Did you know that on January 27th the value of the Singapore Dollar dropped by the greatest amount in a single day since 2010?
A few days ago the financial press globally were startled into reporting that our currency had suddenly depreciated. Yesterday MAS put up a belated official announcement explaining that it had been a deliberate policy move.
I’d like to take a closer look at this monetary easing and show you why it will lead to Singaporeans getting shortchanged unless it is accompanied by fiscal easing and how ultimately disastrous the PAP policy of relying on exports and overseas investment is. I will show how it links to immigration policy, forced CPF savings. health care and so on. I will demonstrate that the only solution is to re-balance the economy towards domestic consumption.
What is monetary easing good for?
Monetary easing, often referred to as quantitative easing, or QE (as the policy of monetizing government debt and other financial assets through open-market purchases by the central bank is called) has been billed as a tool to fight deflation. For the purposes of this post you will have to accept that deflation is a bad thing and to be avoided. If you want to know more or disagree just drop me a comment and I will be happy to respond.
For this post I am also making the assumption that we only avoided a double dip recession because our government went backwards and retrospectively amended earlier figures downwards so that the drop was not so pronounced and technically we avoided a recession. But it is only technical and we are in recession to all intents and purposes or constantly on the verge of recession. The CPI ( consumer Price Index) here did in fact decrease by 0.2% in December compared to a year ago so MAS has good reason to be concerned
Why did MAS take the step of Monetary Easing ?
Naturally financial analysts have focused on the move by MAS as part of a strategy to fight deflation. This is the same reason given by the Japanese and European central banks on why they embarked on massive monetary easing.
The MAS’s own announcement states the reason is an attempt to slow the Singapore dollar’s appreciation against a basket of currencies. So everyone agrees that MAS has got us into monetary easing in order to fight deflation. In fact our currency immediately responded to the QE by dropping roughly 1.5% against the US dollar and is expected to fall further. We will know more on Monday.
So if our currency is dropping what’s wrong with Monetary easing?
Because monetary easing on its own is unlikely to be effective except insofar as it weakens your currency and boosts exports. The problem is that QE needs to be accompanied by a more expansionary fiscal policy aimed at boosting domestic demand. As you depress the currency value on one side of the equation you must balance it by pumping up the domestic demand on the other. Back in the 1930s Keynes already said that a monetary policy easing unaccompanied by fiscal measures was unlikely to be effective in stimulating demand and getting an economy out of recession. Also you cannot keep your currency depressed for ever without incurring costs which mount over time.
Why are people talking about Currency Wars?
By deciding it can no longer sit back and let other exporters like Germany and Japan gain a trade advantage by depreciating their currency MAS has joined the currency wars. Make no mistake, the latest rounds of QE, accompanied in Japan by tax increases and in Europe by German demands for similar measures in other Eurozone countries, are not really about increasing domestic demand,no matter what they claim. They are called currency wars because it’s about the battle over the export market. It is a move by the countries involved to gain an unfair competitive advantage by making their export goods cheaper. It’s just an old-style currency manipulation exercise aimed at beating export competitors (South Korea and China) and gaining a bigger share of the US market, which is the only one still growing. For now.
We cannot rely on US growth. If all these countries depreciate their currencies and get a bigger share of US exports they actually detract from US growth because they are not importing equal amounts from the US. By pushing exports over imports they accumulate reserves, the bulk of which are invested in low-yielding Government securities, which become worth less and less over time. These wars are actually subtracting from US growth (which the Americans are unlikely to tolerate indefinitely) and exerting a deflationary impact on the rest of the world. Ultimately the US has the option of going bust (though more a theoretical possibility than an actual one) or imposing negative yields on foreign holdings of its currency like Switzerland. All those countries with a claim on them via Treasury bonds in the reserves will be royally shot in the foot.
What do you mean by fiscal easing?
When I say fiscal easing I mean moves to boost domestic consumption, that is spending more or collecting less by cutting taxes.
