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.
Singapore ‘s economy contracted by 0.6% in the first quarter of 2013 compared with the corresponding quarter of 2012. On a quarter-on-quarter seasonally adjusted annualized basis the economy contracted by 1.4%. Since year-on-year growth is now negative does that mean we are now officially in recession?
No. The accepted convention for defining a recession is two consecutive quarters of negative growth. And thanks to some deft footwork by the Statistics Department the government has avoided that label being applied to the economy. The result is that technically Singapore has so far been spared a double dip recession even though many Singaporeans might feel as though a thief has been double dipping from their pockets.
Singapore was in fact only saved from a technical recession by the downward revision of GDP growth in the first and third quarters of the year. Initial estimates of GDP growth at a quarter-on-quarter seasonally adjusted annualized rate in Q1 2012 were 9.8% but this was revised down to 9.5% in the fourth quarter revisions. Similarly a decline of -1.5% on an equivalent basis in the third quarter was also revised down to a decline of -6.3% (see here for details). By taking growth from the previous three quarters and putting it into the fourth quarter, the end result was that fourth quarter growth came in at a positive 1.8% quarter-on-quarter annualized rate
That might have been an end of it but there were more revisions in the first quarter of 2013. Growth in the first and second quarters of 2012 was revised down again while growth in the third quarter was revised up. This resulted in a considerably stronger fourth quarter of 2012 while keeping year-on-year growth barely unchanged at 1.3% compared to the earlier estimated 1.2% (see here for details).
Many Singaporeans have been screaming foul or using the old cliché, “lies, damned lies and statistics” to describe what goes on with our statistics. To be strictly fair there may have been good reasons for the revisions to earlier quarters. It is true that initial flash estimates of GDP growth are often revised substantially later on in other advanced countries. However in other countries an explanation is usually provided for the revisions. There has instead been a deafening silence on this point from the Statistics Department.
This is no different from our government’s silence when asked for data about our surpluses and the true state of our reserves. Though in the government’s case it goes beyond silence and borders on active obfuscation. This would not be my blog if it were not to call for reform of our culture of secrecy and for greater transparency and accountability.
In the absence of an explanation from the Statistics Department for the revisions one is inevitably tempted to suspect that there may be some massaging of the figures to prevent Singapore being classified as in a technical recession. Combined with the other dubious statistics produced by the Department to show rising real household incomes, which I have highlighted here and here, it makes a compelling case for the removal of the Statistics Department from government control so as to lessen the possibility of political interference in the calculation of its statistics. (Again, it wouldn’t be my blog if it wasn’t calling for independence from government control).
The UK Parliament in 2007 passed The Statistics and Registration Service Act 2007 which “established the UK Statistics Authority as an independent body at arm’s length from government with direct reporting to Parliament …rather than through Ministers, and with the statutory objective of promoting and safeguarding the production and publication of official statistics that “serve the public good”.
We need similar reform here coupled with a Freedom of Information Act. I have called repeatedly elsewhere for greater transparency in the general government accounts, which should include all the Fifth Schedule companies and statutory boards, in particular, Temasek and GIC.
However reform aimed at improving the transparency and independence of our economic statistics in the future does not alter the reality on the ground at present. Credit Suisse in a recent research note called Singapore “the sick man of ASEAN” and said that it “must rely on a meaningful improvement in the global trade cycle to register a reasonable recovery”.
While the services sector has held up reasonably well and the construction sector has been buoyed by government infrastructure spending, the industrial production index was by February this year some 18% below its peak in 2011 (see the Monthly Digest of Statistics for March 2013). Of course 2011 was when the government had just triumphantly announced 14% growth for 2010 driven largely by the sectors (manufacturing and pharmaceutical manufacturing in particular) that are now declining. Labour productivity fell last year by 2.6% with manufacturing leading the way. The fall in productivity is if anything accelerating if the latest figures are added in.
