Category Archives: The market
After the AG’s Chambers was given permission on Wednesday to take action against blogger Alex Au for contempt of court, the following statement was issued. I am pleased to say that nearly 170 people signed it, including academics and civil activists. Sadly there are only a few politicians included in the signatories, John L Tan and Teo Soh Lung of the SDP, Osman Sulaiman and myself from the RP. Like everyone else I would like to see Mr. Au’s claims rebutted in public. We need to uphold public confidence in the judiciary and that means the public must be allowed to form their own opinions on judicial processes.
This is part of a larger picture in which the Law Society had its independence removed by Lee Kuan Yew along with the right of appeal to the Privy Council after my father’s conviction in the Singapore courts was overturned by a Privy Council judgement. We also lost trial by jury. In 2012 the UK Law Commission recommended abolition of the offence of scandalizing the judiciary saying, “You might commit the offence if you do or publish anything that ridicules the judiciary “. But what ridicules the judiciary more, removing the Law Society ‘s independence and abolishing the right to trial by jury, a fundamental right of the English legal system since Magna Carta in 1215, or subjecting the judiciary to some degree of public scrutiny. You might find it helpful to read my letter to the Wall Street Journal in support of Alex Au in which I mentioned that defamation suits in the Singapore courts are used to silence critics of the regime.
Singapore 29th November 2013
We are deeply concerned that the Attorney General’s Chambers (AGC) has been granted leave to take action against Singaporean blogger, Mr Alex Au, for “scandalising the judiciary” in his blog post, “377 Wheels Come Off Supreme Court’s Best Laid Plans”.1
The right of free expression is enshrined in Article 14 of our Constitution. We believe that robust public debate is necessary for national progress. The AGC’s action, however, reflects an overzealous desire to police public opinion. This cannot be healthy for a mature, first world nation. If Mr Au had erred, then his claims should be rebutted in public. This would enable Singaporeans to make up their own minds.
We agree that it is important to uphold public confidence in the judiciary. However, this cannot mean that our judges should not be subject to scrutiny. The AGC’s action, rather than enhancing confidence in the judiciary, might weaken public confidence. It also implies that the public is not allowed to form opinions on judicial processes.
International legal opinion supports the advancement of the law in respect of public comment. In 2012, the UK Law Commission recommended abolishing the offence of “scandalising the judiciary” because it is “an infringement of freedom of expression and out of step with social attitudes”. The Commission noted that the offence,
“belongs to an era when deferential respect to the judiciary was the norm. But social attitudes have changed. Enforcing the offence today would do little to reinforce respect for the judiciary and, if judges are thought to be using it to protect their own, could strengthen any existing distrust or disrespect.”2
We note that the AGC action against Mr Au is not in keeping with the spirit of Singapore’s position at the 2011 UN Universal Periodic Review of Human Rights that “Political postings on the Internet are prevalent, including many that are highly critical of the Government. No blogger or other online publisher has been prosecuted for such postings.”3 Further, this AGC action contradicts Singapore’s obligations in the ASEAN Human Rights Declaration, adopted on 18 November 2012. Article 23 states, “Every person has the right to freedom of opinion and expression, including freedom to hold opinions without interference and to seek, receive and impart information, whether orally, in writing or through any other medium of that person’s choice.”4
We call upon the AGC to help the Government of Singapore uphold its ideals and its international commitments, for the continued progress and prosperity of our nation.
K Z Arifa
Dr Charan Bal
Sharmeen Nina Chabra
Xin Hui Supanee Chan
Kenneth Chee Mun Leon
Chew Kheng Chuan
Chong Kai Xiong
Chong Wai Fung
Fong Hoe Fang
Foo Hui Shien, Catherine
Assoc Professor Cherian George
Han Hui Hui
Dr Russell Heng
Isrizal Mohamed Isa
Dr Khoo Hoon Eng
Koh Boon Luang
Lee Gwo Yinn
Lee Shiuh Meng Kevin
Philip Selwyn Lemos
Leow Zi Xiang
Dr Liew Kai Khiun
Gary Lim Meng Suang
Lim Kay Siu
Nicholas Lim Yew
Loh Chee Leong
Dr Loh Kah Seng
Low Yit Len
Neo Swee Lim
Ng Mei Fay
Dr Noor Rahman
Ong En Hui
Pak Geok Choo
Gene Sha Rudyn
Seet Cheng Yew Michael
Rev Miak Siew
Siew Kum Hong
Assoc Prof Paul Ananth Tambyah
Alvin Tan Cheong Kheng
Caryn Tan Sun
Eugene Tan Siah Yew
Joel Bertrand Tan
John L Tan
Tan Joo Hymn
Dr Roy Tan
Teo Soh Lung
Professor Tey Tsun Hang
Dr Pingtjin Thum
Toh Boon Hwee
Dr Vincent Wijeysingha
Wong Chee Meng
Melissa W S Wong
Wong Tong Kwong
Dr Woon Tien Wei
Rev Dr Yap Kim Hao
Yeo Yeu Yong
The judgement in my appeal against the IMF Loan Commitment confirmed what has long been apparent: that the government is to all intents and purposes above the law. Furthermore, the judiciary are not there to act as a check on the executive (a “red light” in CJ Chan’s parlance) but instead to “green-light” illegality by preventing citizens bringing actions to have the illegal behaviour stopped. In a uniquely Singaporean version of jurisprudence, the judiciary is essentially subordinate to the executive. In my response I will deal first with the merits of the argument and then with the issue of locus standi.
