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Tharman joins the King of Spain in a Royal Elephant Shoot.

Recently the Spanish King was in the news after it was discovered he had been shooting elephants in Botswana. The outrage was not sympathy for the elephants but the discovery that he was on a luxury safari in Africa so soon after expressing his sympathy for the plight of the 20% Spanish unemployed. This demonstration of royal hypocrisy caused an outrage among ordinary Spaniards who had just been told that they will have to endure years of austerity.

Our own ‘royalty’ continue to demonstrate their own brand of hypocrisy, faulty logic and poor understanding of basic economics. Our own Finance Minister Tharman was at a news conference held by the IMF on April 20 where he mentioned an involvement by the PAP government that I had warned of and indeed predicted in this blog back in December 2011.

Last December in  (Self-imposed Austerity,, I ridiculed the spin of our state-controlled media that, due to the wise governance of the PAP, Singapore had fortunately avoided having austerity imposed on them by external circumstances. I pointed out that the welfare system in the Eurozone countries, even after taking the austerity medicine prescribed for them, in my view mistakenly, by the European Central Bank and Germany, was still far in excess of the meagre and begrudging safety net available to Singaporeans. Statistically we have one of the lowest public expenditures as a proportion of GDP in the developed world on education and health. 

Crucially I said,

Presently the countries that have run large current account deficits for many years, such as the US and many members of the Euro-zone, are acutely aware that the counterpart of their deficits is excessive saving in the surplus countries, mainly China but also Japan, Korea, Germany and of course Singapore. They know this prevents them from being able to achieve satisfactory levels of growth, output and employment.

The Euro-zone has already turned to China and asked the Chinese Government to buy more Euro-zone debt. This has allegedly infuriated many ordinary Chinese who complain about how poor they are compared with the average European. Their anger should be directed at their government which has held down consumption and domestic living standards to create a level of reserves far higher than necessary. This has allowed a situation in which they now find themselves held hostage to the debtor nations.

It is likely that our Government faces the same pressures from the EU to invest in bailing out the insolvent members of the Euro-zone.

Lo and behold what I predicted has now more or less come to pass. On Friday Tharman told the audience that the PAP government had agreed to contribute US$4 billion (about $5 billion) to the IMF as part of a capital-raising designed to bolster the IMF’s resources for lending to Eurozone countries requiring bail-outs.

What hypocrisy! To put it mildly, this may not be especially palatable to ordinary Singaporeans who have constantly done without the safety net available in even the poorest Euro zone countries so  that Singapore can build up its reserves for a rainy day.

It is true that our money is being loaned to the IMF rather than the debtor countries themselves. The IMF was at pains to point out that the additional money was not earmarked for any particular region. This is presumably because of the sensitivity that poorer countries are being asked to bail out relatively affluent ones.

It is also true that the IMF has never defaulted on its debts. However this is because the developed countries have always provided it with additional resources when required. It cannot be said to be the equivalent of investing in US Treasuries.

Significantly the US has so far refused to pledge any money. One of the reasons for its reluctance to help is presumably because as a democracy their citizens are unlikely to view favourably providing taxpayer dollars to support the lifestyle of relatively affluent countries.  Nevertheless the present round of contributions are likely to be only the beginning if Spain, Italy or even France and the Netherlands were to follow Ireland, Greece and Portugal down the road of debt restructuring accompanied by external bailouts. I find it difficult to see how this can be avoided unless these countries agree to abandon the Euro or the Germans have a change of heart.

If there do need to be fresh bailouts then presumably Singapore would have its arm twisted to make much bigger contributions. Also the increasing austerity fatigue evident among the electorate of these countries will make the next round of IMF-led bailouts much riskier.

As usual, this has all been decided and announced without telling Singaporeans first or debating it in Parliament. The first we got to hear about it was through the IMF announcement on April 20 just as the Spanish people only got to hear about their king’s elephant-hunting jaunts when he was injured.

I’m sure you are pleased to know where the money you earn is going and that whilst our poor get poorer, our lean middle class is squeezed ever harder, Europe’s Royalty continues to party!

While I am not in favour of creating a welfare culture I have always espoused safety nets, counselled against unnecessary austerity and put forward proposals for returning state assets to those who earned them by schemes such as privatising Temasek holdings with a distribution of shares to Singaporeans. I do not see why the savings squeezed out of our long-suffering citizens by an austerity diet should be used to subsidize other countries whose citizens enjoy a higher standard of living and much more generous safety net.

Elsewhere in his remarks Tharman called on debtor countries to put their public finances in order and cut deficits which he said was necessary to put them on a sustainable growth path.  His prescription is unfairly asymmetric because it puts all the pain of adjustment on debtor rather than surplus countries like Singapore, China and German.  He also demonstrates faulty logic falling for the ‘fallacy of composition.’  It may be sensible for an individual country to try to increase its savings rate by cutting its budget deficit. But if all countries try to do so, then the result will be a catastrophic slump in output and employment. This is the 101 of Keynesian Economics yet it has been forgotten by most politicians worldwide.

Although Tharman was not an Oxbridge scholar for his BA, I know from my conversations with him at Cambridge, where he took his MA, that he used to be a better economist than that. Therefore I would put his espousing of the conventional wisdom down to a desire not to make waves or rock the boat. Unfortunately this group think is something that all our Ministers and PAP MPs learn early on and that million dollar salaries make a difficult habit to break.

That is why we need a democratic revolution in Singapore if we are to ever get genuinely innovative thinking.


  1. “… cannot be said to be the equivalent of investing in US Treasuries”.

    Does the IMF pay interest (this seems to say it does: If so, would you happen to know how it compares with that paid on US T-bills?

    Your fundamental point is, of course, correct that Singapore is now indirectly bailing out the rich world’s poor and distressed while being parsimonious with our own.


    • Interest is relatively insignificant compared to the capital risk. The risk of default by the IMF is probably very small as it would require a breakdown of the world’s financial system. However it does not have its own currency (SDRs excepted) and in the last resort must be bailed out by member governments. The US Treasury can always borrow from the Fed (i.e. print money) if needed.


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