The government is still sticking to its forecast of 1-3% growth for this year. It has been quite effective in the past in producing rabbits out of the hat, particularly when it was able to pull the wool over our eyes by confusing GDP growth (easily manipulable when US and EU demand was growing strongly by the addition of cheap foreign labour) with growth in GDP per hour worked. With the decline in our main export markets accelerating, Chinese growth slowing and several of our main trading partners such as Japan resorting to competitive devaluation to boost exports it is difficult to see where the rabbits will come from this time. With inflation at current levels the government is not going to direct the MAS to lower its exchange rate targeting to boost the economy.
Paradoxically, just as Singaporeans have not seen the real income gains that one would expect from the high growth rates of the recent past – because most of the gains have accrued to the fixed factor of land as well as the profits and surpluses of the government and MNCs – a slowdown may not initially have too severe an effect on real median incomes. Even more so if it leads to a slowdown in inflation.
The government is fond of talking of a tight labour market and warning that business will face catastrophic cost increases if we tighten the tap on foreign labour but this is contradicted by the fact that real wages continue to lag behind inflation for the bulk of workers. This does not suggest a tight labour market.
Ultimately though rising living standards are dependent on raising productivity and here the PAP government is continuing to fail to perform. If we were moving upmarket into higher value added manufacturing one would expect average wages to be higher in the manufacturing sector than in services but in fact they are lower.
We are stuck in industries that are dependent on cheap labour and increasingly vulnerable to competition from countries with access to cheaper labour supplies while any move upmarket has to contend with similar moves by China and Korea, both with access to much greater R&D resources than us. If our economic recovery is dependent on a recovery in world trade one can legitimately question what “alpha”, or value the PAP are adding. The pejorative title of “The Sick Man of ASEAN” may well prove to be the most accurate one.
Behind Chamber Doors. (Why wait for the Judgement when the State Media have already decided the IMF Loan Case outcome?)
As most of us are aware the government controls the media both directly, through Temasek’s ownership of MediaCorp, and indirectly, by its power to appoint the senior management and the editors of SPH or any newspaper company under the Newspaper and Printing Presses Act.
Thus when we read a report about a political case like the IMF loan suit we can be sure that we are getting instructed in the way the government wants the result to go. Usually the objective is to give precedence to the government’s arguments and by doing so to give the public the impression that no sane and reasonable person could not agree with their interpretation of the legislation. While maybe not technically contempt of court it strays a long way from balanced reporting.
In the IMF loan case the Today report on the hearing on 20 September ( http://www.todayonline.com/Singapore/EDC120921-0000051/No-open-hearing-on-Spores-loan-pledge ) starts with the use of the emotive term “thrown out” to describe the court’s dismissal of our application to have the hearing moved to open court. The effect is to try and give the impression that our suit is frivolous and has no grounds. While it may not be “ordinary practice for application for leave to be heard in open court”, as Today put it, I felt that there were enough issues of importance to Singaporeans to warrant the case being held in open court. At least Singaporeans would have been able to attend and hear the arguments rather than have them filtered through the State media. It may be ordinary practice but that is in democracies where there is a free media and certain standards of objective reporting. In particular newspapers in those countries would have to grant me the right of reply which is denied me by the State media here.
The State media carried little of my case apart from a brief comment from me when I was doorstepped outside the courtroom after the hearing. The ST reported me as saying that the case was about accountability and my right as a citizen to question the use of our monies. The breach of the Constitution and the fact that the Auditor-General had already agreed with my interpretation of Article 144 was not mentioned. This was in the case of the issue of a promissory note to the International Development Association by MOF which did not receive the President’s approval. MOF apologized. They blamed it on a junior officer in the MOF and retroactively obtained the President’s concurrence.
In order to counteract the impression which might have been given in the state media that we had no answers to the government’s defence, I will rebut their arguments here.
Today: The Attorney-General, represented by Senior Counsel Aedit Abdullah, argued in his written submission that the purpose of Article 144 is to capture transactions which increase the financial liability of the Government or lead to a drain on its past reserves.
