Christopher Balding
Balding's World, June 20, 2012 (source)
In my last couple of posts, we covered the concepts of economic capture, the size, and duration of the government budget surpluses. In short, the government of Singapore is capturing an enormous piece of economic activity rather than allowing its people to enjoy the fruits of their labors. While this economic capture of financial resources by the government manifests itself in the lowest rates of spending on health and education it also matters for a much more obvious reason, which I will cover today.
Temasek was formed in 1974 and claims that to date it has earned an averaged annualized rate of return of 17%. Given that it manages $193 billion SGD as of its last annual report ending March 31, 2011, this would imply that it began operation with a one time investment of approximately $550 million SGD. Temasek has stated that it began operation with $375 million SGD which given measurement error, is a very plausible number. So far, the numbers come close to matching up.
We then need to ask, where Temasek got this $375-550 million SGD to begin its investment portfolio. Well according to the Singapore Ministry of Finance and the IMF, from 1969 to 1973, the government managed a total accumulated surplus of….(wait for it), $551 million SGD. These are numbers I like to see as they match up quite closely.
However, if we add in GIC numbers, everything begins to fall apart. As I have already covered in previous posts, we actually know pretty closely how much GIC manages. In March 2011, with Temasek declaring its holding at $193 billion SGD and the government holding cash of $125 billion SGD, the balance sheet reveals a GIC upper bound estimate of $387 billion SGD, pretty close to outside estimates.
So if GIC earned is 7% annually as it claims since 1981, this would imply that GIC began operation with a one time investment of approximately $50 billion SGD. Well according to the Singaporean MOF, from 1974 to 1981, Singapore ran accumulated budget surpluses of $2.5 billion SGD. This tells us that Singapore must have been adding to GIC’s capital base kind of like normal people put money in a savings account or in their CPF and earn interest.
So since we know that Singapore must have been adding to GIC capital through the years, lets consider how much of the budget surplus would need to be placed into GIC to arrive at $387 billion SGD. If the government of Singapore did nothing more than place its operational surpluses into GIC and earn the 7% it claims, it could have stopped saving from its operational surpluses in 1998. Let me put that another way, if all the Singapore government did was place its operational surpluses in GIC and earn 7%, then it should have only need to invest through 1998. The more than $150 billion SGD that is recorded as operational surplus from 1999 onwards cannot be accounted for if GIC is earning the rate of return it claims.
What makes this even more concerning is that not only was the government running enormous surpluses that do not appear to have earned the rate of return claimed by GIC, but it was also borrowing enormous sums of money. Singapore now has a debt to GDP ratio of approximately 100% or $331 billion SGD. If this money was being invested as it was borrowed, then the sums under management at GIC should be staggering. From previous posts, it should be in the trillions.
So let me explain why economic capture, government surpluses, and low spending levels matter. The only plausible conclusion is that large amounts of money are un accounted for in some manner. The most likely explanation is that investment returns are not equal to GIC and Temasek claims. In other words, the economic capture through structural surpluses via the lowest levels of spending in the world, were being used to cover up investment losses.
If GIC was earning what it claimed, then Singapore debt levels should be much smaller and operational surpluses would have been much smaller. The numbers simply cannot be reconciled.
If GIC and Temasek returns are what they claim, then the government should have no problem presenting financial data to support their claims including yearly transfers. If they refuse to provide this data, this should concern Singaporeans and financial markets who depend on the transparency and reliability of the data provided by the government.
The government has captured the financial resources of its people to cover financial mismanagement. By running surpluses at the expense of its health and education budget, it has been able to hide its own financial failures.
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What we know so far
Christopher Balding
July 2, 2012 (source)
Before we get back to analyzing the made up finances of the Singaporean government, GIC, and Temasek, I thought this would be a good place to stop and go back over what we know for a fact.
1. The government of Singapore has an official balance sheet as of March 31, 2011 listing $705 billion SGD of assets and of that $125 billion SGD is in cash.
2. Temasek at the same time lists assets of $193 billion SGD.
3. Given the government cash holdings and the value of Temasek, this would provide a GIC valuation of $387 billion SGD. This is close to other outside estimates of GIC.
4. Given outstanding debt of $359 billion SGD, Singapore sits on “shareholder” equity of $346 billion SGD.
5. Since 1974, Singaporean debt has gone up by $326 billion SGD.
6. Since 1974, Singapore has run operational surpluses of $279 billion according to the IMF.
7. Temasek claims to have earned 17% annually since 1974.
8. GIC claims to have earned 7% in USD over the past 20 years.
9. Despite receiving $605 billion SGD in borrowing and surpluses AND claiming to earn 7-17% since 1974, Singapore only claims $705 billion SGD in assets!!
10. If we accept their surpluses and borrowing as accurate and their balance sheet as accurate, this would imply the government of Singapore they earned .004% since 1974 rather than the 7-17% they claim.
Now that is some creative accounting. Who says Singapore doesn’t have creative industries? Too bad they are the wrong kind.
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*The writer is a professor of business and economics at the HSBC Business School at the Peking University Graduate School. An expert in sovereign wealth funds, he has published in such leading journals as the Review of International Economics, the Journal of Public Economic Theory, and the International Finance Review on such diverse topics as CDS pricing, the WTO, and the economics of adoption and abortion. His work as been cited by a variety of media outlets including the Wall Street Journal and the Financial Times. Prof Balding received his PhD from the University of California, Irvine and worked in private equity prior to entering academia.