“The Appellant has failed to establish a prima facie case of reasonable suspicion”
The learned judges dismissed my appeal on the arguments on the grounds that:
- It was clear from the initial draft of Article 144 when the bill was first put before Parliament that the giving of loans was to be excluded from the need for Parliamentary and Presidential scrutiny
- While admitting that they were ill-placed to comment on the validity of the financial arguments that I put forward to show that a loan commitment was a contingent liability and in nature akin to a guarantee the judges went ahead anyway and dismissed my arguments. In doing so they made some shocking mistakes and misinterpreted an excerpt from a US Federal Deposit Insurance Corporation manual whose meaning should have been abundantly clear. They also argued that, despite the overwhelming evidence I had produced to show that regulators and banks treated loan commitments as contingent liabilities in the leading financial centres of the UK and the US, the accounting treatment might be different in Singapore. If that is the case, the IMF should kindly explain why they selected our Finance Minister to be Chair of the International Financial and Monetary Committee if Singapore differs so markedly from accepted practice in major countries.
- Though this was only touched on peripherally the judges also reiterated the nonsensical argument that MAS was an entity separate from the government.
I will deal with the arguments in (a) above first. I argued at the appeal hearing that it was only necessary to look for the original intention behind the legislation if the natural and ordinary meaning of the words was not clear. To any layman, the words “no guarantee or loan should be given or raised” would mean that both nouns could be paired with either verb. The fact that the proposed wording of Article 144 when the Bill was introduced into Parliament suggested that each noun was to be paired with a corresponding verb (the reddendo singular singulis argument) does not mean that we should use that interpretation. The words “debt” and “incurred” had been left out of the Article as enacted by Parliament so the original wording is an unreliable guide. It is equally likely that Parliament wished to have tighter financial controls rather than looser and thus intended both the giving of guarantees and loans to require Parliamentary and Presidential approval.
The Appeal Court judges do not address this issue only saying that they sided with the original judge in his interpretation. They also say that it is not ordinary parlance to speak of “raising” a guarantee and that therefore “raised” in Article 144 must be applied to “loan” only and “given” to “guarantee” only. I fail to follow the judges’ logic here. Just because one noun may not make sense when paired with one of the verbs, it does not follow that therefore we can exclude the other noun from being paired with both verbs if it makes perfect grammatical sense to do so.
In any case I showed that it is common parlance to speak of raising a letter of credit. A guarantee is to all intents and purposes very similar to a letter of credit. Both instruments require the issuer to pay out if the party that is covered by the guarantee or letter of credit fails to do so. The judges say that they are different instruments and serve different purposes. However as their accounting treatment and risk profile for the issuer would be identical it is difficult to see why the example for letters of credit should not apply to guarantees.
However whilst it may be possible to argue about the meaning of the words the judges completely failed to deal with my main point as set out in (b) above. This is that this is a loan commitment and not a loan. If they were ill-placed to comment on the validity of my arguments, not having seen any written submissions from either me or the AG, then why not call for written submissions from both sides after the hearing was over. Alternatively they could have adjourned the hearing to allow both sides to make written submissions. Counsel for the AG called for my submissions to be stricken from the record on the grounds that they involved complex financial and accounting matters for which she had not prepared. This was disingenuous since counsel also refused my offer of a short postponement to allow her to prepare. It is unfortunate that the judges, despite taking nearly seven months to deliver their verdict, did not allow me more consideration given the gross disparity in the resources available to me as a litigant in person as compared with the government.
I produced evidence from a wide variety of sources, including the US Federal Deposit Insurance Corporation’s Manual, the Bank of England’s Yellow Folder and the last published accounts of J P Morgan, the leading US bank, to show that banks were required to record loan commitments as contingent liabilities on their balance sheet. As the judges mention, I pointed out that the UK Chancellor of the Exchequer himself referred to the UK’s loan commitment to the IMF as a “contingent liability.”
This is reinforced by the fact that the interest rate on loans made to the IMF is virtually zero. It is therefore inexplicable how Singapore’s IMF loan commitment could be considered an asset. Since the government pays CPF holders 4% to borrow their money the IMF loan, if drawn upon, must be a money-losing proposition from the moment it is drawn down.
In support of the argument that the loan commitment was a liability not an asset I cited US Statement of Financial Accounting Standards 133. This requires that loan commitments be treated as options on bank balance sheets and marked to market. A loan commitment is in the nature of a call option granted to a potential borrower that gives them the freedom to draw on the money at a time of their choosing. An option cannot be worth less than zero and should normally have a positive value while the writer of the option would have to record a corresponding liability. The option could not be worth less than the present value of the difference between what it would cost the IMF to borrow in the open market and the interest rate that it would pay on the loan if drawn down (effectively zero).
Yet the judges chose to misunderstand my point and claim that they were surprised that as an economist I did not understand the difference between a loan commitment and an option. There may be a legal difference but clearly in economic terms a loan commitment is an option because the borrower has the right to draw down the loan but is not obliged to do so. It is the learned judges who demonstrate their basic ignorance of modern finance theory.
The judges made other basic errors. The judges said that I had quoted Christine Lagarde as calling the new lending commitments by IMF members a “fireball”. In fact what I had said was that The IMF (actually our Finance Minister Tharman) had called the new loan commitment a “firewall”. In Tharman’s own words:
“We all agreed that it was absolutely essential to have the firewall built up at this time. It’s not a day too early to be building up the firewall,”
I pointed out that the commonly understood definition of a firewall was to construct a scorched earth perimeter around a fire to stop it spreading. This was precisely what the new loan commitments were supposed to do, i.e. they were resources to be sacrificed to save the world financial system. To quote Christine Lagarde (see here):
“These resources are being made available for crisis prevention and resolution and to meet the potential financing needs of all IMF members,” Lagarde stated. “They will be drawn only if they are needed, and if drawn, will be refunded with interest.”
The judges said that the sheer risk inherent in an asset could not turn it into a liability. However they misconstrued my argument. I was arguing that the commitment to make a loan to the IMF was a liability. If properly accounted for, it would have a negative value on the government’s (including MAS’s) balance sheet not only because there was likely to be a negative spread between the cost of funding that loan and the zero interest that would be earned on it but also because of the risk that by the time the IMF drew down the loan both the creditworthiness of the IMF as well as global credit conditions could have substantially worsened.