The government is arguing that a loan is an asset and therefore does not increase the liability of the government. However it is absurd to argue that a loan is without risk, however good the credit standing of the borrower. As we know from the sub-prime mortgage crisis, billions of AAA rated collateralized mortgage obligations subsequently proved to be worthless and had to be completely written off. Many banks in the UK and the US as well as major insurance companies like AIG would have gone bankrupt were they not rescued at considerable cost to their taxpayers. These assets were rated AAA by the same agencies (Moodys and S&P) that have given the IMF a AAA rating. I have said in my affidavit that I am more concerned with general principles than with the IMF per se but even the IMF is dependent on its member governments for support. Our loan commitment to the IMF is likely to be drawn down only when it has exhausted its other resources. At that point it is theoretically possible that the IMF may no longer be considered AAA. These extra resources are targeted at the Eurozone countries that are in a vicious downward spiral of austerity to try just to get to budget balance let alone to a surplus situation where they can begin to think about servicing their debts. At some point the population will decide that they are better off defaulting on their debts. No wonder a British Conservative MP characterised his country’s 10 billion pound contribution to the IMF as like taking the money and throwing it in the nearest rubbish bin (http://www.guardian.co.uk/politics/2012/apr/21/george-osborne-10bn-funding-imf). Even though the British government did not need a vote, because it had already got approval for an increase in Britain’s IMF contribution some time back, the Opposition still accused it of running scared of parliamentary scrutiny.
Tharman makes much of the IMF’s protected creditor status which means it ranks first for repayment in the event of a bankruptcy. However how does one liquidate a country should it decide to default on its debts? Also in order to get the private sector to commit new money to these countries and existing lenders to play nice and roll over their loans into virtually perpetual obligations the IMF, like the ECB, is likely to have to give up its preferred creditor status.
The government makes much of the fact that the IMF will pay interest on Singapore’s loan should it be drawn down. However the only way these Eurozone countries can pay interest to the IMF at the moment is likely to be through new loans given that they are still some way even from basic balance before debt service costs. Spain for instance ran a deficit of over 9% of GDP in 2011 and will have one of close to 8% in 2012. The debt reduction targets are largely wishful thinking.
So the government is being disingenuously facile in its arguments that lending is an asset and is therefore without risk. The government has accused me of lacking knowledge of basic accounting. However they are either trying to mislead the court and the public or they really do lack understanding of basic risk management as well as accounting. The counterpart of an asset is always a liability and in this case the liability is the reserves which belong to the people of Singapore. If there is a loss on any loan by the government then that will have to be charged off first against the current surplus and then against the reserves. Similarly borrowing increases liabilities but the funds borrowed would show up on the asset side of the balance sheet if they were invested and not spent. If the government is so worried about liabilities then why does it continue to borrow so much from CPF presumably to be invested in GIC and Temasek?
It seems axiomatic that borrowing is less risky than lending and therefore it is inexplicable why Article 144 should be interpreted as allowing the government to lend recklessly with no controls while borrowing needs Parliamentary and Presidential scrutiny. Surely the presumption must be that we want tighter financial controls not looser.
Also how is a guarantee qualitatively different from a loan commitment? A guarantee is like a put option in that the guarantor will be obliged to pay out in the case of some trigger. Usually then it will become an obligation of the guarantee against whom the guarantor can proceed for repayment. Singapore’s loan commitment to the IMF should similarly be treated as a derivative since it is an option that the IMF has the right to exercise. The US Federal Accounting Standards Board requires loan commitments to be marked to fair value in certain circumstances. If the credit deteriorates then this would require the institution concerned to establish a reserve for the potential loss on the liability side of the balance sheet.
Today: It would be an “absurd construction and impractical way” for the Government to function should the Article be engaged when loans of any amount are given, he said, adding that the issue had also been dismissed by Parliament previously.