Here appear occasional jottings of my random musings. Profound or jejune, they reveal the contours of my mental universe, with world history, intellectual history, civilizations, philosophy, religion, society, knowledge, and books as some major themes. Since May 2011, this blog has been exclusively focused on Singapore. All my other reflections are now posted in "Notes from Noosphere" (see link under "Miscellany" on the right margin).
Showing posts with label Christopher Balding. Show all posts
Showing posts with label Christopher Balding. Show all posts
Thursday, June 21, 2012
Monday, June 11, 2012
Christopher Balding: Singapore Government builds its SWF not through shrewd investments
TR Emeritus, June 11, 2012 (source)
People in around the world, though especially in Asia, talk about sovereign wealth funds as if they are the same the world over. However, there is one very significant dividing line in the type of sovereign wealth funds and it has profound implications for both economic policy and political theory.
The first sovereign wealth funds were created by oil rich Gulf states to invest their structural surplus in European and North American financial markets. By taking their long term structural current account surplus and investing foreign markets, the oil exporting Gulf states were limiting inflationary pressures and currency appreciation. So far, export focused Asian countries with sovereign wealth funds like China and Singapore have been following the same policies.
There is however one major difference between the oil rich Gulf states that first created sovereign wealth funds and the manufacturing focused east Asian states that followed in their foot steps. When an oil exporting country takes oil out of the ground, sells it, and deposits the proceeds in their sovereign wealth fund, there is no net change in wealth. Just because the oil is in the ground rather than sold with money in the bank to show for it, does not make that country any more or less wealthy. In fact, they would probably become more wealthy by keeping oil in the ground rather than selling it now.
The financial term used is that the country is “monetizing” (turning oil into money) their existing national wealth. Everyone focuses on the size of Abu Dhabi’s sovereign wealth fund, but Abu Dhabi is not any wealthier because their sovereign wealth fund has money in the bank rather than oil in the ground. A good comparison would be Bill Gates. If Bill Gates sells some of Microsoft shares turning them into cash, he is no more wealthy with cash rather than shares of Microsoft. His portfolio allocation has changed but his wealth is unchanged.
1. From 1990 to 2012, the average government revenue to government expenditure ratio according to the IMF averaged 2.2. In words, that means that for every $1 SGD it was taking in from its people, it was only spending 45 cents! Less than half of all government revenue was actually spent on the people.
2. Consider the concept of “financial capture” or how much of the economy the government uses for its own purposes. If we add net government borrowing, government revenue, and the increase in foreign exchange reserves, the government since 1990 has on average captured 44% of GDP. This average 44% of GDP has been saved in vehicles like foreign exchange reserves, GIC, and Temasek. In other words, the government was capturing for its use and control 44% of the Singaporean economy every year since 1990.
3. It then becomes reasonable to ask how well did the Singaporean government did with that 44% of GDP the captured every year. To answer this question, let’s use a narrower definition of economic capture. Instead of using total government revenue which may include dividends and the like from Temasek or GIC, let’s use the operational government surplus representing only ongoing revenue from taxes and fees minus expenditures for government operations. From 1990 to 2010 alone, the government of Singapore captured in the form of operational government budget surpluses, foreign exchange increases, and borrowing $980 billion SGD. According to public Singapore records detailing their balance sheet and MAS reserves, Singapore controls assets of……$993 billion SGD. Given the Singapore governments 21 years of economic capture from 1990 to 2010 and their resulting assets under management, that would give them an annualized rate of return of .0007%. In other words, Singapore has returned less than 1/10th of 1% annually since 1990.
4. The enormous difference reveals itself in very real ways. While there are very real problems with excessive redistribution and a lack of entrepreneurial spirit in oil rich countries, the political philosophy of economic capture versus monetizing natural resource wealth reveals itself in how the state treats its own people. Here is a figure that illustrates the difference of how economic capture treats its people.
According to the World Development Indicators from the World Bank, when we compare Singapore to other major SWF countries with more than a few years in existence, the differences are stark.
Singapore ranks last in education spending and last in public health expenditure. The government of Singapore is capturing the financial benefits of its citizens productivity and not providing the public goods and services its people have every right to expect.
Whereas oil rich states have enormous sovereign wealth funds because they won the geographic lottery, Singapore created enormous sovereign wealth funds by capturing the economic productivity of its people.
Christopher Balding
*The writer is a professor of business and economics at the HSBC Business School at the Peking University Graduate School. An expert in sovereign wealth funds, he has published in such leading journals as the Review of International Economics, the Journal of Public Economic Theory, and the International Finance Review on such diverse topics as CDS pricing, the WTO, and the economics of adoption and abortion. His work as been cited by a variety of media outlets including the Wall Street Journal and the Financial Times. Prof Balding received his PhD from the University of California, Irvine and worked in private equity prior to entering academia.
The article first appeared on his facebook page: http://www.facebook.com/baldingsworld
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People in around the world, though especially in Asia, talk about sovereign wealth funds as if they are the same the world over. However, there is one very significant dividing line in the type of sovereign wealth funds and it has profound implications for both economic policy and political theory.
The first sovereign wealth funds were created by oil rich Gulf states to invest their structural surplus in European and North American financial markets. By taking their long term structural current account surplus and investing foreign markets, the oil exporting Gulf states were limiting inflationary pressures and currency appreciation. So far, export focused Asian countries with sovereign wealth funds like China and Singapore have been following the same policies.