The judges went on to misinterpret the first sentence of the passage from the FDIC manual that I quoted, which states “In reviewing individual credit lines, all of a customer’s borrowing arrangements with the bank (e.g. direct loans, letters of credit and loan commitments) should be considered” as referring to the customer’s contingent liability. Yet clearly the examiners are referring to the contingent liability of the bank and not the customer. This can be seen further on in the passage which states “Additionally, many of the factors analysed in evaluating a direct loan…are also applicable to the evaluation of such contingent liabilities as letters of credit and loan commitments. When analysing these off-balance sheet lending activities, examiners should evaluate the probability of draws under the arrangements and whether an allowance adequately reflects the risks inherent in off-balance sheet lending activities”. Clearly from the context the manual is talking about the contingent liability of the bank making these loan commitments and whether the allowance that should be made adequately covers the risks. The allowance would appear on the liability side of the bank’s balance sheet and reflect the possibility of loss if the loan is drawn down.
That the judges get wrong something so basic here undermines their claim that their selective interpretation of Article 144 is correct.
To conclude, while the judges accuse me of trying to draw a tenuous connection between a loan commitment and a guarantee, it is the judges who have tried any stratagem, no matter how tenuous and lacking in logic, to avoid having to deal with my arguments. To claim that Singapore follows a different set of accounting standards from the rest of the world will make Singapore a laughing stock globally. Furthermore the fact that the Finance Minister has only survived this court challenge by relying on such a perverse refutation of generally accepted accounting principles makes it clear that Euromoney made an egregious mistake in naming him Finance Minister of the Year 2013. Tharman should be grateful that the judgement was not announced till November 2013, just after the Euromoney award.
In addition the government has had since 1997, when the government’s ability to make loans without getting Parliamentary and Presidential approval was first questioned, to amend Article 144 so that the meaning supports their interpretation. They have failed to so. This is because having ambiguously worded legislation or very widely drawn powers without any checks and balances, as is the case with the Broadcasting Act, suits their purposes and gives them the widest possible leeway in interpretation. However such ambiguity and wide discretion given to Ministers without the possibility of appeal to an independent party is incompatible with the rule of law.
“The Appellant does not have the locus standi to challenge Art 144″
I am not a lawyer so I will make my remarks here brief. The ruling on locus standi effectively puts the government beyond the law except for the most “egregious” breaches. This nevertheless marks a slight advance on the original judge’s ruling that Singaporeans had no right to sue the government unless their private rights had been breached.
Let us leave aside for the moment the question of whether I had suffered damage as a result of my public rights being violated. I argued that as a CPF holder and taxpayer I have suffered damage as a result of the government making a loss-making loan commitment to the IMF.
However the fact that this case involved an alleged unlawful loan commitment of $5 billion and a breach of the Constitution begs the question of what would the judges would define as a breach of the law of sufficient gravity to allow a citizen to sue. The basis of rule of law is that it does not leave discretion in the hands of bureaucrats. By leaving it to the judges to decide on a case-by-case basis what is a flagrant breach of the law surely seems to be admitting that the judiciary are susceptible to political pressure. Will a flagrant breach be different for a PAP government from a future Opposition one? And citing former CJ Chan Sek Kheong’s “green-light” theory of administrative law reduces the judiciary to being merely an arm of the executive, there to facilitate executive decisions rather than act as a check on the executive.
It is a pity that our judges believe that following the way English administrative law has developed since 1977 and applying the “sufficient interest” test would “seriously curtail the efficiency of the executive in practising good governance”. They even go beyond CJ Chan who leaves an avenue for the courts to intervene when the state breaks the law by saying that “the courts can play their role in promoting the public interest by applying a more discriminating test of locus standi to balance the rights of the individual and the rights of the state in the implementation of sound policies in a lawful manner”. Now the appeal judges are saying has to be “extremely exceptional instances of very grave and serious breaches of legality” to warrant allowing an action by an individual in the public interest. Yet the example they cite, of a Cabinet Minister’s abuse of his powers as opposed to the actions of a low-level government officer, is surely engaged here. Even in the case where a low-level government officer breached the Constitution, the Auditor-General considered the issue of sufficient seriousness to make the Ministry of Finance go back and get the President’s approval for the issue of promissory notes in the relatively insignificant amount of US$16 million to the International Development Agency!
The judges also devoted a lot of paragraphs to precedents from the UK about how the courts there have not allowed judicial reviews of the discretion applied by government agencies such as the Inland Revenue in how they deal with classes of taxpayers. However that is irrelevant to the current action, which is concerned with a breach of the Constitution by the Finance Minister. It seems that the judges were clutching at straws in an effort to make their stance on locus standi seem not too far out of step with the UK.
The judges’ argument that Parliament or the President would have intervened if there was a serious breach of legality rather begs the question of how Parliament is meant to intervene in cases in which the Minister is alleged to have broken the constitution by bypassing Parliament. And where the ruling Party has over 90% of the seats despite only winning 60% of the votes and until 2011 won a walkover at every election it is difficult to understand how Parliament can be an effective check on the executive.
As for the President, he failed to intervene in the case of the IDA promissory notes until the Auditor-General pointed out that MOF had breached the Constitution. The judges say that the President could have used Article 100 of the Constitution to convene an advisory tribunal of three judges to consider this question and the fact that he did not choose to do so supports their contention that I should be denied standing. However JBJ requested that the then President convene a tribunal in 1997 to decide the same question and he declined to do so. If the government chooses to bypass getting Presidential approval then the President is unlikely to make a fuss. We are all aware of what happened to Ong Teng Cheong and his decision not to run for a second term after his requests for greater transparency were rebuffed.
My aim in bringing this case was to ensure that we had tighter financial controls over what the government does with our money and to prevent it squandering the huge surpluses it has extracted from the people through bad investments, influence-buying exercises and excessive compensation for the managers. This is a government that would rather give away your money to foreigners than see it spent on your welfare. Ironically the President’s only financial controls are to prevent spending from the reserves on Singaporeans. On the basis of this ruling there is nothing he can do to prevent the money being given away in the form of loans. In a climate where the PAP government is already under scrutiny for banking secrecy, a ruling that we have no ways of controlling a rogue government that breaches the Constitution shows that we have no standards of governance and no rule of law. It is inexplicable how Singapore can be rated one of the most transparent and least corrupt countries when there are such glaring loopholes in financial controls. The judges say that allowances should be made for the cases of the most serious illegality. However in practice, given the award of costs to the AG, this judgement will have a chilling effect on the willingness of citizens to act as watchdogs of the public interest and gives a “green light” to government illegality.