However, as far as I have been able to discover with my limited resources, the loans that the government gives out are as part of programmes established through the Budget and on which Parliament has voted in the form of a Supply Bill. Otherwise they would be ultra vires. Subsequently the President will have given` his approval. For example in 2009 Parliament approved the setting up of the Bridging Loan Programme and the enhancement of the Micro Loan Programme as well as the Local Enterprise Finance Scheme. There is the Tuition Fee Loan Scheme which was set up in 1991 by Parliament. In any case these schemes are more in the nature of guarantees since private financial institutions provide the funds and the government bears 80% to 90% of the risk in return for being paid a fee.
The government has maintained that Article 144 only applies to guarantees and not to loans given. Article 144 makes no mention of the quantum of the guarantee or loan. Is the government now saying that it is an “absurd construction and impractical way” for Article 144 to be engaged when guarantees of any amount are given?
The AG argued that the question had been dismissed by Parliament in 1997. However that was the opinion of the government’s own legal officer, the former CJ Chan Sek Kheong and upheld by the Minister of Law. It was never challenged in the courts. It would be a sad day for accountability and the rule of law if the government were allowed to have unfettered discretion in the interpretation of the Constitution and they were not to be subject to the jurisdiction of the courts.
Today: Mr Aedit also said that the verbs “given” and “raised” used in the Article are specific to each financial instrument described and are not to be used interchangeably.
But Mr Jeyaretnam’s lawyer, Mr Louis Joseph, said in a written submission that “a literal and dictionary reading” of the Article would “lead to no other conclusion”.
Quite right. Not only a literal and dictionary reading but any reasonable argument from a risk management and control perspective can lead to no other conclusion.
Though not mentioned in the newspaper article there were two other arguments that the government deployed.
One was that the monies for the IMF loan would not come from the government but from the MAS.
That is patently absurd. MAS is a Schedule 5 company wholly owned by the government which is only able to operate because the government guarantees its obligations. Its chairman and board of directors are appointed by the government. In 2009 the government was forced to inject $16.9 billion into MAS because of losses during the previous year. The resources that the MAS uses in its foreign exchange operations come from the S$ that the government deposits with MAS so it is not right to say that the resources for the MAS loan will not come from the Government Budget. Indirectly they do as it is only because of its persistent surpluses that the government has S$ to deposit with MAS.
The other argument was that I did not have locus standi to bring the action as I do not have sufficient interest in the IMF loan and I had not suffered or was not likely to suffer any loss from it
As a non-lawyer I am not sure I am qualified to comment. However courts in the UK have generally been interpreting the sufficient interest requirement liberally. To quote Lord Diplock:
“[i]t would…be a grave lacuna in our system of public law if a pressure group…or even a single public spirited taxpayer, were prevented by outdated technical rules of locus standi from bringing the matter to the attention of the court to vindicate the rule of law and get the unlawful conduct stopped.” (http://en.wikipedia.org/wiki/Standing_(law)#United_Kingdom)
I would hope that the judge will reject the defence’s locus standi argument here.
As I have said before, the reason for the suit is about the general principle of the government’s accountability to Parliament and the Constitution rather than with the merits of the IMF loan as such. In 1997 the PAP government took refuge behind a technicality to avoid accountability. It would be a shame if this were to be allowed to happen again particularly as their arguments are so weak. Whatever happens, the State media have already made a ruling for the government appear a foregone conclusion.
Last Thursday, I was contacted by several readers who asked me why my article “Where have our reserves gone?” had disappeared from TOC. This alone was alarming and unusual but TOC compounded the problem by failing to put up any note by way of explanation for the article’s sudden disappearance.
When TOC did finally respond to my queries, Mr. Pillai informed me that the article had been taken down after “one of the other editors” had received a call. Apparently this call was a tip off from Temasek Holdings advising that legal action was going to be taken against me because they objected to the term ‘Ponzi Scheme.’
