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MOF Tharman World Bank Bombshell

misdirectionIn October 2013 the Court of Appeal dismissed my argument that the PAP government’s US$4 billion line of credit to the IMF needed Parliamentary and Presidential approval as required under Article 144(1) of the Constitution. The learned judges ruled that I had failed to make a prima facie case and that furthermore I lacked standing to challenge the government. The judges accepted without question the AG’s arguments that a loan was an asset and not a liability and took the opportunity to belittle my knowledge of finance at the same time. I  had  argued that a loan commitment was a liability and not an asset.  To quote from my article criticising the Appeal Court judgement:

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.

 However on 21 January 2014 Minister Tharman  dropped a bombshell in Parliament when he moved the following motion in Parliament with reference to our subscription to the International Bank for Reconstruction and Development.. In the following he explains how the government accounts for the loan commitment and this new explanation is in complete contradiction  to the information given by the MOF and the basis  on which the government had won its case . Both versions can’t be correct. Read the motion and see for yourselves.

“That this Parliament, in accordance with Section 7(3) of the Bretton Woods Agreements Act (Chapter 27 of the 2012 Revised Edition), resolves that the subscription of Singapore to the International Bank for Reconstruction and Development be increased to a sum not exceeding Six Hundred and Seventy-Two Million United States dollars (US$672 million).”

 In support of the motion he went on to say that we will be paying 6%, or US$38 million, as paid-in capital” while  “The remaining 94%, known as callable capital, will not be drawn by the IBRD except in extreme circumstances, when it cannot meet its obligations on borrowings or guarantees.  To date, the IBRD has never had to call on the callable capital.  It is an AAA-rated institution with a sound balance sheet for over 50 years.  Nevertheless, the full increase in Singapore’s subscription to IBRD’s capital will be charged to the Consolidated Fund, as the callable capital represents an increase in the Government’s financial liabilities.”

 Please refer to the sentence in italics.  How is callable capital fundamentally different from a loan commitment? Both represent an option given, in one case to the IBRD and in the other case to the IMF, to call upon the Singapore government to provide the capital in the first case and in the second case to make the loan.  In his Parliamentary speech Tharman points out that  “To date, the IBRD has never had to call on the callable capital.  It is an AAA-rated institution with a sound balance sheet for over 50 years”.

This is how Tharman describes the US$4 billion line of credit when answering a tame Parliamentary question on 12 May 2012 from a subordinate member of his Jurong GRC team:

4  More than 30 countries including Singapore have so far committed to provide bilateral loans to the IMF, amounting to more than US$430 billion as at end-April 2012. Singapore has committed to the IMF a contingent line of credit worth US4 billion as part of this international effort.

5   These are however temporary resources, provided to the IMF in advance of the expected increase in its permanent capital subscriptions (or quota subscriptions) that will be decided in early 2014.  Participating in the current round of bilateral contributions to the IMF will in effect bring forward part or all of Singapore’s likely share of the increase in the IMF’s capital base in 2014.

6   Singapore’s US$4 billion contingent line of credit to the IMF means that  Singapore is expected to lend the funds when the IMF considers necessary. 

 Again the italicized sentence is highly significant. If the US$4 billion contingent line of credit is to become part or all of Singapore’s likely share of the increase in the IMF’s capital base in 2014 then how is it different from the callable capital portion of the increase in Singapore’s subscription to the IBRD. Also note the last sentence which states that Singapore is committed to provide the funds when asked to do so by the IMF.

Tharman’s explanation means that I did not need to bother to go through a lengthy citing of precedents from other countries and  standards set by accounting bodies. The government uses the same accounting treatment. Had I been able to cross-examine the FInance Minister or one of his officials or submit written questions this would have been established. However the lawyer who represented me previously before I decided to argue the case myself advised me this was not possible. What this new information makes clear is that in order to win its case and prevent embarrassment the AG pretended that the loan commitment (or contingent line of credit) was an asset and not a liability. The government succeeded in pulling the wool over the eyes of the judges.  However the judges, like spectators at a magic show, were happy to be taken in by this gross misdirection , “citing former CJ Chan Sek Kheong’s “green-light” theory of administrative law”  and “saying there 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.” If this is not a very grave and serious breach of legality then what is?

Now we have ended up with a situation where the government, and the Finance Minister, have been caught out in misrepresenting and lying in court in order to get away with breaking a Constitutional provision that it itself drafted.  It is demonstrative of the contempt the PAP feel for Singaporeans and their belief that they are above the law. In any democracy the Finance Minister would be forced to resign and might face criminal charges. Unfortunately the judiciary has now come to the rescue of the executive by ruling that we have no  locus standi  to challenge illegal government actions.  The PAP government can safely continue its long tradition of doing as it pleases without bothering with such niceties as accountability, transparency, rule of law or even simple honesty.


  1. I commented on this as part of my blog post on what we did not learn from the Japanese occupation of WW2:

    My opinions are my own, but I stand by them and my belief that civilians should be the ones having the use of self-defence force, not government.

