t tell you how exciting it was to be finding some validation after years of working away in isolation, kept in the dark, in this secretive State with its stranglehold on the media via the Printing and Presses Act and on the public through the climate of fear. Of course I tempered my excitement with caution. I tried to find some evidence that Chris was a PAP spy luring me into a trap, mentally unstable in some way, with a grudge against Singapore or an axe to grind or indeed an outright fraud. Those conspiracy theories get to you and you do get paranoid.
To cut a long story short I made the decision to fly over and meet up with Chris basically to conduct whatever due diligence I could on a face to face basis and to see whether we could help each other .
Did I find any evidence to support my earlier paranoia? Certainly his final figures of that time would have benefitted from some extra data and the exploration of varying scenarios and I was glad to help by adding some pieces to the puzzle. Also his working paper, “Madoff comes to Singapore” had overlooked an explanation that I believe allows our SWFs to report those returns. But what I found was a genuine academic and a genuinely nice guy. That weekend and since we have worked well together.
Chris is an academic specialising in political economics and with the luxury of a salary and the time to look into our finances he had gone into our SWFs in a depth that I would have loved to be able to do. I am an advocate for democracy with an inside knowledge of Singapore’s smoke and mirrors technique and the way in which the faux free market is constructed. I am also a pure economist and a veteran in the financial markets. I bring a fund manager’s knowledge and intuition of the many ways in which historically, individuals and institutions have attempted to massage their figures.
There is one major difference between academics and politicians. If my ideas get out there and are picked up then I have done my job no matter who ends up ‘owning’ the idea. Because of course you can’t ‘own’ an idea like democracy. Just as the PAP attempt to make me a non-person they can’t make my ideas non-ideas. Academics however live in a world of publish or perish. All those rankings you see of Universities which manage to put NUS or NTU so high or laughably put LSE above Oxford and Cambridge are based on the number of papers published without regard to quality or originality.
Chris therefore can and needs to publish and this pressure may make him less reserved in his conclusions than I am. He can print working papers and go back and refine them as more information becomes available. So some of his results published on his blog may seem a little sensational. But at least they caught your attention! He is also offered some protection from the State sponsored isolation and smear campaign that I am subjected to, by being an American citizen, so he can be and is bolder.
As a hedge fund manager my job was to manage risk to and to hedge against it, so I do tend to be more cautious. The advantage of caution and freedom from the pressure to publish is that when I do publish , I can be certain. So for example with my letter to the Wall Street Journal which MICA so laughably tried to refute, I can stand by it and say, ” I didn’t and don’t misrepresent facts.” Not that any media here gave me a right of reply or asked for my point of view.
Chris and I are still working together on this both banging our heads against the same wall. That wall is lack of access to transparent figures and an explanation of their valuation. I, as a Singaporean citizen with the credibility of my background, can reasonably ask our government for answers and try to achieve the missing figures we both need. That is why I am not easing up on my call to demand transparency from our MOF and our government at large.
So what is the conclusion? Is there a huge loss and what does it mean?
Well, I would like to finish crunching the figures with Chris and analyzing them first. The key thing is that meanwhile questions are being asked. It is necessary to ask them. It is the essence of democracy. In a healthy and robust democracy, vital questions on a matter of national interest from a credible source are not repressed but are answered swiftly. I am not casting aspersion nor throwing out accusations. I just want some transparency about my money and yours.
So far all I can conclude with some degree of certainty and I am looking at the most favourable outcome, the very minimum, the best case scenario, is :
- Chris Balding’s scenario may be an extreme one but even a much more favourable one throws up several discrepancies and in particular why net assets and reported surpluses do not add up. The figures that I do have, show that net assets do not add up to the reported surpluses over the last 32 years even if compounding is already in there.
- Government debt has been increasing rapidly with no explanation as to why the government is increasing borrowing. This is enough to worry me.
- The valuation of unquoted assets in the balance sheet has tripled in the last eight years at a time when listed equity valuations have declined.
I have therefore written to the MOF with some reasonable questions asking for clarification. At the same time I have been asking questions to try to ascertain whether our loan to IMF was fully constitutional. We need to know that protocol and procedures and indeed the law are being followed. Greece of course has rejected austerity plans and has benefitted all this time from those iron bowl services you have never had. If you are frustrated or concerned about the state of our reserves or our economy you can take up active citizenry and join me in asking those questions or write to the Press or in forums asking what is it about these ‘Open Letters’ that has made the Media ignore them.