This is not a criticism of Mr. Pillai whom I have always found to uphold the highest standards of editorial transparency and impartiality. However who is this unknown editor and why should we believe a word of this unlikely tale until the editor in question comes forward and identifies himself? It could just be professional jealousy and a likely story to get my article removed. I have been further informed by Mr Pillai that a lawyer is reviewing the article. No need, just consult with me and then remove the sub heading, ‘Ponzi Scheme’ if it is offensive. Removing that phrase doesn’t alter the meaning or harm the article one bit.
I entered a good faith agreement with TOC. I allow you to take my articles wholesale off my blog and allow you the special privilege of not having to comply with the copyright conditions which normally apply. This works both ways. You gain content and whilst I lose reader stats, my pieces reach a far wider audience in cooperation with TOC. However that good faith is broken when you remove my article with no warning, consultation nor explanation.
The alleged conversation that your editor had or did not have with Temasek remains pure hearsay. I myself have received no communication from Temasek or anyone else. Temasek Review Emeritus are also running the article and have received no objections. If Temasek Holdings did indeed contact you then it is a matter of great interest and needs to be aired. My article continues to remain up on my blog at http://sonofadud.com/2012/09/07/where-have-our-reserves-gone/
I have highlighted articles from blog spot Article 14 previously on Rethinking the Rice Bowl. ”Subra” states on his blog to be a Singaporean lecturer in law here and he clearly has the talented teacher’s skill of setting out complex subject matter in a simple, easy to understand manner. Several very good reasons why everyone should read his latest article: http://article14.blogspot.co.uk/2012/09/everybodys-talking-about-talking.html But he has added a twist that I didn’t notice.
National Conversation? LOL, as the youngsters would say. It is just propaganda. The outcomes are pre-decided, the PAP model is rigidly entrenched, it has no parliamentary mandate, it is an exercise in deflecting us away from building a functioning democracy. How much tax payer money will be spent on this PAP propaganda machine? It’s not even an election campaign period so doesn’t come out of their own party coffers.
Personally for me the National Conversation is a continuation of the National Silence that I am so used to. Well, until Jim Sleeper of Yale started to make a bit of noise that is. No sooner had he posted an article detailing how I was excluded from National University forums, the National televised debates for GE 2011, National Media and so on than an invite arrived to appear at a forum from the earnestly co-opted NUSSPA. Thanks Jim! I am sure Jim causing embarrassment from Yale is also behind the sudden magnanimous decision by the PAP to accept Soon Juan’s offer of a $30,000 payment of his fine. Or the PAP have finally realised that they risk not only embarrassment but the creation of another National Martyr under virtual house arrest in the manner of Aung San Suu Kyi, if Soon Juan is not able to join us in a proposed visit to Yale later this year.
The Auditor General’s Report for the financial year 2011/12. arrived in the President’s in- tray in July of this year and is now publicly available. The objective of the report is stated clearly in the mission statement that precedes it.
To audit and report to the President and Parliament, in accordance with the law, on the proper accounting of public moneys (sic) and use of public resources so as to enhance public accountability.”
It’s a long report almost all of it vital and essential but my attention was drawn in particular to Part 1B which is an audit of Government Ministries, Organs of State and Government Funds. Astonishingly the AGO observes that the MOF breached Article 144 of the Constitution.
Under the heading, ” Ministry of Finance, you will find the report headed: President’s Concurrence Not Obtained for Promissory Note issued…..
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.
Whilst I continue with my attempts to hold the MOF up to proper scrutiny, we must not forget the discrepancies in our Budget. I have decided to make the following exchange of correspondence available as a public service and an exercise in transparency. It is in chronological order but those of you who find it a bit dull may wish to skip to the end. There I discover another discrepancy and I am still awaiting a response. Unfortunately the Statistics Department have become ominously silent since I drew it to their attention five days ago.