There is however one major difference between the oil rich Gulf states that first created sovereign wealth funds and the manufacturing focused east Asian states that followed in their foot steps. When an oil exporting country takes oil out of the ground, sells it, and deposits the proceeds in their sovereign wealth fund, there is no net change in wealth. Just because the oil is in the ground rather than sold with money in the bank to show for it, does not make that country any more or less wealthy. In fact, they would probably become more wealthy by keeping oil in the ground rather than selling it now.
The financial term used is that the country is “monetizing” (turning oil into money) their existing national wealth. Everyone focuses on the size of Abu Dhabi’s sovereign wealth fund, but Abu Dhabi is not any wealthier because their sovereign wealth fund has money in the bank rather than oil in the ground. A good comparison would be Bill Gates. If Bill Gates sells some of Microsoft shares turning them into cash, he is no more wealthy with cash rather than shares of Microsoft. His portfolio allocation has changed but his wealth is unchanged.
Countries like Singapore however do not have pre-existing national wealth in the form of assets like oil to turn into money. So where does Singapore get its “national wealth”? From the financial capture of the economic productivity of its population. As I have covered at length in the previous postings, Singapore has run a long term structural budget surplus but the relative enormity needs to be put into some perspective. Let me give you a a couple of ways to think about how much the government of Singapore has been “capturing” from its own population to use for its own wealth purposes.
1. From 1990 to 2012, the average government revenue to government expenditure ratio according to the IMF averaged 2.2. In words, that means that for every $1 SGD it was taking in from its people, it was only spending 45 cents! Less than half of all government revenue was actually spent on the people.
2. Consider the concept of “financial capture” or how much of the economy the government uses for its own purposes. If we add net government borrowing, government revenue, and the increase in foreign exchange reserves, the government since 1990 has on average captured 44% of GDP. This average 44% of GDP has been saved in vehicles like foreign exchange reserves, GIC, and Temasek. In other words, the government was capturing for its use and control 44% of the Singaporean economy every year since 1990.
3. It then becomes reasonable to ask how well did the Singaporean government did with that 44% of GDP the captured every year. To answer this question, let’s use a narrower definition of economic capture. Instead of using total government revenue which may include dividends and the like from Temasek or GIC, let’s use the operational government surplus representing only ongoing revenue from taxes and fees minus expenditures for government operations. From 1990 to 2010 alone, the government of Singapore captured in the form of operational government budget surpluses, foreign exchange increases, and borrowing $980 billion SGD. According to public Singapore records detailing their balance sheet and MAS reserves, Singapore controls assets of……$993 billion SGD. Given the Singapore governments 21 years of economic capture from 1990 to 2010 and their resulting assets under management, that would give them an annualized rate of return of .0007%. In other words, Singapore has returned less than 1/10th of 1% annually since 1990.
4. The enormous difference reveals itself in very real ways. While there are very real problems with excessive redistribution and a lack of entrepreneurial spirit in oil rich countries, the political philosophy of economic capture versus monetizing natural resource wealth reveals itself in how the state treats its own people. Here is a figure that illustrates the difference of how economic capture treats its people.
Comparing SWF state spending on health and education
According to the World Development Indicators from the World Bank, when we compare Singapore to other major SWF countries with more than a few years in existence, the differences are stark.
Singapore ranks last in education spending and last in public health expenditure. The government of Singapore is capturing the financial benefits of its citizens productivity and not providing the public goods and services its people have every right to expect.
Whereas oil rich states have enormous sovereign wealth funds because they won the geographic lottery, Singapore created enormous sovereign wealth funds by capturing the economic productivity of its people.
The government of Singapore has built sovereign wealth funds not through natural resource wealth or shrewd investments, but capturing the financial wealth of the people of Singapore. The people of Singapore work for the government.
Christopher Balding
*The writer is a professor of business and economics at the HSBC Business School at the Peking University Graduate School. An expert in sovereign wealth funds, he has published in such leading journals as the Review of International Economics, the Journal of Public Economic Theory, and the International Finance Review on such diverse topics as CDS pricing, the WTO, and the economics of adoption and abortion. His work as been cited by a variety of media outlets including the Wall Street Journal and the Financial Times. Prof Balding received his PhD from the University of California, Irvine and worked in private equity prior to entering academia.
The article first appeared on his facebook page: http://www.facebook.com/baldingsworld
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Friday, June 8, 2012
Christopher Balding’s Blog, Hair-raising development: Kenneth Jeyaretnam
(youtube)
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I’m Baaaaaaack!
I will leave it to your creative imaginations to guess who hacked/attacked my account, but everyone knows who is ultimately responsible. This represents merely a small delay and has done nothing but invigorate me for what lies ahead.
When someone cannot argue with the facts you have presented they attack you personally. It speaks volumes that they have not presented one fact or argument that addresses the facts I have put forward from their own data.
I am ready for what lies ahead and prepared to let others decide the validity of my arguments. Are you?
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Christopher Balding's investigation into Singapore's public finance must be making someone very nervous and desperate. Quite an endorsement of Balding's acuity.
Read Balding's blog post "The Different Sovereign Wealth Funds and Their Implications" here.
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Balding Blog, Hair-raising Development
Kenneth Jeyaretnam (source1, source2)
Do you love a conspiracy theory? Or do you like to say there’s no such thing as a coincidence? Monday, as you know, saw the anniversary of the Tiananmen Square massacre. June 04th 1989. There are a lot of things I could say about that. I was in Hong Kong over the weekend meeting with the Democratic Party of Hong Kong amongst others and the Democratic Party were busy gearing up for a press conference about a peaceful demonstration for the Tiananmen anniversary. The overriding feeling this left me with (in addition to the terrible, unforgettable memories of that time) was that Hong Kong citizens enjoy more democracy than we do in Singapore. Not that they were allowed it but that they demanded it.