The Court of Appeal has just handed down judgement in Kenneth Jeyaretnam’s IMF loan case. The case is crucially important and it raises two key points. Can the government lend away the wealth of the nation without Presidential approval? And can an individual citizen challenge the behaviour of the government in court, if it is alleged that there has been a breach of the constitution? The ruling of the court is against Kenneth on both counts. The government apparently can lend away the reserves without Presidential approval – effectively making the role of the President as the holder of a “second key” worthless. And furthermore, an individual citizen does not have the right to challenge the government in court, even if the case is of such gravity as this one where a breach of the constitution has been alleged. In stating as they do, that “the nature of the issue is entirely political” – the judges have completely misconstrued the reality of the case and the nature of the constitution. The decision is a difficult one to agree with. Upholding the law is not political.
For now I will only address the question of locus standi, which is the question of whether or not a private individual has the right to challenge the behaviour of the government through the courts. Long time readers of my blog will understand that I have a particular interest in this question since a government with free rein to act unlawfully without the oversight of the courts is not much more than a dictatorship.
To begin with, the court quite carefully and correctly explains that the right to bring a case is completely separate from the merits of the case itself. If one is not allowed to sue, then one cannot come to court and sue, irrespective of how likely one may be to win or lose. With this in mind, we can put aside briefly the arguments and reasons on why Kenneth lost the case, and just focus on whether he does, or should, have the right as a citizen to bring it in the first place.
locus standi is apparently a very complex and misunderstood aspect of law, and as I am not a lawyer, I do not pretend to understand it fully. My concerns with the case mostly flow from what I hope is an educated but common sense understanding of the arguments presented, as well as a reaction to the apparent lack of internal consistency in the Judges’ reasoning. The ruling on this point covers some background and case-law on the topic. Suffice to say a couple of distinctions are teased out which are crucial. Citizens intrinsically do have the right to challenge the behaviour of the government – but not automatically – there are limitations. The most important distinction appears to be between unlawful behaviour and poor policy or administration. It is much easier to sue in the case of the former than the latter.
To judges explain this (hopefully obvious) point well, and I shall quote from the ruling directly:
every public authority has the duty of observing the law … it hardly follows that every official action or decision is appropriately subject to judicial review
Later on they write:
On the other hand, it is equally important that the courts do not by use or misuse of the weapon of judicial review cross that clear boundary between what is administration, whether it be good or bad administration, and what is an unlawful performance of the statutory duty by a body charged with the performance of that duty
Clearly, the distinction exists between the allegation of unlawful government behaviour, and the allegation of poor policy, or poor administration. One of the central cases cited in the judgement is from the UK, where the tax authorities declined to prosecute a set of casual workers for providing false information. This is a case of policy and administration on the part of the authorities. There is no legal or constitutional obligation for the authorities to prosecute every supposed tax dodger. The authorities have to make a policy decision on who to prosecute, and who not to prosecute. The authorities must reasonably balance the public interest, the sums of money involved, the likelihood of a prosecution and myriad other factors before bringing a case. This public interest balancing act however doesn’t apply to the question of the government breaking the law. The government, as the judges note, “has the duty of observing the law”. Observing the law is not optional.
The judges then are abundantly aware of the distinction between the “duty of observing the law” and the pointlessness of subjecting “every official action or decision” to judicial review. The judges are also well aware that this case is about observing the law, in fact the constitution. Elsewhere in the judgement they devote some paragraphs to examining the wording of the constitution, the behaviour of the government, and in finding that the constitution was not breached. So the distinction clearly exists, the judges are aware of it, and they aware on which side of the distinction this case falls.
In finally coming to their point, the judges frame the question perfectly:
We also note Lord Diplock’s concerns where he lamented the emergence of a ‘grave lacuna’ (omission) in the system of public law if applicants were to be denied locus standi by virtue of standing rules that would stop them from bringing matters ‘to the attention of the court to vindicate the rule of law and get the unlawful conduct stopped’
This point bears repeating. Kenneth’s case is fundamentally about “get[ting] the unlawful conduct stopped”. The judges write, citing case-law from the UK, that it would be a grave omission if the system prevented citizens like him from doing so. But yet that grave omission is exactly what they inflict on us in the very same paragraph. Reading around this very obvious and well supported point of law, and without citing any other authorities, the judges suddenly let the mask slip, and a green light to unlawful governance is given. The judges state that the principle of “get[ting] the unlawful conduct stopped” should not extend to “all” forms of unlawful conduct. A citizen cannot “always” come to court if the government has broken the law. Yet no explanation for introducing these caveats is given. The judges introduce the argument that the “gravity of the breach” must be considered. In this case, the gravity of the breach is the most grave imaginable – a breach of the constitution itself. Yet despite introducing this condition, the judges decline to assess the “gravity of the breach”. The judges decline to explain why they allow this “grave lacuna” to occur. They skirt around the issue, stating:
neither Parliament nor the President had thought fit to question the propriety of the promised loan. If the President was indeed concerned and inclined to veto the commitment, he would have done so
In this, the judges completely mis-frame the case, the wording and the supposed purpose of the constitution. There is no legal scope for the presidential “veto” they refer to. It is frankly bizarre for the judges to even suggest this. The constitution makes it clear that Presidential approval is required when article 144 applies:
—(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
The whole question of this is to prevent a mischievous government going behind the President’s back and bankrupting Singapore. Stating that the President decided not to intervene is to misconstrue things entirely. By phrasing things this way, the court seems to paint seeking Presidential approval as a subjective administrative decision rather than the mandatory constitutional requirement that it really is.