A bit of context:
In February I produced a response to the government’s Budget 2012 in my role as SG of RP.(http://thereformparty.net/about/press-releases/budget-2012-part-one/ ) Naturally this was not published in the MSM or even on TOC. The MSM is a political tool used to isolate me and make the Party look inactive. As for TOC, I guess the editor Ravi Philemon preferred to give prominence to the pro -PAP budget responses of his friends in his usual partisan manner.
I pointed out that the Budget was not set out according to the Special Data Dissemination Standards of the IMF and that vital information was missing, particularly concerning the state of the reserves invested in our SWFs, Temasek and GIC.
After I looked at the government’s Statements of Assets and Liabilities dating back to 2004, I was particularly concerned that the net assets, (after subtracting from total assets government debt held by CPF as well as amounts needed to fund government pension funds and other educational and medical funds) , was much lower than to be expected given the advertised returns of Temasek and GIC as well as the limited information that was available to me on the general government surpluses from 2004 to 2010 from the Yearbook of Statistics.
In order to confirm my suspicions that there were serious discrepancies I wrote to the Statistics Department on 23rd May 2012.
Enquiry sent on:-5/23/2012 4:22:53 PM
Name :Kenneth Jeyaretnam
Organisation :The Reform Party
Nature of Business :Non-Government Organisation
Purpose of Obtaining Data :Internal Research and Analysis
Type of Occupation :Economist
Query :General Government Finance
Years Selected :2005, 2006, 2007, 2008, 2009, 2000, 2001, 2002, 2003, 2004, 1996, 1997, 1998, 1999
Type of Business Statistics :
Types of Industry/Activity :
I received this response.
Dear Mr Jeyaretnam,
We refer to your request of 23 May 2012.
The data breakdowns for General Government Finance are as follows:
|Deficit (-) or Surplus 1|
|Total Revenue and Grants|
|Expenditure & Lending minus Repayments|
|Lending minus Repayments|
|From Monetary Authorities|
|From Deposit Money Banks|
|Other Domestic Financing|
|Notes : Presentation format of the table follows that of the National Summary Data Page (NSDP) for Singapore, which disseminates|
|the data prescribed by the International Monetary Fund’s Special Data Dissemination Standards (SDDS). Data in the table|
|represent a broader definition of Government revenues and receipts than what are permissible for Government spending|
|as presented in each year’s Budget Statement. This is because some revenues and receipts accrue to the Government’s past reserves,|
|which cannot be drawn on without the approval of the President.|
|General government finance includes budgetary and extra-budgetary accounts.|
|Data refer to the financial year which begins in April of the current year and ends in March of the following year.|
|1||Accrues to both current and past reserves and does not reflect budget position of the government.|
|2||Includes land sales and capital receipts (which accrue primarily to past reserves) in addition to taxes and other revenues.|
The data breakdowns for Government Finance are as follows:
We would appreciate it if you could let us know the annual data series you require so that we could check on the data availability and compute the appropriate charge.
Lue Poh Choo (Ms)
Singapore Department of Statistics
I wrote back on 24th May 2012:
Strictly you have not given me any data merely the format in which it is presented. I would like all the data for both categories General Government Finance and Government Finance for the period requested.
Please let me know what will be the cost ASAP.
Their response the same day was as follows:
Dear Mr Jeyaretnam,
We refer to your email of 24 May 2012.
Our Department is able to provide the following annual data series, for your internal research and analysis, at $49.60:
General Government Finance
|Deficit (-) or Surplus 1||
|Total Revenue and Grants||
|Expenditure & Lending minus Repayments||
|Lending minus Repayments||
|From Monetary Authorities||
|From Deposit Money Banks||
|Other Domestic Financing||
|earliest available||latest available|
|Deficit (-) or Surplus 1||1986||2011|
|Total Revenue and Grants||1986||2011|
|Expenditure & Lending minus Repayments||1986||2011|
|Lending minus Repayments||1986||2011|
|Total Net Borrowing||1986||2011|
|Use of Cash Balances||1986||2011|
If you are interested in obtaining the data, please proceed to make payment online viahttp://www.singstat.gov.sg/svcs/payment.html . Please quote your bill reference number (QG25660) when you make payment online. We will send the data to you once we have received the appropriate amount. Thank you.