The eventual demonstration attracted tens of thousands, larger than ever this year . This probably was a function of fear over the new pro -mainland China, Chief Executive for Hong Kong due to be sworn in on July 01st. Pro-democracy groups are talking of more Mainland Chinese attending demonstrations and of receiving more donations in RMB, the currency of Mainland China. This is clear evidence of support and participation of people from Mainland China. Again my feeling is that China will reach democracy before we do.
Enter the first conspiracy theory. On Monday the Shanghai Stock Exchange opened at 2,346. 98 and closed 64.89 points lower. It opened at the 23rd anniversary of the date backwards 4/6/89 and closed at 6/4/89. There can only be four explanations for this. Hackers, Manipulation (which would require enormous power, influence and wealth), a pure albeit, eerie coincidence, or help from a being from another world or a deity. Take your pick. China responded by blocking the terms on the internet.
Whilst in Hong Kong I also met up with some economic think tanks as I am in the process of setting one up. Finally I spent some time with the HSBC Business school Assistant Professor Chris Balding. Originally he came to Hong Kong and then I went over to him in Shenzhen, China.
Those that read his blog will know that he wrote about meeting me. Why did I go over there? Well a few weeks ago I was alerted to some pieces he had written on his blog about our SWFs Temasek Holdings and GIC. In fact my first response to Singaporeans, who emailed me agitatedly, was along the lines of, “seriously?” I’ve been speaking out about the lack of transparency in Temasek for three years specifically and calling for transparency and accountability in general since day one. In fact one of my first moves as leader of the Reform Party was to put the script,
“ transparency plus accountability equals democracy“across the top of our website.
One of the manifesto pledges I made was to call for Temasek to be publicly listed and for the shares to be distributed to citizens. This would focus our SWFs on benefiting the citizens whose money it took to build up its holdings in the first place. But most importantly the public listing would ensure transparency.
Two years ago an interview I did with Reuters caused waves and was reproduced in the press all over the world. http://in.reuters.com/article/2010/03/12/idINIndia-46873320100312
“PRIVATISE THE WEALTH FUNDSOpposition chief tells Singaporeans: Don’t be afraid
The Reform Party proposes the possible privatisation of Singapore’s two multi-billion dollar state wealth funds — Government of Singapore Investment Corp and Temasek — to allow more transparency.
“Obviously if they were privatised and listed on the stock market then they will have to ensure higher standards of disclosure,” said the former banker, whose background is more akin to the PAP’s scholarly leaders.“It is unusual that we have seen big losses during the financial crisis yet no heads appear to have rolled among senior management.
Last February I set up this blog (Reinventing the Rice Bowl). The theme of the blog was a follow on from my earliest message that you do not need to give up on freedom to have prosperity. You can have both but crucially, freedom is actually your best guarantee of prosperity.
This blog also attempts to pull apart the PAP claim, as do all my economic writings, that Singapore is a free market economic miracle. That somehow they have managed to make totalitarianism go hand in hand with prosperity. There are no free markets in Singapore and the only miracle I contend is how successfully they use certain tools to turn the peoples into sheeples.
I examine the PAP propaganda that the repressive regime is necessary because of this precious porcelain rice bowl that they have given you. That your noses must be kept to the grindstone because you will never be given the iron rice bowl of socialism, the free education, the national health service, the welfare state. In short how they attempt to convince you that the meat and rice in your bowl comes entirely from them not from you and you had better be obedient, careful and grateful. Hence the name “Reinventing the Rice Bowl”, looking at solutions which are neither the iron rice bowl of socialism nor the one precious, porcelain rice bowl of LKY.
I also like to examine our so-called growth. Our productivity is abysmal and the GDP growth is driven by bringing in cheap foreign labour from LDCs at the bottom who are willing to work for virtually nothing (and are often treated shamefully.) There is no economic miracle no free market and LKY didn’t start from a malarial swamp.
I can’t blog on economics, competition and free markets without also focusing on freedom. Freedom of information, freedom of expression, social freedom, free markets and a free market in ideas. So I write here extensively on the need for transparency, accountability and freedoms.
- I have addressed the fake free market system where everything leads back to a GLC here, ( http://sonofadud.com/market/another-round-of-monopoly-anyone/)
- How we have no transparent market in housing the government being the major landowner here (http://sonofadud.com/market/how-to-create-a-housing-bubble/)
- In addition to our official Party stance on Temasek I have brought up Temasek and GIC and CPF frequently in articles such as, (http://sonofadud.com/market/what-lessons-does-the-olympus-saga-hold-for-singapore-and-our-swfs/) and (http://sonofadud.com/market/gic-ubs-and-the-death-spiral-of-your-cpf-funds/).
http://www.wired.com/opinion/2012/04/opinion-jeyaretnam-disneyland-death-penalty/2/
In my role as leader of the RP, I wrote a three-part response to the Budget – not reported anywhere ?? (because the Budget responses of non economists will always be so much more compelling? Or because I pointed to discrepancies?) In particular I reported that the Budget was a model of opacity and that there were unexplained discrepancies. Part three has not yet been written because I am still awaiting the statistics that will allow me to write it.