Meanwhile let’s hope you haven’t gone without freedom for nothing. To have given up so much freedom for prosperity as the end result is one thing but to have given it up for austerity is quite another.
What about the conspiracy theory? Yesterday Chris Balding’s website containing his blog was suspended. He hasn’t found a satisfactory explanation. His service provider has informed him that his account was compromised and he has warned me that my emails to him will also have been affected. He has also received a lot of very agitated mail and the kind of hysterical character attacks that have become part and parcel of my life. Welcome to my world Chris! I heard from another source that his University is fending off calls from angry Singaporeans. Meanwhile my open letters to MOF and the President and to the Press remain unanswered or even acknowledged. Eerie Coincidence? Or is the net that has been used to isolate and silence me now tightening around Chris? You decide.
Stiglitz Gets It Wrong on Singapore: The Real Lessons for An Unequal America
I refer to Joseph Stiglitz’s recent article in the New York Times. Stiglitz holds Singapore up as a model of how to achieve rapid economic growth while prioritizing social equity and income equality. He even goes as far as say that Singapore demonstrates that reducing income inequality is a necessary condition for rapid economic growth. At the same time he dismisses concerns over lack of fundamental rights that are taken for granted in democratic countries. These are viewed as at best irrelevant and at worst harmful to the main objective of achieving economic growth and raising living standards for the poor and working classes.
Stiglitz’s article is symptomatic of a long tradition among academics and economists, both on the left and right, though more extensively on the left, to view human rights and freedom as something that can be dispensed with by so-called modernizing regimes. I remember my Director of Studies at Cambridge University, back in 1982, when the first Opposition MP for sixteen years had been elected to Singapore’s Parliament, laughingly dismissing concerns about human rights violations as a few bourgeois intellectuals worrying about their freedoms while only “Harry Lee could achieve growth of 10% per annum”. It was reminiscent of similar adulation in the forties and fifties of the Soviet Union and later of Cuba.
Another Nobel Prize-winning economist, Paul Krugman, has recently written of the difficulty of swimming against the tide of economic orthodoxy, no matter how incontrovertible the evidence on your side. He was speaking about the continued insistence on fiscal austerity despite the economic nonsensicality of such policies but he might as well have been speaking about Singapore.
I have frequently pointed out that Singapore’s economic growth is based on just adding more inputs, a strategy that would long ago have run into diminishing returns were it not for the ability to access ever cheaper sources of labour inputs from the rest of Asia. Of course I am not in the same league as an economist as Stiglitz (or Krugman) but one would have expected greater scepticism from the international academic community about the Singapore success story. Even those who criticize its track record on human rights feel obliged to praise its economic growth record.
I put this down partly to the factors listed above. However it also reflects the Singapore government’s skill at co-opting leading academics and policy think tanks in the West. Singapore’s policy of sending its top students abroad to study at elite institutions like Cambridge, Oxford, Harvard and Yale also helps to ensure that foreign academics and institutions are fed the “approved” version of Singapore’s development story as well as providing a valuable source of revenue that these universities are loathe to risk alienating by criticising them.
However I shall return to rebutting Stiglitz’s claims about Singapore particularly with reference to its supposed lessons for the US on achieving income equality. In contrast with his clams, my observations as a Singaporean economist, investor, and secretary-general of the Reform Party accord with recent studies that rank our income inequality the second highest among developed countries.
Official data from Singapore are notoriously misleading and incomplete. If judged only by the Gini coefficient, the most widely accepted measure of income inequality, Singapore comes out as much more unequal than the US, particularly when one looks at disposable income rather than at income before taxes and cash transfers. On the latter measure, the OECD figure for the US in 2011 was .376 while Singapore’s was .459 in 2012, but, taking into account in-kind benefits such as health and education, the US Gini falls further to .303. We do not have figures taking into account in-kind benefits for Singapore but since it spends much less as a proportion of GDP on health and education than the US the gap is likely to widen when these are taken into account. These differences in health and education spending are discussed below.