The PAP have a mercantilist mindset. Running a big current account surplus and accumulating reserves is part of the mercantilist mindset that also sees exports as good and imports as bad. To the mercantilist, there can never be too much investment and the less domestic consumption there is the better. Since the 1970s there has been a huge drag on world growth caused by the desire of mercantilist nations to run big current account surpluses and accumulate reserves. First it was Japan in the 1980s and then South Korea and China, particularly after the Asian financial crisis of 1997. Germany also has a mercantilist mindset. In the past the PAP has expressed views that there is no point in increasing domestic consumption, as it will all be spent on imports.
As I said before if everyone together tries to reduce domestic demand and increase exports simultaneously the end-result will be a worldwide slump. The result of a much bigger accumulation of reserves is that the returns from these reserves over the long run fall to such a low-level that it would have been better if the surplus countries had spent it on consumption in the first place. Add in the fact that we are probably poised on the cusp of an era of accelerating productivity growth with automation and artificial intelligence and a strategy of hoarding reserves in ever-increasing amounts for a “rainy day” that never comes makes no economic sense.
How is this relevant to the Singapore context?
The immediate effect of our currency depreciation will be to make overseas travel or study less attractive in particular to the US and imported goods may become more expensive such as the costs of fuel but Singapore and Singapore housing in particular will start to look very attractive to overseas investors.
Many of the PAP’s economic policies are aimed at running a large current account surplus and accumulating reserves. The Government runs a budget surplus (on the correct IMF format and not the misleading one presented to Parliament as part of the annual Budget farce) of about 8-10% of GDP. That is very large indeed and means that the reserves are rising by about 10% every year.
The QE is abetted by other policies to achieve the mercantilist goals. Of course there is the open-door policy on cheap foreign labour which makes our exports extra-competitive. At the same time this reduces Singaporeans’ wages which cuts domestic consumption. A forced savings scheme, CPF, cuts consumption even further and recycles our savings into foreign currency via Temasek, GIC and MAS to assist in keeping the Singapore dollar undervalued. The end-result of these policies is that Singapore runs a current account surplus of around 20% of GDP and continues to rapidly accumulate foreign reserves
At our stage of development such a high rate of savings is unnecessary and means we forego a higher level of consumption. Taxes on the middle and lower classes and prices for a range of products that we are forced to buy from government monopolies are higher than they should be. Spending on health, education, children and the elderly is kept down despite the fact that the first three items at least would yield higher rates of return than our SWFs are able to generate on our foreign reserves. (I have since 2012 questioned the returns that Temasek and GIC are achieving and some of my many articles are listed via links at the bottom).
What can be done instead of QE?
The Government could allow the Singapore dollar to appreciate thus cutting the cost of imported goods and raising the real value of our wages. If the Statistics Department measure of overall unemployment at 2% and citizen unemployment at 2.9% is accurate then the economy is operating at full capacity. By keeping the Singapore dollar artificially undervalued the PAP Government are acting contrary to their stated policy of encouraging Singaporean manufacturers and producers to raise productivity and move up the value chain to higher value-added products. Decreasing the currency by QE is actually subsidising producers discouraging productivity and imposing a forced real wage cut. This is the clearest sign that despite the lip service paid to productivity the PAP Government is returning to the only growth strategy it understands and finds easy to implement: low value-added service and manufacturing industries based on cheap foreign labour.
The Government should also loosen the fiscal austerity that it has practised for so long and spend more on domestic programmes like health, education, families and the elderly. At the moment the Net Investment Returns Contribution which is supposed to be used for current spending is instead saved in a round-tripping charade which I have called “Smoke and Mirrors in the Government’s Accounts”. We can spend at least another $10 billion a year on social programmes without denting the reserves if the Government is being honest about GIC’s and Temasek’s returns.
As for housing I have often warned here of the dangers of a housing bubble when everyone gets excited over the rising value of their property. Government measures to cool the market did just that and now this latest currency depreciation move will reverse that and prices will go up again.