SO, I have been on this theme for quite some time. Then along comes Chris Balding. Naturally my first thought was that this guy had read about me in Wired had then read this blog which is linked from Wired and seen my budget response. How could someone else be writing about discrepancies and Temasek when I was the only one in Singapore who had dared to bring it up. Let’s not even ask why the forum agitators and keyboard warriors stand to attention when one of the foreigners they spend the rest of their time deriding, points out what a son of the soil has been saying for three years. Of course they have swallowed the govt character assassination so well that the same people on the forums who complain every time I release a statement that my style is too technical or scholarly, have in the last few days been writing in our forums that I couldn’t have written the letters/posts myself because…..wait for it… the style is too technical and scholarly!
In fact, although Chris’s recent work had only come to my attention a few weeks ago it seemed he was a bona fide academic with a long history of research and published papers on SWFs. It really did seem that we had both independently, coming at it from different directions, reached the same conclusions, namely that there is something rotten in the state of Denmark. In the most simplistic laymen’s terms he has done with our SWFs over the long-term what I did with the budget 2012 in part 1. He has taken the figures available added them up and found they don’t match. The fact that neither one of us previously knew the other or was aware of the other’s work but were reaching the same conclusion is significant.
I can’t tell you how exciting it was to be finding some validation after years of working away in isolation, kept in the dark, in this secretive State with its stranglehold on the media via the Printing and Presses Act and on the public through the climate of fear. Of course I tempered my excitement with caution. I tried to find some evidence that Chris was a PAP spy luring me into a trap, mentally unstable in some way, with a grudge against Singapore or an axe to grind or indeed an outright fraud. Those conspiracy theories get to you and you do get paranoid.
To cut a long story short I made the decision to fly over and meet up with Chris basically to conduct whatever due diligence I could on a face to face basis and to see whether we could help each other .
Did I find any evidence to support my earlier paranoia? Certainly his final figures of that time would have benefitted form soem extra data and the exploration of varying scenarios and I was glad to help by adding some pieces to the puzzle. Also his working paper, “Madoff comes to Singapore” had overlooked an explanation that I believe allows our SWFs to report those returns. But what I found was a genuine academic and a genuinely nice guy. That weekend and since we have worked well together.
Chris is an academic specialising in political economics and with the luxury of a salary and the time to look into our finances he had gone into our SWFs in a depth that I would have loved to be able to do. I am an advocate for democracy with an inside knowledge of Singapore’s smoke and mirrors technique and the way in which the faux free market is constructed. I am also a pure economist and a veteran in the financial markets. I bring a fund manager’s knowledge and intuition of the many ways in which historically, individuals and institutions have attempted to massage their figures.
There is one major difference between academics and politicians. If my ideas get out there and are picked up then I have done my job no matter who ends up ‘owning’ the idea. Because of course you can’t ‘own’ an idea like democracy. Just as the PAP attempt to make me a non-person they can’t make my ideas non-ideas. Academics however live in a world of publish or perish. All those rankings you see of Universities which manage to put NUS or NTU so high or laughably put LSE above Oxford and Cambridge are based on the number of papers published without regard to quality or originality.
Chris therefore can and needs to publish and this pressure may make him less reserved in his conclusions than I am. He can print working papers and go back and refine them as more information becomes available. So some of his results published on his blog may seem a little sensational. But at least they caught your attention! He is also offered some protection from the State sponsored isolation and smear campaign that I am subjected to, by being an American citizen, so he can be and is bolder.
As a hedge fund manager my job was to manage risk to and to hedge against it, so I do tend to be more cautious. The advantage of caution and freedom from the pressure to publish is that when I do publish , I can be certain. So for example with my letter to the Wall Street Journal which MICA so laughably tried to refute, I can stand by it and say, ” I didn’t and don’t misrepresent facts.” Not that any media here gave me a right of reply or asked for my point of view.
Chris and I are still working together on this both banging our heads against the same wall. That wall is lack of access to transparent figures and an explanation of their valuation. I, as a Singaporean citizen with the credibility of my background, can reasonably ask our government for answers and try to achieve the missing figures we both need. That is why I am not easing up on my call to demand transparency from our MOF and our government at large.
So what is the conclusion? Is there a huge loss and what does it mean?Well, I would like to finish crunching the figures with Chris and analyzing them first. The key thing is that meanwhile questions are being asked. It is necessary to ask them. It is the essence of democracy. In a healthy and robust democracy, vital questions on a matter of national interest from a credible source are not repressed but are answered swiftly. I am not casting aspersion nor throwing out accusations. I just want some transparency about my money and yours.
So far all I can conclude with some degree of certainty and I am looking at the most favourable outcome, the very minimum, the best case scenario, is :
- Chris Balding’s scenario may be an extreme one but even a much more favourable one throws up several discrepancies and in particular why net assets and reported surpluses do not add up. The figures that I do have, show that net assets do not add up to the reported surpluses over the last 32 years even if compounding is already in there. .
- Government debt has been increasing rapidly with no explanation as to why the government is increasing borrowing. This is enough to worry me. .
- The valuation of unquoted assets in the balance sheet has tripled in the last eight years at a time when listed equity valuations have declined.
I have therefore written to the MOF with some reasonable questions asking for clarification. At the same time I have been asking questions to try to ascertain whether our loan to IMF was fully constitutional. We need to know that protocol and procedures and indeed the law are being followed. Greece of course has rejected austerity plans and has benefitted all this time from those iron bowl services you have never had. If you are frustrated or concerned about the state of our reserves or our economy you can take up active citizenry and join me in asking those questions or write to the Press or in forums asking what is it about these ‘Open Letters’ that has made the Media ignore them.
Meanwhile let’s hope you haven’t gone without freedom for nothing. To have given up so much freedom for prosperity as the end result is one thing but to have given it up for austerity is quite another.