Moreover, the country’s extremely high Gini coefficient is calculated using only the incomes of Singapore citizens and Permanent Residents. Beneath them is a huge underclass of cheap labour from much poorer countries that is about 30% of the total population. They earn very low wages and are housed often in appalling conditions with very few employment protections. Often they have huge debts to middlemen and employment agents that mean they have no choice but to continue to work for the same exploitative employer. While they may still be better off economically than in their home country the difference is likely to be marginal when all the costs are factored in. Unequal bargaining power and asymmetries of information ensure that most of the benefits accrue to the employer, often a Singaporean Government-Linked Company (GLC). Astonishingly Stiglitz’s article makes no mention of this exploitation
It is in many ways analogous to the position of landowners in the antebellum Southern US who benefited from slave labour while poor farmers who could not afford slave labour were undercut and found themselves unable to compete.
Pundits in Singapore and abroad celebrate the country’s rise in real GDP per capita since independence in 1965. But Singapore’s real GDP per hour worked is far less impressive. Singaporeans work the longest hours of any developed country (and nearly 50% more than Americans, who already turn in longer hours than most European countries.)
We also have a much higher proportion of employed population to total population because nearly 40% of our workforce consists of foreign workers who can stay in Singapore only if they have jobs.
Ultimately productivity growth is a necessary but not sufficient condition for real income gains and Singapore comes off markedly worse. Because Singapore is a small city-state of 5.5 million, the only valid comparisons would be with major American cities, and, there, the distinction is even more marked.
Stiglitz also overlooks the many unique ways in which our citizens and economy are controlled by the state. These controls limit Singapore’s usefulness as a model for imitation elsewhere.
For example, the government’s forced savings scheme, the Central Provident Fund or CPF, deducts over a third of workers’ total income and places it in the fund, where it is to be used to pay for housing or for medical bills on a pay-as- you-go basis. That amounts to a regressive savings tax, because contributions are capped at a fairly low level of income and the government has for years paid below-market interest rates on these savings balances.
Americans are unlikely to adopt such a regressive forced savings scheme, which holds down domestic consumption and generates enormous surpluses that have enlarged the state’s sovereign wealth funds, which have virtually no accountability or transparency and often achieve very poor returns, virtually none of which are spent on helping the less well-off. It is not uncommon to see elderly people who are virtually destitute and reduced to collecting cardboard or drink cans for a few dollars.
Singapore’s 90% home ownership is often compared to a level of around 65% in the US. But since the housing is public, the government owns most of the land as well as the construction company responsible for new public housing stock. All such housing is provided via a 99-year leasehold and reverts to the government, so people who have worked all their lives to pay off their mortgages will be put in the position of having to wind up bequeathing properties with little time before expiry and therefore little value. This is not home ownership but quasi-ownership. Blocks of housing only 30 years old are regularly compulsorily purchased, torn down and rebuilt (great for GDP growth and for the government’s income and balance sheet) and the residents re-homed in smaller, high–rise, higher density blocks elsewhere. This results in Singaporeans overpaying for housing of lower quality than they would with competition or a free market in land.
Moreover, the wait list for new apartments is three to four years, and to be eligible for a new flat you typically have to be married. Singles must live with their families until marriage unless they are over 35. No wonder we work such long hours and have such low fertility rates. There are not enough public rental units to make renting a viable option either, thanks to the government’s position as a monopoly owner of land and its conflict of interest between providing sufficient housing and pushing up land prices.
Singapore’s Ethnic Integration Policy obligates me and every other citizen to carry a National Registration Card declaring my race or ethnicity. According to my card, I belong to the Ceylonese minority, and I and other Singaporeans seeking quasi-ownership of public housing are subject to set quotas to “promote a balanced ethnic mix”. I cannot buy in the same estate as my family members if the ‘Indian quota’ there has already been reached. Should I need to sell, the quota may restrict my market and lower the price I receive.
Even with compulsory saving, housing is much less affordable in Singapore than in the US. The ratio of prices in relation to incomes is also much higher, while house sizes have shrunk markedly over the last ten years. Private home ownership remains an unimaginable dream for the majority of our population and more than any other economic indicator demonstrates the lack of democracy and freedoms and the gulf between haves and have-nots in Singapore. This has practical consequences in that the government has not been shy to use its control over housing to threaten voters with the loss of upgrading to their estates and public transport links should they have the temerity to believe they are free to vote for another party.