In making this ruling, the court has effectively given the government a green light to rule unlawfully. If the government flagrantly and deliberately breaks the law, and you as a citizen are outraged, there seems to be little you can do about it. You certainly cannot come to court to “get the unlawful conduct stopped” – as Lord Diplock of the United Kingdom would expect. In Singapore, you do not havelocus standi. This may seem like a terrible way to run a judicial system, it certainly caused the authorities cited by the judges great concern, but it did not stop them from making such a ruling. One can only wonder as to why.
Andy Xian Wong
Andrew Loh’s recent status update on his Facebook page (no offence Andrew) shows how muddled our thinking is on media freedom no matter how well-meaning.
Andrew says in his latest Status Update
“What, really, gives the Govt the audacity to do as it pleases is when newspaper people – past and present – do not stand up or speak up against the Govt’s irrational behaviour and unsubstantiated reasons for Internet rules and regulations.”
Why would Andrew or any other Singaporean expect “newspaper people” past or present to speak up against the government? Newspaper people ARE the government. How could they speak up against themselves? And there is also nothing irrational about the PAP Government’s behaviour and attempts to control the internet. Surely for them it is the next logical step.
Let me explain, as it is vitally important that we get to grips with the issues of the PAP’s unfettered power and start blaming ourselves for giving it to them.
There are two types of newspaper people and the media organisations that employ them.
The first type is those who have simply disappeared, who have been sued into non-existence, packed up and gone elsewhere or who still publish here but have been effectively gagged by distribution agreements.
The second type is the newspaper people still remaining – PAP people. I’m not referring to balance or slant in favour of the PAP. I am talking about absolute control over the Media Organisations’ very right to exist and absolute control over management and hiring and firing through the Newspapers Printing and Presses Act. This Act is what makes our newspaper people, government people.
The PAP brought in The Newspapers Printing and Presses Act after Lee Kuan Yew decided he could not tolerate the first and only independent newspaper in Singapore, the Singapore Herald. I remember on the last day before their licence was revoked they published a cartoon of Lee Kuan Yew in a tank crushing the Herald which was depicted as a baby.
This Act controls the media by way of deciding first of all who can set up a press here. Once a newspaper company is approved, the PAP then controls the management of those newspaper companies . The management shareholders of a newspaper company have to be persons approved by the PAP Minister.
Additionally, the management shareholders have 200 votes for every share that they hold in relation to hiring and firing decisions. As a result of this arrangement, the government approved management shareholders have effective control over the newspaper companies.
Newspaper companies are not even in a position to refuse the appointment of these management shareholders. They can appeal but the PAP Minister’s decision can only be appealed to the President. Whether it is to do with our media or our internet, the President is required by Law, by Acts passed by our PAP parliament, to act in accordance with and upon the advice of the cabinet. That’s Article 21 of the Constitution. It’s a perfect closed circle.
So what takes away the freedom of our media is this closed circle issue again . In this case Media organisations can only appeal decisions made by the PAP to the President but the role of President as I keep telling you, is a farce!
Make no mistake, I am not talking about Tony Tan or any other President real or wannabe. I am referring to the way the President’s role is structured and subscribed by law. No independent President is going to save you on this issue.
And so with the internet. The real threat to the freedom of our internet is not any later amendments to the Broadcasting Act but the very Act itself and the powers it gives the MDA. The Act is so badly worded that it is broad enough to be defined as rogue or lawless. Precisely because it is so broad and vague and badly worded, the MDA can do anything and everything and never be accused of breaking the law.
The Free My Internet Campaign, is brilliant. They worked hard and quickly and were very effective but with a very narrow focus. I am one, as you know, who never shies away from speaking up for our bloggers and freedoms and was myself vilified in the WSJ by the MDA for speaking up against defamation laws. Yet, I would not put up ‘Free My Internet’ on my Facebook timeline because that would be to miss the point.
What we all have to wake up to – the new generation of bloggers and old-fashioned pen pushers alike – is that Parliament enacted these Laws and we let it happen. We allowed our parliament to pass a law that gave them unfettered power with no check on that power because anything and everything they do is within the ( very broad and vague) law. Once again I tell you that our parliament doesn’t function as it should in a democracy
Actually if there is one area where the PAP are going to come up against the limits of their ability to exert total control over the citizenry, it is the internet. Probably of all of our freedoms it is the least in danger. It is hilarious to think of the PAP even attempting to curtail it. As demonstrated so ably by Anonymous , the PAP will simply fail here.
The rather narrow focus of the Free My Internet Campaign on some new amendments to an Act that is lawlessness itself, distracts from the real issue. The real issue is bad laws that can be enacted by a parliament that has no check on its power because democracy doesn’t function.
Where the government meets no check on its absolute power you also have no rule of law. No wonder people are talking about a revolution and wondering why we even bother having elections.
Newspaper people are never going to speak up against their own employers. That is like puling out a nail that sticks out in the hull of a rotten sampan and expecting that to make the vessel seaworthy. When a sampan is rotten the whole ship needs scuttling with an axe and replacing with something more fit for purpose in the 21st century and beyond.
Disclaimer, I am not a lawyer: Read Subra for a better explanation of the various laws
Being curious as to why a foreigner would be so interested in MAS’s performance, I checked out his website. He appears to have no economic credentials other than a background in US military intelligence. Yet he has apparently managed to create a successful business out of peddling fear to the gullible and helping the rich evade tax or the elite from third world countries acquire residency or stash their ill-gotten gains in the West. His articles contain very few hard statistics and no economic analysis. Instead they are peppered with phrases like “monetary madness”, “hyperinflation” and “the coming economic collapse”. The author even rails against gun control. Indeed it is easy to see why you might need your own arsenal of subatomic weaponry if, as Black says, the apocalypse is just around the corner. In essence its just high pressure sales and the same scare tactics are used to sell homeopathic remedies against cancer or other diseases. For a few dollars a month you can subscribe to the basic newsletter. For a whole lot more he promises to give you the names and contact details of people who can help you set up secret bank accounts or trusts without bothering with legalities like money laundering checks or provide second or third passports with no questions asked.
