29^th May 2012

An Open Letter to the Minister for Finance

Mr. Tharman Shanmuguratnam
Ministry of Finance
100 High Street
#10-01 The Treasury
Singapore 179434

Dear Minister,

I note that a question in three parts was tabled during the Parliamentary sitting on 14^th May 2012 by Mr. Desmond Lee, MP for Jurong GRC, on the subject of our republic’s US$ 4 billion loan commitment to the IMF.

I have checked the Parliamentary record and I can find no mention of Parliament having been told about this loan previously or asked to give its approval. I first noticed it when the IMF Committee of which you are Chair announced the decision to raise the IMF’s lending capacity on 20^th April 2012 and thanked Singapore for its contribution. The government-controlled media carried a short piece a day later and I wrote about it at more length in my blog at www.sonofadud.com on 25^th April and 28^th April 2012.

It may be argued that it was not unconstitutional to promise our money without first asking Parliament’s permission. However I would like to contrast your approach to our funds with that taken by a fellow IMF member, another small nation with a similar population and with two sovereign wealth funds, namely Norway.  On May 15^th 2012 the Norwegian Finance Minister asked Parliament for approval of a contingent loan of up to US$9.2 billion from the Norwegian Central Bank to the IMF.

Turning to your answers to Mr. Desmond Lee’s question, in answer to Part a you state there that in the event Singapore’s commitment is called upon, the $5 billion loan will be coming from the Official Foreign Reserves of the Monetary Authority of Singapore and not from the Government Budget.   I wonder whether you would kindly explain what you mean when you say:

“However, there will be no change in OFR if the loan is drawn on by the IMF; what would happen is a conversion from a foreign investment asset to a loan to the IMF, which will still count towards OFR.”

I hope you will excuse my ignorance but I am afraid I do not understand how a contingent loan or loan guarantee is a foreign investment asset. Should it not rather be treated as a contingent liability until such time as it is actually drawn down? And by saying that it will be converted from a foreign investment asset to a loan are you not admitting that it falls outside the scope of Section 24 of the MAS Act?

If this is the case, then does it not require Parliamentary approval? I cannot see that there was any resolution of Parliament to approve it.  As the IMF communiqué and your own answer make clear, the contingent loan is not part of an increase in Singapore’s quota at the IMF and therefore is not exempted from the necessity for Parliamentary approval under the Bretton Woods Agreements Act.

May I also ask whether Presidential approval was obtained since this is required in any event unless the loan commitment is covered by Section 24 of the MAS Act?

Part b of MP Lee’s question asks whether the loan will go to bail out Greece and the other periphery Eurozone countries. Your answer in effect is: yes, it will. In your words, “The aim is to give the IMF the strength and credibility to help prevent a worsening of the [Eurozone] crisis and limit the risk of contagion”.

With reference to Part c, I am not questioning whether at this stage there is any risk that MAS will not be repaid since the risk of the IMF becoming insolvent must be fairly small. However this is mainly because the members of the IMF would be expected to step in to support the IMF should the borrowers default or require more financing if they are to avoid default.  Even if the loan commitment is given by the MAS rather than the government the government ultimately stands behind the MAS as guarantor.  In your answer you admit that the enhanced resources are to deal with the Eurozone crisis even though it is not specifically earmarked for the Euro area. Thus it is likely that if the financial position of the Eurozone continues to deteriorate and additional resources are required, the IMF will look to Singapore for a share of any future increase in its lending capacity.

The Reform Party is not in principle opposed to increasing Singapore’s commitment to the IMF though we note that both the US and China have so far failed to agree to do so. However one of our main objectives is to ensure that there is effective Parliamentary scrutiny of the Executive with the aim of ensuring transparency and accountability in government. This objective is surely in line with the IMF’s own standards for good governance.

I would like to note for the record that Mr. Desmond Lee of the PAP’s question followed my two blog articles:

http://sonofadud.com/2012/04/25/659/

http://sonofadud.com/2012/04/28/royal-elephant-shoots-part-2/

These were the first to raise questions about the need for Parliamentary and Presidential approval of Singapore’s loan commitment to the IMF. May I ask whether the timing and content of his question was in any way influenced by this?

Finally as an aspiring  first world nation do you not think our Parliament  should aspire to the highest levels of transparency and accountability and follow Norway’s lead and in so doing go beyond the minimum levels of transparency and best practice prescribed by bodies such as the IMF?

Kenneth Jeyaretnam

Secretary General

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I'm a Singaporean economist who became an opposition activist. I blog to provide an alternative to the porkies that the Pinkies tell. It just so happens that my alternative is the truth. That's why I've never been sued in any civil or criminal court no matter how hard hitting my criticism. I'm quoted and interviewed and asked to speak across the world but largely censored in Singapore in an effort to silence my political opinions. The left hate me because they think I split their vote and because I eschew their outmoded economic models. Models that don't work. The Right and the Conservatives hate me because I'm a liberal. I'm not sure what the middle think of me. I don't think there are more than a handful of people in the middle, here in Singapore. I'm a Singaporean born and bred, dual heritage, my parents Singaporean established here before the State of Singapore was created. I'm not Eurasian. I read economics at Cambridge and could be broadly described as from the Keynesian school but I believe in interventions. I was formerly a successful hedge fund manager. After economics and politics my greatest interests are history, film and Makan. I run but I run so I can eat like a Singaporean. View all posts by kjeyaretnam