There is one other possible reason why the Government has chosen the path of currency depreciation. It has to do with our secretive Sovereign Wealth Funds with Temasek headed by the Prime Minister’s wife whilst he himself heads up the board of GIC. Depreciating the Singapore dollar would very effectively offset losses or bolster returns generated from the assets of our SWFs invested in foreign currencies. The last public Statement of Assets and Liabilities at 31 March 2013 showed total Government assets net of cash held with MAS of around $650 billion. All of GIC’s assets are external so currency depreciation will have the automatic effect of increasing returns denominated in Singapore dollars. The same goes for Temasek. Even the value of their holdings in Singapore equities will also go up if the Singapore dollar depreciates depending on how much the companies export. The Singapore dollar has already fallen by some 8% since June 2014 which will artificially boost the returns achieved by Temasek, GIC and MAS when translated back into Singapore dollars. We do not know how Ho Ching is paid but it seems safe to assume that higher returns will result in her receiving a higher bonus.
So not only is the PAP Government cutting the value of your wages by an unnecessary and counterproductive currency depreciation. It is cutting the value of your CPF savings too. This demonstrates, as I have always said, that the risks of Temasek and GIC will not be borne by the managers, including the PM’s wife. They will instead be borne by Singaporean CPF holders and taxpayers.
Many of you will have seen Roy’s latest blog piece by now. You will also have seen a letter put together by some concerned supporters including me that was published in the Asian Sentinel and later by TOC. I was particularly struck by Roy’s reference in that blog to the S$2,000 fine that stops a Singaporean from standing for election for 5 years and his mention of the S$8,000,000 suit and being an ordinary Singaporean.
Being a couple of decades older than Roy and being related to one of our historical law suit defendants allows me to add some personal insight into those proceedings and their results. I will also explain my reasons for continuing to support Roy, why he should not lose faith and why you all, previously so numerous in your support, should not now be silent.
Right now Roy has become his own sideshow and a distraction from his own message. None of that is his fault of course. This is the way the PAP machine works and is typical of the way in which the PAP undermines its opponents and silences dissent. Truly it’s not healthy for any society to have no debate or dissenting counter view.
Let’s not get distracted from the key issues. The one big, basic question has still not been answered. Why is the CPF minimum sum being raised? The one big fear that is not being dispelled is the fear that the minimum sum has been raised because GIC and/or Temasek has lost money and the government needs to get the money from somewhere else.
In fact this use of a sledgehammer to crack a nut, as we see with Lee junior versus Roy, will only increase that fear. Or it should at least increase our suspicions. As I always say if there is nothing to hide then throw open the books for inspection! It comes down to trust between the people and the government which is at an all time low. Instead of taking steps to rebuild that trust our PM has sued a blogger. Don’t get distracted. See what is really happening here, what is really at stake?
The fact is that the issue of Temasek Holdings investing or managing CPF money has not been satisfactorily explained. Temasek say they don’t do it. This is simply sophistry. It is half a lie and wholly economical with the truth. Money that the government receives from CPF savings goes to GIC and the profits that GIC earns investing those funds, swells government surpluses, enabling the government to inject more capital into Temasek. Furthermore Temasek’s own internal rates of return – that it is supposed to earn on new investment will no doubt be related to CPF interest rates. Like everything else we have no disclosure on this but trust me, this is how it is done.
The irony is that Roy was not even, judging from his earlier writing and blogs, that strong an opponent of the government/PAP. (Well he wasn’t before all this) Let me explain. He was an opponent of the way CPF returns to the citizens had to fight with GIC’s and Temasek’s need to make profits. So if more money was paid out then GIC’s track record went down. If less was paid back to us then GIC made a bigger profit. He objected to the system that allowed this conflict, as he quite rightly saw it..