Black also acts as promoter and salesman for the global gloom-and-doom school of investment gurus. For the very reasonable sum of US$1,000 you can download a video to hear pundits like Jim Rogers (who moved to Singapore a few years back), Jim Rickards, Ron Paul (the former Congressman and well-known libertarian), Paul Schiff and Nigel Farage (leader of the UK Independence Party who seems an odd bedfellow) give their insights at a conference in Santiago, Chile, into the future. High on the agenda is how to protect your assets from greedy governments intent on confiscation, improvident central bankers determined to debase the currency, supranational organisations like the EU determined to impose dictatorial rule and a lazy Western populace hooked on welfare. All these individuals cater to what an Asian audience wants to hear, predicting the fall of the West, the rise of Asia and the bankruptcy of the US under a mountain of debt.
What these pundits including Black all have in common is that they are adherents to the Austrian school of economics of which Hayek was the best-known exponent. While I am no fan of socialism, I take exception to a major Hayekian premise, which is that economies left to themselves are inherently self-regulating without the need for government intervention. In particular Hayekians believe that governments should never run deficits and that currencies should be freely convertible into gold. The Great Depression of the 1930s should have finished off these zombies. However, despite all the empirical evidence demonstrating the very real harm such policies have done and continue to do to the economy wherever they are practised, the zombies have come to life again after the financial crisis of 2008 should have administered the coup de grace. They have captured the Republican Party in the US and influenced a lot of the policies of the UK Coalition Government, with detrimental effects on the economy.
Another notable characteristic of these professed libertarians is their willingness to get into bed with rather nasty authoritarian or even communist states if they can benefit from a lower tax rate. Jim Rogers is based in Singapore and is always singing its praises along with China’s. Yet perhaps if they had to do National Service or live in government-owned housing or have their property acquired for a pittance or have to pay enormous damages in defamation suits for saying things that they regularly say about their own countries’ leaders , they would not be so fulsome in their praises. They clearly are blind to the reality of a state capitalist economic model where most domestic enterprises are ultimately controlled by the government. So their libertarianism is not genuine but just self-interested cant.
Once we understand where Black is coming from we can see why he is writing about MAS’s losses. He is not criticising MAS since he praises Singapore as an “ultra-healthy” economy. Rather he is hitting out at Ben Bernanke and the Federal Reserve for debasing the US$. to gain a trade advantage. MAS’s losses are only a peg to hang his constant theme of coming monetary collapse, hyperinflation and the breakdown of civilisation. It is immaterial whether Black believes in his ravings or has any evidence to back up his contentions. He is just a good salesman who could be selling anything from health products to time-shares to guns. Spreading fear boosts sales of his newsletters, briefings and videos, money from which undoubtedly lets him live a luxurious lifestyle.
It is also what his presumed audience in the BRICs and other developing countries wants to hear. Attacking the US for quantitative easing also puts him on the side of governments like China, Japan, South Korea, Brazil, and Singapore, which manipulate their currencies to get a competitive advantage. Naturally the governments of these countries are apoplectic with fury that the US, through quantitative easing, is playing the same game and making their exports more expensive in the US market.
While Black draws attention to last year’s MAS loss his rushed and superficial analysis obviously had no time to look back at earlier years. MAS has been making losses for some time as it accumulates foreign currency reserves that become worth progressively less and less when converted back into appreciating Singapore dollars. The total income (losses) for the years 2009 to 2013 are given below:
2009 S$ (7.4) billion
2010 S$ 9.4 billion
2011 S$(10.0) billion
2012 S$ 3.3 billion
2013 S$(10.0) billion
Since 2009 MAS has lost a cumulative total of S$ 14.7 billion. In 2009 it lost $7.4 billion, which prompted the government to bolster its capital through an injection of nearly $17 billion in fresh equity. I pointed this out in my submission to the Court of Appeal over the constitutionality of to show that MAS could not be considered an independent entity as the AG tried to argue. MAS’s losses should not be considered in isolation. GIC also appears to have only made around 2.5% p.a. when measured in S$ over the period 1980-2011, a shockingly low return given its access to cheap leverage in the form of forced lending from Singaporeans’ CPF funds (see links to series of articles on www.sonofadud.com below).
Black may blame these losses on the fiat currency system and what he calls “Ben Bernanke’s journey into monetary madness over the last several years”. This obliges “healthy nations like Singapore…to lose billions”. But the blame should really attach to the PAP government’s perverse and outmoded economic policies, it is much more unhealthy for Singapore to run a current account surplus of 20 to 25% of GDP than it is for the US to run a relatively modest current account deficit of about 3% of GDP currently. This huge surplus represents foregone consumption (in 2012 private consumption expenditure was only 36% of GDP). Furthermore it is a direct consequence of the PAP government’s enormous budget surpluses. Singaporeans lose out because depending on the leakage to imports we could probably raise consumption expenditures by at least 50% and still have current account balance or a small surplus. Clearly the current level of surplus is unsustainable in the long run and the resultant economic austerity has no longer any justification.
This chronic current account surplus puts continuous upward pressure on the Singapore dollar and forces MAS has to lose billions by accumulating depreciating foreign exchange reserves. Though capital account flows (presumably GIC and Temasek’s overseas investments) partially offset the current account surplus this is not enough to prevent a big increase in reserves of nearly 10% of GDP that is the result of MAS intervention.
One solution would be for the MAS were to stop intervening in the foreign exchange markets. The S$ would then appreciate to the point where exports become sufficiently uncompetitive and imports sufficiently attractive to bring the current and capital accounts into balance. However this would be likely to have adverse consequences for output and employment in Singapore. Counterbalancing this would be the higher real incomes of consumers as imports became cheaper. On the positive side it might hasten the restructuring of the economy away from low productivity industries dependent on foreign labour. However foreign labour may be more willing to accept nominal wage cuts because foreign workers have a real income target expressed in their home currency. This could lead local employers to substitute even more foreign labour in place of Singaporeans. This would obviously be an undesirable consequence. Another adverse consequence is that this would impose even greater valuation losses on the portfolios of our Sovereign Wealth Funds which must dwarf MAS’s already substantial losses.