Stiglitz miscategorises Singapore’s tax system as universal and progressive. He also credits the government of Singapore with intervening favourably at the pre-tax income level in order to help those at the bottom.
But the top income tax rate In Singapore is 20%, and that is only on earned income. There is no tax on investment income or capital gains. Corporate taxes are 17%, and there is no tax on dividends. Yet Singapore has a much higher level of indirect taxes (which are regressive) than the US, including a 7% Goods and Services Tax and much heavier taxes on fuel and cars. And, as I’ve explained, the compulsory Central Provident Fund is itself in fact a disguised regressive tax.
Government monopolies in almost every area of the economy, coupled with government ownership of 80% of the land, ensure that Singaporeans pay much more than Americans for many basic goods such as food and energy.
Stiglitz says “the government made sure that wages at the bottom were not beaten down to the exploitative levels they could have been”. This does not square with Singapore’s lack of a minimum wage and basic employment protections. After paying a levy, businesses have virtually complete freedom to bring in workers from low-wage countries.
The results have been predictable. While Singapore’s total GDP has indeed increased much faster than the US, due almost totally to the enormous growth in foreign workers, real wages for those in the bottom 20% of the income distribution have declined in real terms over the last ten years while median incomes have barely risen. The gains are a statistical illusion since, to cite just one instance of the government’s misleading statistics, Singapore’s Consumer Price Index does not accurately track the enormous rise in housing costs.
The government has been spending much less on education as a proportion of GDP on education than the US. Large class sizes and, until very recently double shifts in most schools, mean that parents who want their children to do even moderately well have to as a matter of necessity spend heavily on private tuition.
Singapore does not publish figures on public health and education spending, but its government spent a much lower proportion of its GDP on health and education (1.6% and 3.3% respectively in 2013 versus US government spending in the same year of nearly 8% and about 6%) than other developed countries, and it shows. Anyone inclined to envy our education system should know that Singapore still does not have universal compulsory education beyond the primary school levelor free education. Parents still have to pay fees from pre-school through to secondary level and buy their children’s textbooks. In a BBC report from last month, a primary school teacher was quoted as saying that at his school in a low-income neighbourhood on the first day of school half the class of six and seven-year-olds showed up without textbooks because their parents could not afford them. A host of charities and benevolent societies pay not only for textbooks but also for breakfast and lunch for such children.
In health we have a pay-as-you-go system with a wholly inadequate medical insurance scheme tacked on. If a family member has a serious illness like cancer or heart disease then the cost of treatment is likely to leave the family destitute. We have a ratio of doctors and nurses to the total population which is below that of lower-income countries like Malaysia and Thailand which is shocking when you consider Singapore is just a city and has no rural areas.
In sum, there is no economic miracle in Singapore. It has always had an enviable strategic location. As far back as the late fifteenth century the Portuguese admiral Tome Pires said that whoever controlled the Straits of Malacca had a hand on the throat of Venice. At independence in 1965, Singapore was in the right place at the right time to benefit from the huge expansion in world trade.
The party in power since 1959 has focussed purely on GDP growth that has been achieved by adding more inputs, particularly of labour, rather than combining those inputs more productively. Economic growth and material gain have always been used to justify the extensive restrictions on basic rights that I have mentioned, yet Western observers, including Stiglitz, too often assume that Singapore’s repression is justified by its economic success, even though a UBS survey in 2009, comparing global cities, put Singaporean median workers’ wages on a par with those in Kuala Lumpur and far behind those of workers in Taipei, Seoul, Hong Kong and Tokyo. The UBS survey was much criticised by the government. However in the following year Singapore was dropped quietly from the survey. While an illustration perhaps of how Singapore’s economic growth, while not benefitting its own citizens, has led international companies that do business there to be wary of publishing anything that might contradict the government’s success story. Unfortunately Stiglitz has uncritically adopted that version.
In contrast to the claims in Stiglitz’s article, Singapore is no model for income equality or for generating rising living standards through productivity growth despite the sacrifice of fundamental freedoms.