If you read his blogs, watch his videos, went to hear him speak, he was more often to be found talking in terms of campaigning for the government to reform the system, asking the government to be more fair, asking the government to put the people as a priority, not the profits of Temasek and GIC. In fact when you look at Roy’s speeches and writings it is very much about the government. For goodness sake the Facebook page attached to his blog is called I want the people and the government and people to work together for Singapore’s future. .. https://www.facebook.com/pages/I-want-the-government-and-people-to-work-together-for-Singapores-future/185331834935656
At the same time, clearly Roy is a supporter of our way of life and society here in Singapore and not a revolutionary. His biggest failure was in believing that asking for the government to reform and provide some transparency was a perfectly reasonable request.
This makes his approach very different to mine. I don’t believe that asking the PAP to change is the way to go. I want the PAP voted out and the structures put in place that will ensure strict rule of law, protections, oversight, accountability, transparency so that democracy AND prosperity can flourish and so that the people prevail no matter what colour shirt sits in the house.
A true opponent would be campaigning to change the government not ask it to reform or improve in response to citizen concerns so why did Roy become Public Enemy Number One? Roy just wanted you all to make a bit more noise about where your money went, how it was used, what GIC’s and Temasek’s profits were, MPs’ inclusion on boards and the PM as head of GIC and his wife as head of Temasek.
I do firmly believe that the PM has been incredibly foolish and ill-advised in making an example out of Roy. Whatever the outcome it will come back to bite him in the next GE. We owe it to ourselves now, not to Roy, but to ourselves, to not let ourselves be distracted by the defamation circus. We owe it to ourselves not to be scared off. If in fact Roy is sued out of existence, which I hope doesn’t happen, then we owe it to ourselves to pick up his voice and carry it on where he left off.
Roy mentions the fine over S$2,000 that would prevent a Singaporean from standing for election. The ban is not life long but for 5 years. Roy, we are all thinking, is still young. Actually it is to all practical purposes a 10 year ban. I feel that Roy can learn a lot from JBJ’s example. In particular my father never gave up and never left his beloved country. I remember an Economist article said of my father, “whereas others prefer to speak from the safety and comfort of exile, Jeyaretnam stands his ground, as solid and immoveable as his name.”
I was forced into a form of exile as a young graduate much against my will. I was always extremely unhappy to be away from home and from my mum, who died whilst I was serving NS and then from my Dad and my wider family. I was not even a real exile just persona non grata who couldn’t even get a job interview in Singapore let alone work there, as part of a process of punishing the eldest son of JBJ. I at least could fly back to Singapore whenever I wanted and my dad was, even as a bankrupt, always able to travel and visit me and join us on family holidays. We had some fantastic time together. More importantly I have seen the devastating effect that being a exile from the PAP’s Singapore has had on the Singaporeans around me when I lived in London. Each one not able to return home, especially now that their parents are elderly and suffering. Poor gentle Francis Khoo- finally only able to return to his homeland in an urn . No, being an exile is not an easy option.
My late father J B Jeyaretnam was fined an amount to keep him from standing for election and just as the 5 years elapsed the PAP called a snap election before he could become eligible. They then took a full 6 years to the next election so almost 11 years but he still didn’t give up. The cycle after that he stood and no doubt he would have been a full MP if not for the Polling Booth-Magic-Teleportation-Paradox ruling. Still he became an NCMP. Roy is a young man still, flexible enough to enter a different career path, educated, with family here who can support him. He should not give up on plans for standing. One of the first things I was told back in 2009 by the venerable Mr Chiam was to expect it to take three election cycles for an impact to be felt. Singaporeans appreciate consistency, dedication and perseverance.
Now let us turn to Roy’s mention of defamation as a tool for quashing dissent. Something I am also all too familiar with. His previous blog entry is a vlog interview – here– he talks about the ISA being used as a tool for rounding up dissenting voices but Roy’s view is that after international media attention after 1987 the government was too embarrassed to use it again. Whatever the reason, defamation suits are clearly the preferred weapon of repression, more insidious and difficult to criticise.