A better solution would be to consume more and save less. Singapore’s consumption of 36% of GDP contrasts sharply with the US where it amounts to 70% of GDP. It is difficult to believe that investment returns in Singapore are so much higher than in the US to justify this disparity.
This underconsumption and overinvestment is driven by the PAP government’s desire to continue accumulating overseas assets. This has got to the point where relatively small movements in the value of the stock of government financial assets dwarf changes in GDP. The result is the situation where MAS’s loss last year swallowed up almost the whole of GDP growth. The government is turning Singapore into a gigantic investment fund with a small operating company (the economy) attached! It deliberately prevents us from finding out how the managers of our money are doing but all indications are they are performing poorly. Secrecy has historically been highly correlated with fraud and mismanagement.
To illustrate how the additions to the stock of investment assets now dwarf movements in GDP, the government ran a huge surplus of $36 billion in 2012 or over 10% of GDP according to the past issues of the Monthly Digest of Statistics. This was just the government surplus whereas a wider measure known as the general government surplus and published annually until very recently in the Yearbook of Statistics has traditionally been much bigger. (The Yearbook has now changed its format to the same as the Budget presentation and this suggests that the PAP government is worried that it has been providing too much information to critical analysts like myself. ) Including the net incurrence of liabilities, which represents the increase in government debt through the growth in CPF funds, the government took in around 20% of GDP from the corporate and household sectors. Coincidentally or not, this almost exactly mirrors the current account balance.
My preferred solution would be to invest more in infrastructure, spend more on health and education, improve social safety nets and cut taxes. The government could thus reduce the current account surplus and relieve the upward pressure on the S$. Singaporeans would also enjoy a higher standard of living. As an added by-product we would be good global citizens, contributing our own small bit to rebalancing the world economy.
However that is unlikely to happen as long as the government continues to pursue insane economic objectives (see the link to my last article below). The government’s rationale is that we need to continue saving for a rainy day. When currency appreciation wipes out most of the investment returns that our Sovereign Wealth Funds are able to generate that argument becomes increasingly absurd. It snake oil salesman SImon Black and the group of professed libertarian pundits whose half-baked economic analysis and doom-mongering he peddles, should push a country which does not believe in freedom, pursues insane economic policies and gives its own citizens such a raw deal!
The recent flare-up of the Indonesian forest fire problem and the deterioration in our air quality is understandably also causing temperatures to rise in Singapore. Our neighbor Malaysia is also equally if not more severely affected. This happens year after year causing severe respiratory problems for those afflicted with asthma, forcing schools to cancel outdoor activities and keeping people inside. Yet what is notable is that our government seems unable to come up with any solutions despite the fact that this has been going on since 1997. In particular they do not seem capable of applying some simple lessons from economics.
Economics teaches us that pollution is an example of a negative externality. A negative externality occurs when a third party has to bear the costs or negative impact of the production of another party. An example within Singapore would be congestion on the roads. As the roads become congested due to the increasing number of private cars, public transport users and non-car owners have to bear the negative costs in terms of longer and slower journeys, pollution, noise and congestion.
A positive externality is when the third party benefits from the action or production of others. Those who choose to forgo the comfort of a car are benefiting others. Growing plants for our own pleasure or use on our balconies ( so long as we guard against mosquitoes) actually benefits the whole environment not just us. A government that invests in education produces a host of positive externalities.
In the case of the haze from Indonesia the negative costs are primarily the additional health expenditures required to treat the problem as well as any economic losses arising from people having to take days off work. There is also the damage to the tourist industry, both short and long term. There is also the possible long term damage to health resulting from the pollution. This damage is all capable of being quantified yet it does not seem to have occurred to the government to do so. I would confidently estimate that the costs run into billions of dollars.
Now Iam going to bring in some theory. A government familiar with the Coase theorem (named after Ronald Coase who won the Nobel Prize in Economics in 1991) could have gained some insights here. Problems with externalities can be viewed as problems of the distribution of property rights. The right to pollute can be viewed as a property right as can the right to clean air. Now, in an efficient market without transaction costs this property right should go to the highest bidder, i.e. the party to whom that right is worth most.
Is there any way to stop this menace? Well, the economic loss if not the misery could be solved by the Indonesian companies involved paying Singaporeans for the additional health and other costs that we incur as a result of the pollution. However Indonesia as a sovereign state feels no necessity to compensate Singaporeans and Malaysians for the costs incurred. Disappointingly ASEAN has set up no legal mechanism for dispute resolution of this kind and the awarding of compensation for damage suffered from externalities that cross national borders. It shouldn’t surprise us that the PAP government appears unable or unwilling year in year out, to do anything beyond telling their Indonesian counterparts that the situation is serious. It shows how ineffectual ASEAN is. So penalizing Indonesia or fining them clearly isn’t workable given the current framework.
I have a much better idea based on The Coase theorem. Rather than seeking damages for the costs of the pollution we should just pay Indonesia for our clean air. Singapore could pay the Indonesian farmers and plantation owners responsible for the haze to use other methods to clear their land. We are a wealthy Nation and because we lose billions of dollars to this haze every year, this right (the right to clean air) is worth a lot of money to us.
Lacking an international legal framework to award and enforce compensation claims, Singapore and Malaysia should offer the Indonesian government a sum sufficient to compensate the farmers and plantation companies for the additional costs incurred by switching to another method but obviously less than the value to us of having clean air. The problem is that the prospect of financial payments is likely at the margin to induce new companies to enter the “industry” of slash-and-burn clearance just to receive compensation. For example if I pay my neighbours on the left to stop growing flowers in their garden because I have hay fever then the neighbours on the right would immediately start planting flowers to get me to pay them to stop.