What about the conspiracy theory? Yesterday Chris Balding’s website containing his blog was suspended. He hasn’t found a satisfactory explanation. His service provider has informed him that his account was compromised and he has warned me that my emails to him will also have been affected. He has also received a lot of very agitated mail and the kind of hysterical character attacks that have become part and parcel of my life. Welcome to my world Chris! I heard from another source that his University is fending off calls from angry Singaporeans. Meanwhile my open letters to MOF and the President and to the Press remain unanswered or even acknowledged. Eerie Coincidence? Or is the net that has been used to isolate and silence me now tightening around Chris? You decide.
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Friday, June 1, 2012
Prof Christopher Balding: Singapore, Inc. - Just when you thought it couldn't get any worse
The Balding Blog, June 1, 2012 (source)
TR Emeritus, June 1, 2012 (source)
The Online Citizen, June 1, 2012 (source)
This past weekend, I had the pleasure of meeting with Kenneth Jeyaretnam, the Secretary General of the Reform Party, who wanted to better understand exactly what I was claiming about Singaporean public finances and the factual basis for such claims.
A former banker and hedge fund manager, he has spent his professional life analyzing finances and numbers. Skeptical of my analysis about the perilous nature of Singaporean public finances and the blatant misrepresentation with regards to Temasek and GIC, he quizzed me about the numbers and whether I had considered different scenarios that might explain the discrepancy. Near the end of our time together having exhausted the numbers and possibilities, he simply sits up in his chair and says “well, this is a problem.”
However, since this meeting, I have come to realize that the problems are significantly bigger than even I initially believed. One of the main questions from people is whether the “surpluses” reported by Singapore are actually surpluses. Thanks to my own additional searches and data provided by Kenneth Jeyaretnam, the data looks even worse than expected. Let me explain why.
We now have three sources that report Singaporean public surpluses. First, we have IMF data from the International Financial Statistics database on the operational revenue, expenditures, and surpluses. This data goes back to 1963. Second, we have budget revenue, expenditure, and surplus data from the Statistics Singapore dating back to 1980. Third, we have the IMF general government revenue, expenditure, and surpluses dating back to 1990. These numbers provide us a good basis for comparison.
I need to make a brief detour to explain an important point about these numbers. The first set of numbers from the IMF records “operational” revenue, expenditure, and surpluses. The second set of numbers from the IMF records “general” revenue, expenditure, and surpluses. Think of the difference between these two numbers like this. ”Operational” revenue records how much money you make at your job (revenue), how much you spend (rent, car, food as expenditure), and how much you save from your job (surplus). ”General” revenue also records income from your past savings.
So for instance, if you have $200,000 in an investment fund which makes you 10% for the year or $20,000 and you made $50,000 at your job, your “operational” revenue would be $50,000 and your “general” revenue would be $70,000 ($50,000+$20,000). Understanding the difference will help understand Singaporean public finances.
When we compare Singaporean budget numbers to IMF operational and general budget numbers, the differences become very important. According to Statistics Singapore, from 1980 to 2010, the government ran a total surplus of $282 billion SGD. According to the IMF operational budget numbers, Singapore ran a total surplus of $270 billion SGD. Those two numbers are pretty close and in line with the previous data I have used. So far, so good.
However, according to the IMF general government numbers which is given to the IMF by the Singaporean Ministry of Finance, from 1990 to 2010, the Singaporean accumulated surplus totaled $429 billion SGD. That general number which includes revenues from historical reserves (Temasek and GIC) is more than 50% larger than the operational budget surplus!!
There are a couple of points that need to be mentioned. First, from 2003 to 2010 the differences between the three different surplus numbers is quite small. However, from 1990 to 2002, the differences between the IMF general government surplus and the other budget numbers are enormous. From 1990 to 2002, the Singaporean government claimed to have an accumulated surplus of $151 billion SGD while the IMF general surplus totaled $311 billion SGD!!
So what accounts for the enormous difference? A simple accounting policy change. To avoid publicizing its revenue from historical reserves (Temasek and GIC), the Singaporean government only published domestically its operational surplus which explains why it so closely matches the IMF operational surplus. However, it shifted to the IMF standard for reporting government revenue in 2003 which covers all government revenue including revenue from such factors as Temasek and GIC. This means that the Singaporean government from 1990 to 2002 was deliberately and systematically under reporting its revenue to its citizens in its domestic accounts.
Second, this drastically, DRASTICALLY, changes the estimate for how much money Singapore, Inc. should have sitting in the bank. If we only change our estimates to use the IMF numbers which cover general revenue back to 1990, the Singapore budget numbers from 1980 to 1989, and the increases in borrowing from 1980 to 2010, then use the GIC reported earnings of 7% over this time frame, Singapore, Inc. should be sitting on $2.1 trillion SGD. Let me repeat that in case you are not absolutely shocked.
Using Singaporean provided numbers on budget surpluses, borrowing, and returns: Singapore, Inc. should have more than $2.1 trillion SGD in the bank right now. TRILLION. RIGHT NOW!! It currently reports only about $700 billion SGD.
This represents either the largest single example of financial mismanagement, fraud, government obfuscation, or graft in human history. Whether this money is not publicly reported, gone to money heaven, or is sitting in a Swiss bank account, the discrepancies are enormous and appalling.
Hopefully, Kenneth Jeyaretnam and the people of Singapore will find answers from their so-called democratic leaders. This level of financial obfuscation cannot be allowed to continue in a supposed democratic and transparent country.