This is exactly what I said when I wrote to the WSJ decrying the use of defamation suits to silence opposition. At great expense to you my dear readers and tax payers, a civil servant was hired to rebut me with a letter that the WSJ was forced to print or lose their distribution rights. That civil servant besides being a moron who couldn’t get his spelling right, was wrong of course. He later sent in a secretly edited version to replace his first idiotic response. Still wrong. I put both his letters on my blog with my letter. Did I get sued? No. I told the truth.
However, as soon as that imbecile civil servant who owes his salary to us, wrote his letter to WSJ, the State Media machine went mad, printing that I was wrong quoting him, etc etc. Almost instantaneously every blog, new media outlet pulled my letter without asking my opinion or even giving anyone a chance to say: actually, hold on.. Kenneth is right you know. Self censorship is not a strong enough term to describe this phenomenon. This extreme caution borne of fear .
It is every Singaporean running to hide under the table as soon as the PAP yells a little.
FYI-The legal blogger Article 14 explains why I was right and is included in sources at the back.
So we have established that defamation suits have replaced the ISA as the new tool for quashing dissent. Each time the PAP twists the screw of repression and tightens up their control they get a bit smarter. That should mean that the new tool of defamation is more finely tuned, more effective and something that we Singaporeans should be more afraid of… right?
No. Be afraid but thanks to Roy, not that afraid.
First of all the Lee family, the government ministers, MPs to be and various worthies have overused this tool. In this joined up and wired world nations such as ours, relying on multiple free trade agreements with democracies, cannot continue to use such draconian methods without embarrassing themselves.
Secondly Roy is not an ordinary Singaporean. I don’t know why he says he is. Maybe he means he is non-partisan, not with a Party. Whatever the reason Roy is in fact an extraordinary Singaporean and I hope he was just being humble. He makes some claims for landmark cases but the true landmark in Singapore’s history will be that S$100,000 dollars that he raised, seemingly effortlessly. Defamation is civil. It is not similar to political donations in that Roy can raise money from anywhere in the world.
I remember, I watched in absolute amazement as that sum went up and up and up. Previously when deciding whether to appeal the IMF case against the government or not, I threw it to the public and said if I could raise enough for my fixed costs, I would take it as a sign and proceed. I raised S$10,000 and was pretty pleased with that and stopped it there. I took the losses on myself and the Government’s legal costs as I felt that was right but at least I raised enough from the public to pay my lawyer and the filing fees.
But even with that happy experience I was astonished by the money Roy raised. Yes I am banging on about it because it is very exciting to me. You see the PAP had to stop using the ISA and switched to defamation suits. But if those sued raise money so effortlessly then the whole bloody circus become neutralised. It reminds me of the way hippies put flowers down the barrels of rifles back in the 60’s. When MM Lee is not threatening his opponents with knuckle dusters he has always made it clear that he favours hitting people where it really hurts, in their pockets. Raising money online takes the pain away and is the virtual equivalent of ten new heroes rising up for every one that is cut down.
I am sure that Roy is very anxious right now. He talks about a suit of S$8,000,000 that was awarded against Tang Liang Hong. But let’s not be flexible with the truth here or re-write history. Tang left the country, didn’t appear in court and that punitive amount was awarded by summary judgement in his absence. Tang was my father’s running mate and so that whole JBJ vendetta thing also took a role. Also one of the key reasons for Tang leaving was that his wife, terrified by death threats, begged him to. I don’t think it will come to that. Yes the venue seems to suggest S$250,000 but that would be extraordinary. How can the PM prove that amount of damage to his reputation? Has his earning capacity suffered? Of course I remember George Carman Q.C. asking Goh Chok Tong on the witness stand, when he sued my father over the police reports, whether he had suffered any damage and Goh being forced to agree that he had not. The first judge, Rajendran, only awarded Goh $20,000 but Goh appealed and was able to find a more sympathetic judge who raised the damages to $100,000. But that is still a whole lot less than $250,000.
Truly it would be incredible if Roy was to take whatever amount the judge sees fit to determine and to dedicate himself to raising it online. What a hero he would be. Then he could use terms like “Landmark” and no one would deny him. None of these internet options were available to my father who instead took great delight in embarrassing the PAP by selling books on the street (a hawker’s privilege allowed to those with no income). Roy can learn from the perseverance of those who have gone before him-the Lion of Anson, Dr Chee and others- but benefit from the modern tools of the 21st Century.