Wong Pui Mun (Ms)
Singapore Department of Statistics
I replied as follows, again on the same day:
Thank you for your response.
This is very poor. Why can’t I get data from earlier than 1998 for General Government Finance? It’s not as though the government does not have records. What is it trying to hide?
Almost all the data you are proposing to sell me can be obtained online and from past copies of the Yearbook of Statistics so if this is the best you can do I must decline. Also why should citizens and political parties pay for information that should be freely available?
On 25th May I received the following reply:
Dear Mr Jeyaretnam,
Please refer to your email of 24 May 2012.
We would like to clarify that we were unable to provide you with data for 1980 – 1997 as these are not available in our database. We have since checked from other data sources for the data series for 1980 to 1997.
As requested, I attach the following General Government Finance data series for 1980-2010 :
- a. 1980-1997 (please see attached file)
- b. 1998-2003 (please see scanned page1 )
- c. 2004-2009 (please see scanned page 2) and
- d. 2010 (please see attached file)
Wong Pui Mun (Ms)
Singapore Department of Statistics
I wrote back to thank the Statistics Department for their hard work on 26th May:
Based on the information supplied I then wrote to the Finance Minister on 1st June 2012 with some questions but have yet to receive a reply or even an acknowledgement. That letter is on this blog and has been reproduced here and there so I won’t repost it.
Using the information supplied by the Statistics Department as well as the IMF data given me by Chris Balding I calculated that the total general government surpluses amounted to some $429 billion since 1980 whereas our net assets in the SAL were shown as at 31st March 2011 to be about $288 billion. This is bad enough. However, if GIC and Temasek’s claimed returns are not in the surpluses, as Chris Balding believes and has stated then the discrepancies would be truly astronomical.
My next piece of forensic work was to look at the government’s Operational Surplus going as far back as possible to try to isolate the part of the surplus which was due to the SWFs as well as receipts from land sales.
On 2 June 2012 I wrote to the Statistics Department as follows:
Would you be able to email me the data for 17.3, 17.4 and 17.5 dating back to 1970 [Tables in the Yearbook] or thereabouts? If you don’t have data earlier than 1980 that’s fine also. Also can you extend the data for 17.1 further back in time?
I really appreciate the hard work you are doing.
On 4th June 2012 I received the following response:
Dear Mr Jeyaretnam,
We refer to your email of 2 Jun 2012.
We are looking into your request and will respond to you.
Wong Pui Mun (Ms)
Singapore Department of Statistics
My response of 4th June:
Thank you. Much appreciated.
On 13th June the Statistics Department replied with the requested data:
Dear Mr Jeyaretnam,
We refer to your email of 2 Jun 2012. The available data for the requested tables (based on calendar years) are attached below.
Government Operating Revenue
Government Operating Expenditure
Government Developing Expenditure
Wong Pui Mun (Ms)
Singapore Department of Statistics
After I noticed a discrepancy with regard to Operating Revenue I wrote to the Statistics Department on 22nd June pointing this out and requesting an explanation:
Dear Ms. Wong,
Thank you very much for your help in this matter.
I have come across a discrepancy between the figure for 1999 for Operating Revenue given in the YoS 2000 and YoS 2005 extracts supplied by you. In 2000 it is given as 28,619.2 ($ millions) and in the 2005 extract the figure is given as 25,597.3.
Would you very kindly be able to shed some light on this discrepancy?
So far I have yet to receive a reply. I hope there is a simple explanation for it.
In addition I have now been able to do some more work on the figures supplied to me by the Statistics Department and hope to be able to make public my conclusions in the next few days. At the moment I have to say it is not looking good…