    In Singapore context, the armed citizenry will only be able to bear arms when under command from the government that with the dismissal of this case is a clear and present danger to the liberties of the People of Singapore. A dictatorship that with the regulars and National Servicemen of the police and military under its command will institute more controls and limits on the remaining freedoms of the citizenry of this country.

    Reading history will show how giant massacres and mass deaths occurred after a country’s people were disarmed, Russia’s collectivization (20 million dead), China’s Cultural Revolution (60 million to 80 million dead), Cambodia’s Killing Fields (3 million dead), Nazi Germany’s holocaust after disarming the Jews and others (11 million dead), etc.

    In most these cases, the people in the police and military were people of their own country, taking orders from a central authority out of fear of their own lives, against the rest of their fellow citizens in that country.

    If the government believes it can get away with anything, there is no limit to what they can do. Coupled that with the fact that we are disarmed like almost every nation on Earth except Switzerland and the United States, the government has the monopoly of force and we are at their mercy.

    There was a reason why the United States instituted the 2nd Amendment, and high powered rifles were not invented for just hunting game. Historical fact necessitates the need for the individual to have measures of self-defence that match up to the level of technology of the government’s ability of use of force.

    All it takes is for a power hungry lunatic to take over government and turn this into a hot tyranny, and the Changi and Punggol Beach massacres in WW2 will look very minor in comparison.

    Let it be known I was one of the first to warn about this.

    Sincere thanks for taking time off your busy schedule to read this and for your tireless work seeking justice in a country that has few liberties for the people.


  2. Dear Mr Kenneth, can you provide the reference to the clause in the constitution that governs the conditions on loans made by the government even if they are made for a good purpose but overextending their power…what made a loan commitment an asset, if it does not generate any financial benefits, as you said the interest rate is near zero…


    • Article 144A Not even the government treats a loan commitment as an asset. So they misrepresented the position in court to win the case and the judges went along for the ride.


  3. Kenneth, there was a typo in my previous comment.

    It should be “It seems that there IS NEW evidence” and not “It seems that there is NO new evidence”.


    • Dear Anonymous. Yes, I believe there is new evidence but now they have the Locus Standi against us the people, to shut us out of the courts. I don’t know enough about the law to find any other avenue but maybe we could get an open letter together to Minister Tharman?


      • A loan comitment is a liability, and you have to provide for it. In accounting practice it is a contingent liability. If it drawn down then it becomes an asset as it becomes money lent or invested and represented by bonds, shares etc. A first year accounting student
        knows this.
        Is there anything more you can do? Illegitimi non carborundum!


        • We need the citizens to write to Tharman to explain how the MOF could argue in court that a loan commitment was an asset when they account for it as a liability? If it is a liability then it needs Parliamentary and Presidential approval.


          • Kenneth, why don’t an open letter to Tharman and broadcast it all over social media. I believe there is a highe Court than the Court of Appeal, the Court of Pubic Opinion.l

            Based on what you have written, there is clearly an inconsistency in the interpretation of asset and liability between the judgement and Tharman’s disclosure in Parliament.


  4. Kenneth, is the Court of Appeal decision the last word? Have you exhausted all avenues? It seems that there is no new evidence to support your case.


  5. Kenneth, Ephraim is just trying to help. No need to be so upset and be so rude to him. Have some humility first before you even think of entering parliament. Otherwise, you will be just the same as thosewhite traitors.


    • This is my blog on economics . you can find my political writings and campaigning elsewhere. I took the IMF case on as an individual and decoupled myself from the political process and this article that you are commenting on is about that.
      So your comment is off topic. However I have allowed it this time to make the point. I am an economist I am more highly qualified than most commentators I can think of to write about economics on Singapore. Furthermore that linking me to people who claim to have qualifications they don’t i.e. frauds is a slur. This is my blog. I have no trouble demonstrating humility elsewhere and maybe you should speak to the people I help in every day life such as Madam L. If you have any substantive comments on my post then I would be happy to answer them in all humility.
      Yours sincerely,


  6. Ken,
    I love the stuff you discuss on your blog. One quibble though. Generally only someone with an earned PhD in econ is an economist. So you cannot be an economist just as the PM cannot be called a mathematician. Econ graduate, math graduate, but not economist or mathematician. Better be humble than overdesignate oneself, as Leong Sze Hian does, claiming to be a Harvard alumnus, implying he earned a degree from that school. Why should he orr youMa give reason to PAP to call your bluff on the hustings this year….or next? I respect you enough without having to identify you as an economist, mathematician, layer or whatever. Best regards.


    • Do me a favour and don’t put me in the same boat as people who imply they graduated from a school when they didn’t. That would make me a fraud or a liar. How dare you? I’m an economist. That’s my job title not my degree. If I earn my living painting then I’m an artist. If I had a Phd not a Masters then I’d be a doctor. Get over it.


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