Rather than continuing to ignore the discrepancies in their own data, we can only hope that the Singaporean government will move to address these concerns.
Update:
Here is a table of the hypothetical increase in Singaporean assets under management. The first column comes directly from Statistics Singapore. The second column comes from the IMF by way of the Singaporean Ministry using a slightly different accounting method as noted above. The assets under management are assumed to grow by 7% every year since we do not know the year to year growth but only the long term annualized average that GIC has reported. I chose the GIC average because Temasek’s annualized average over the same period is even higher.
To a degree it doesn’t matter whether you believe the IMF numbers or the Statistics Singapore numbers, there is an enormous amount of money missing.
Disclaimer: Kenneth Jeyaretnam requested a meeting to better understand my research and supporting data. I do not speak for or represent the Reform Party. I am not affiliated with any Singaporean political party or stakeholder but will gladly assist any group, party, or individual seeking to better understand the issues.
Christopher Balding
*The writer is a professor of business and economics at the HSBC Business School at the Peking University Graduate School. An expert in sovereign wealth funds, he has published in such leading journals as the Review of International Economics, the Journal of Public Economic Theory, and the International Finance Review on such diverse topics as CDS pricing, the WTO, and the economics of adoption and abortion. His work as been cited by a variety of media outlets including the Wall Street Journal and the Financial Times. Prof Balding received his PhD from the University of California, Irvine and worked in private equity prior to entering academia.
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TR Emeritus Editor’s note: Kenneth Jeyaretnam has emailed the following to TRE confirming the meeting between KJ and Prof Balding. Readers who have concerns or questions about Singapore’s asset and reserves can contact KJ at his contact below:
TR Emeritus, June 1, 2012 (source)
The Online Citizen, June 1, 2012 (source)
This past weekend, I had the pleasure of meeting with Kenneth Jeyaretnam, the Secretary General of the Reform Party, who wanted to better understand exactly what I was claiming about Singaporean public finances and the factual basis for such claims.
A former banker and hedge fund manager, he has spent his professional life analyzing finances and numbers. Skeptical of my analysis about the perilous nature of Singaporean public finances and the blatant misrepresentation with regards to Temasek and GIC, he quizzed me about the numbers and whether I had considered different scenarios that might explain the discrepancy. Near the end of our time together having exhausted the numbers and possibilities, he simply sits up in his chair and says “well, this is a problem.”
However, since this meeting, I have come to realize that the problems are significantly bigger than even I initially believed. One of the main questions from people is whether the “surpluses” reported by Singapore are actually surpluses. Thanks to my own additional searches and data provided by Kenneth Jeyaretnam, the data looks even worse than expected. Let me explain why.
We now have three sources that report Singaporean public surpluses. First, we have IMF data from the International Financial Statistics database on the operational revenue, expenditures, and surpluses. This data goes back to 1963. Second, we have budget revenue, expenditure, and surplus data from the Statistics Singapore dating back to 1980. Third, we have the IMF general government revenue, expenditure, and surpluses dating back to 1990. These numbers provide us a good basis for comparison.
I need to make a brief detour to explain an important point about these numbers. The first set of numbers from the IMF records “operational” revenue, expenditure, and surpluses. The second set of numbers from the IMF records “general” revenue, expenditure, and surpluses. Think of the difference between these two numbers like this. ”Operational” revenue records how much money you make at your job (revenue), how much you spend (rent, car, food as expenditure), and how much you save from your job (surplus). ”General” revenue also records income from your past savings.
So for instance, if you have $200,000 in an investment fund which makes you 10% for the year or $20,000 and you made $50,000 at your job, your “operational” revenue would be $50,000 and your “general” revenue would be $70,000 ($50,000+$20,000). Understanding the difference will help understand Singaporean public finances.
When we compare Singaporean budget numbers to IMF operational and general budget numbers, the differences become very important. According to Statistics Singapore, from 1980 to 2010, the government ran a total surplus of $282 billion SGD. According to the IMF operational budget numbers, Singapore ran a total surplus of $270 billion SGD. Those two numbers are pretty close and in line with the previous data I have used. So far, so good.
However, according to the IMF general government numbers which is given to the IMF by the Singaporean Ministry of Finance, from 1990 to 2010, the Singaporean accumulated surplus totaled $429 billion SGD. That general number which includes revenues from historical reserves (Temasek and GIC) is more than 50% larger than the operational budget surplus!!
There are a couple of points that need to be mentioned. First, from 2003 to 2010 the differences between the three different surplus numbers is quite small. However, from 1990 to 2002, the differences between the IMF general government surplus and the other budget numbers are enormous. From 1990 to 2002, the Singaporean government claimed to have an accumulated surplus of $151 billion SGD while the IMF general surplus totaled $311 billion SGD!!
So what accounts for the enormous difference? A simple accounting policy change. To avoid publicizing its revenue from historical reserves (Temasek and GIC), the Singaporean government only published domestically its operational surplus which explains why it so closely matches the IMF operational surplus. However, it shifted to the IMF standard for reporting government revenue in 2003 which covers all government revenue including revenue from such factors as Temasek and GIC. This means that the Singaporean government from 1990 to 2002 was deliberately and systematically under reporting its revenue to its citizens in its domestic accounts.
Second, this drastically, DRASTICALLY, changes the estimate for how much money Singapore, Inc. should have sitting in the bank. If we only change our estimates to use the IMF numbers which cover general revenue back to 1990, the Singapore budget numbers from 1980 to 1989, and the increases in borrowing from 1980 to 2010, then use the GIC reported earnings of 7% over this time frame, Singapore, Inc. should be sitting on $2.1 trillion SGD. Let me repeat that in case you are not absolutely shocked.