If he cannot raise the whole amount online then he can file for bankruptcy and come up with a payments schedule plan agreeable to the AG, take up a new position and come back to public life when the ban is lifted and bankruptcy paid off. There is no shame in being taken down by the PAP and being smart enough to come back at them. Bankruptcy is not such an awful fate for a young man who can raise money on the internet particularly considering that in the US most successful entrepreneurs have gone bankrupt at least once.
Roy is by every measure an extraordinary Singaporean. His blog readership is extraordinary. His ability to raise money on the internet is extraordinary. In the coming GE, CPF and the minimum sum will be at the top of every Party’s agenda and that is extraordinary.
Finally Roy mentions the trouble he is having finding a meaningful relationship . He can learn a thing or two from JBJ on that score too. Many a time I was somewhere eating a meal out with my father when an attractive woman my age would approach us. To devastating effect on my self-esteem that was invariably coming over to hit on my Dad. ( I hasten to add this is when I was single). Notoriety can work both ways for attracting a partner.
Did I mention the key issue is still unanswered? Why is the Central Provident Fund Minimum Sum being raised and why can’t we take out money out when we like after 55? Why GIC and Temasek make money (if that is what they are doing) from using our captive savings and paying us a non-market interest rate? Roy has done us all a favour. He got so close to showing us how to demand accountability and stand up for our rights. If each Singaporean can in her or his own way be a little extraordinary now in support of our right to demand accountability of our government then together we can help him finish the job and prove that the pap is just a paper tiger into the bargain.
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.
On Friday the Financial Times carried an excellent article by the eminent and long-standing economic commentator, Samuel Brittan. I have reproduced a screenshot of his article above. I remember as a student at Cambridge, always looking forward to his articles which came out every Monday.
In this article he talks about economists having “an excessive preoccupation with real gross national or gross domestic product.” He goes on to say that “promoting GDP at all costs would be an insane objective for long-term economic policy. GDP would be maximised by opening a country’s frontiers and promoting mass immigration…so long as there is a net addition to the labour force, the country’s GDP would almost certainly rise, however overcrowded and unbearable the country might be to inhabit.”
Wow- is he talking about us? Clearly Sam Brittan considers that such a policy would be so patently ridiculous that it can serve as what in logic is called a “reductio ad absurdum”. His words perfectly describe the policies pursued by the PAP government in Singapore and echo much of what I have been saying in Singapore since 2009 except I tend to self-censor and Mr Britten doesn’t feel that need. In the 1990s Singapore began to open the floodgates to the import of labour from Asian low-income countries, nearly doubling our population. As I keep telling you, this has resulted in real wage stagnation for the bulk of the working population and declines for those in the bottom quartile. Particularly because our work force isn’t protected by a minimum wage so wages can keep getting lower and we enjoy minimal labour protections.
Meanwhile returns have soared for the owners of fixed factors of productions such as owners of land and property. This has produced a bonanza for the government which owns nearly 80% of the land. As everyone reading my blog should know by now the majority of Singaporeans do not own property. We have no property owning middle class so no property owning democracy. 90% of us live in public housing leased for 99 years from the government. This sector has seen housing costs rise much faster than incomes while the average size of apartments built by the monopoly state housing supplier has been cut by close to 20%. The rising cost of housing keeps young couples from getting on the ladder clearly affecting our fertility rates and the PAP openly uses its control over the estates’ freeholds as leverage during elections by threatening to withhold refurbishment and upgrading.
The government is making all this money from the influx to the population but doesn’t use it to improve the infrastructure let alone our daily lives Opening the floodgates means that public infrastructure and amenities, such as the transport system, become ever more overcrowded while waiting lines to see doctors at government clinics have lengthened to several hours. A shortage of beds at government-owned hospitals means that patients often to wait hours or days before being admitted. Until recently lack of school buildings meant that most schools had to serve two sittings to accommodate pupils. Luckily there are few of these double-session schools left.