Therefore it would be better if the compensation took the form of a lump sum payment to the Indonesian government to be given to those responsible coupled with a continuing payment towards the costs of rigorous enforcement of a total ban on such methods. This cannot be too difficult given rapid developments in drone technology to allow intensive monitoring of large areas. Singapore could also contribute towards the development of low cost but less environmentally harmful methods of land clearance.
Objections have been raised, particularly by Indonesia, that a large part of the pollution is produced by plantation companies listed in Malaysia and Singapore. We are able to raise a levy on these companies sited on our homeland. Perhaps part of the costs of compensating Indonesia can even be defrayed by levies on these companies. They are unlikely to be able or willing to escape the levy by relocating elsewhere.
So, I offer a simple solution. I am sure there are many other suggestions. The real question is why our government has done nothing about it for the last fifteen years. As always I am convinced that they have no long term plan or model capable or reacting to evolving situations. I have many times said that their plan is a super tanker set on course. They can calibrate it slightly on route from A to B but super tankers are notoriously difficult when it comes to turning a circle or changing direction. The one child policy is a perfect example of a PAP super tanker route. Population rates are particularly difficult to change and once affected almost impossible to put into reverse. Another example is the PAP economic model of growth essentially based on low cost labour which is now increasingly obsolete in the face of disruptive technologies like advanced robotics, 3D printing and automation of knowledge work.
The PAP ministers cocooned in their million dollar salaries are largely indifferent to our health and well being or are simply incapable of coming up with positive policies. Let us return to those negative externalities. I often berate Singaporeans for being prepared to put up with conditions of austerity that citizens of advanced democracies and economies would never tolerate. Maybe it would be more obvious if we were to look at what I call austerity as a negative externality.
Let’s turn this on its head. If the PAP was a farmer burning and causing haze the negative externality it produced would be obvious to you. It is not a factory of course but citizens as the innocent third party are forced to bear the negative costs of the PAP policy of unnecessary savings. Savings far beyond any level that would be considered necessary for a reserve fund, as a buffer against a rainy day. The negative externally is borne by you as over a 50 year period the PAP wilfully under spends and under invests in its citizens’ education and health. This causes me to ask once again, who do our huge reserves (even taking into account the discrepancies I have highlighted before) actually benefit? And do our people vote for the PAP believing that bearing the negative externalities is a good way of existing or have they simply had the wool pulled over their eyes?
Finally I will compare Temasek Holdings with Norway’s sovereign wealth fund. As you know I often bring up Norway’s SWF as a model of good governance and a model of transparency. Bearing in mind that Norwegians of course enjoy a full welfare state although this is not something I would advocate for Singapore. A couple of years ago Norway’s SWF made a major policy shift. They decided to invest a significant part of their funds into environmentally responsible companies. Norway’s Ambassador speaking at the time said the investment strategy was “just the start” of her country’s use of state – backed financial mechanisms to halt environmental degradations. Meanwhile Temasek is using state finance to invest in plantation companies. In 2005 it acquired CDC group’s plantation interests in Indonesia including Sumatra in partnership with Cargill. So ironically if we do pay for our clean air we could be paying our own government for the right to clean air.
Benedict Chong, I don’t know if that’s his real name, has responded to my recent piece about wanting to give Singaporeans a stake in the wealth of our country. I reproduce it here as a separate article. He makes many interesting points and it is well worth reading. Please feel free to comment on it.
With regards to your article on the privatisation of both Temasek and GIC, I note certain solutions and process that you (KJ) are suggesting the Singapore government implement in order to “create a true property owning democracy”. While I like the idealism of such an idea, I am afraid that practically, it is unrealistic. And I give you the reasons below.
I will of course, focus on the answers to the questions you broached and add a few of my own.
The figure you give shows that every citizen would have a claim of up to $100,000. While this figure itself is disputable and extremely subjective, as you have stated yourself, let me bring your attention to the crux of the issue. Will the issuance of such a huge and nominally equal sum of money to every citizen in the country really make the lives of the general population better? Based on comparative analysis, the relative wealth of citizens in the country will remain equal. There is no net benefit between me and my neighbour since we are both receiving the same amount. On a ceteris paribus assumption, I would be no better off.
The injection or rather, distribution of such a huge amount of shares to the public will also result in the need to increase the monetary base/supply of SGD substantially. I assume that cumulatively, GIC and Temasek as a whole will be worth around 500 billion SGD. The distribution without payment of such shares will result in sudden inflows of apparent “wealth” that increases the total market capitalisation of SGX listed companies by up to 55%. But the money to purchase or even sell such shares has to come from somewhere. This will lead to two possibilities; inflation as money “earned” from sale of distributed shares are pumped into the economy or plunging prices as supply of such shares outstrip demand for it, making those who sold their holdings first more advantaged (so much for democracy) since transactions are carried out on basis of price and first come first serve.
Your comment on the government no longer required to make budget surpluses or even balance the budget is perhaps extremely irresponsible. There is little need for me to point to the problems in Eurozone countries as well as USA as evidentiary support for my stand. In addition, your comment on the government investing possible surpluses into SWFs also brings a moral issue to the table.
Whether you like it or not, government money in any entity means that that particular institution has been given an unquantifiable asset of implicit sovereign guarantee. In this case, will the SWFs be considered private corporations or mere Government Sponsored Enterprises? GSEs have shown throughout history to be less than prudent in their finances, regardless of whether they are publicly traded or not. So much for transparency that comes with a stock listing..
The other questions that you are merely scratch the surface. I would like to pose a few of my own questions which I hope you can answer.
1) What happens if those former SWFs meet insolvency issues in the future? Should the government backstop them or let them fail, keeping note of their huge presence in the markets?
2) Is the securities market in Singapore liquid enough to sustain such a listing?
3) Will the government regulate the company or allow is to determine its own risk profile?
4) Who will lead the former SWFs? A government appointee or member of the general public?
5) Should the incumbent government issue a set of guidance, directives or risk parameters to the company?
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.
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.