When these policies are questioned, the PAP government usually responds with the fallacious argument that if Singaporeans oppose curbs on foreign labour then they will have to put up with slower economic growth without any explanation as to how faster economic growth, which has so far failed to produce rising real incomes, will work differently in the future. The people are often told that they need to endure short-term pain for the sake of long-term gain, a consistent cliché in the government’s rhetoric since the 1980s. Yet the pain seems to always be the people’s while the gains accrue to government ministers, who justify higher pay and bonuses on the basis of the economic growth that they have “miraculously” generated. Private property owners are a rare elite who also prosper.
These “insane” policies, which would be rejected by the people in any country with free and fair elections, have had the desired effect of boosting not only GDP growth but also that of GDP per capita. On this measure, Singapore is now one of the highest-ranked countries in the world (though if it is ranked more correctly against comparable global cities such as New York, London, Paris or Tokyo its record even on this measure is far less impressive). This is largely due to the fact that the immigrants have increased the ratio of the employed labour force to total population, since they bring no dependents with them and will be immediately sent home should they lose their jobs. The human rights cost as the imported labourers enjoy almost no protections is also not insignificant.
Samuel Brittan suggests that a less bad approximation would be GDP per worker “but even that borders on the absurd-for it might be maximised by compulsory increases in working hours at the expense of leisure”. It is no coincidence that Singapore has the highest number of hours worked per person employed among 20 advanced countries according to the US Bureau of Labour Statistics. While increases in working hours are not compulsory de jure they become de facto compulsory as with no minimum wage and very few curbs on imported labour Singaporean workers are acutely aware that they can easily be replaced by foreign imports. Very long working hours boost Singapore’s GDP per worker though the effect is not as marked as at the GDP per capita level.
I suggest that a better proxy for comparisons between countries would be GDP per hour worked, or productivity. On this measure Singapore ranks near the bottom of twenty advanced countries previously surveyed by the BLS and now by the US Conference Board. While US GDP per hour worked has grown by nearly 6% since 2007, or 1.1% p.a., Singapore’s has only just recovered to its 2007 level.
To illustrate the disconnect between the PAP government’s policies and the people’s welfare, 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 which seems hard to justify given that Kuala Lumpur and other Asian cities continue to be included.
Singapore’s example shows how an authoritarian state capitalist government can win plaudits from a largely ignorant international audience by adopting insane objectives that ignore the welfare of its own people. Back in the 1950s Western commentators were similarly dazzled by the seemingly inexorable rise of the Soviet Union and we all know what happened to that.
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.
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).
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.
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 email@example.com:
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
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.
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
IN THE SUPREME COURT OF THE REPUBLIC OF SINGAPORE
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
(L F VIOLET NETTO)
S CHAMBERS (CIVIL
FOR LEAVE TO APPLY
FOR A QUASHING
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.
Singapore 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?
13. OS657/2012 KENNETH ANDREW
(L F VIOLET NETTO)
ATTORNEY GENERAL FOR LEAVE TO APPLY
FOR A QUASHING
The following is a transcript of a Press statement that I read out at yesterday’s Press Conference which was held in a boardroom at M. Ravi’s office. Thank you to all the Press who attended in person, representing TOC, Mediacorp, States Times, Zaobao, Shin Min and Publichouse and all those who have been in contact by phone or email. M Ravi’s office will keep us posted as soon as we have a timetable for hearings and I will post that here.
Obviously as the matter is now in front of the courts or ‘sub judice” and I began by warning about Contempt of Court , questions were subdued. If readers have any queries just post them here and If I can I will answer them. I don’t expect the Mainstream media to actually report on anything but despite that we all felt it was a good first step.
I would like to thank M Ravi and his staff for all their help and professionalism particularly when M Ravi is so busy with some other major cases. Singapore could do with three or four more like him.