Using Singaporean provided numbers on budget surpluses, borrowing, and returns: Singapore, Inc. should have more than $2.1 trillion SGD in the bank right now. TRILLION. RIGHT NOW!! It currently reports only about $700 billion SGD.
This represents either the largest single example of financial mismanagement, fraud, government obfuscation, or graft in human history. Whether this money is not publicly reported, gone to money heaven, or is sitting in a Swiss bank account, the discrepancies are enormous and appalling.
Hopefully, Kenneth Jeyaretnam and the people of Singapore will find answers from their so-called democratic leaders. This level of financial obfuscation cannot be allowed to continue in a supposed democratic and transparent country.
Rather than continuing to ignore the discrepancies in their own data, we can only hope that the Singaporean government will move to address these concerns.
Update:
Here is a table of the hypothetical increase in Singaporean assets under management. The first column comes directly from Statistics Singapore. The second column comes from the IMF by way of the Singaporean Ministry using a slightly different accounting method as noted above. The assets under management are assumed to grow by 7% every year since we do not know the year to year growth but only the long term annualized average that GIC has reported. I chose the GIC average because Temasek’s annualized average over the same period is even higher.
To a degree it doesn’t matter whether you believe the IMF numbers or the Statistics Singapore numbers, there is an enormous amount of money missing.
Disclaimer: Kenneth Jeyaretnam requested a meeting to better understand my research and supporting data. I do not speak for or represent the Reform Party. I am not affiliated with any Singaporean political party or stakeholder but will gladly assist any group, party, or individual seeking to better understand the issues.
Christopher Balding
*The writer is a professor of business and economics at the HSBC Business School at the Peking University Graduate School. An expert in sovereign wealth funds, he has published in such leading journals as the Review of International Economics, the Journal of Public Economic Theory, and the International Finance Review on such diverse topics as CDS pricing, the WTO, and the economics of adoption and abortion. His work as been cited by a variety of media outlets including the Wall Street Journal and the Financial Times. Prof Balding received his PhD from the University of California, Irvine and worked in private equity prior to entering academia.
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TR Emeritus Editor’s note: Kenneth Jeyaretnam has emailed the following to TRE confirming the meeting between KJ and Prof Balding. Readers who have concerns or questions about Singapore’s asset and reserves can contact KJ at his contact below:
I spent two days with Chris Balding in Hong Kong and China going through the figures with him and gave him the figures on government assets and liabilities. I also pointed out the fact that the general government surplus does not correspond to the growth in net assets as one would expect. He is a well respected expert on sovereign wealth funds so I think that this time the government will not find it so easy to ignore our concerns. Any Singaporeans who have further ideas or information or are concerned should email me at kjeyaretnam@gmail.com or call me on 91461976.
Kenneth Jeyaretnam
Wednesday, May 16, 2012
Prof Christopher Balding: Comparing Temasek's Performance in Two Pictures
Comparing Temasek’s Performance in Two Pictures (source)
by Christopher Balding
*The writer is a professor of business and economics at the HSBC Business School at the Peking University Graduate School. An expert in sovereign wealth funds, his writings have been published in such leading journals as the Review of International Economics, the Journal of Public Economic Theory, and the International Finance Review on such diverse topics as CDS pricing, the WTO, and the economics of adoption and abortion. His work has also been cited by a variety of media outlets including the Wall Street Journal and the Financial Times
I have gotten emails asking if I can simplify some of the points I have been trying to make, so I have decided to try putting up pictures that capture some of these points. Hopefully, a picture will be worth a thousand words.
The first figure is a comparison of the FTSE Strait Times Index and the MSCI Singapore equity indexes since 1974. The MSCI is slightly lower owing probably to differences in how it is calculated and being based on more stocks while the FTSE focuses on the bigger companies. As you can clearly see, they are very closely correlated.
Our next picture is the same exact picture, except this time I have added the returns that Temasek claims to have earned over the same time period. Given that Temasek has been a large investor on the Singaporean exchange, owning at times more than 25% of the Singaporean stock market, they should be closely related.
As one can clearly see, Temasek performs much better than even the stock market in its home country of which it is the major investor. In fact, much MUCH better. Is it technically possible Temasek earned this return? Yes. Is it probable? No.
Maybe Temasek could begin investing my money if they are that good? Maybe someone in Singapore would like to invite me for coffee to discuss?
Note: Because Temasek does not break out its returns year by year, I assumed that it earned 17% every year. While this will change the year to year valuations, it does not impact the final valuation.
Related: The Mess that is Singapore (here)
by Christopher Balding
*The writer is a professor of business and economics at the HSBC Business School at the Peking University Graduate School. An expert in sovereign wealth funds, his writings have been published in such leading journals as the Review of International Economics, the Journal of Public Economic Theory, and the International Finance Review on such diverse topics as CDS pricing, the WTO, and the economics of adoption and abortion. His work has also been cited by a variety of media outlets including the Wall Street Journal and the Financial Times
I have gotten emails asking if I can simplify some of the points I have been trying to make, so I have decided to try putting up pictures that capture some of these points. Hopefully, a picture will be worth a thousand words.
The first figure is a comparison of the FTSE Strait Times Index and the MSCI Singapore equity indexes since 1974. The MSCI is slightly lower owing probably to differences in how it is calculated and being based on more stocks while the FTSE focuses on the bigger companies. As you can clearly see, they are very closely correlated.
Our next picture is the same exact picture, except this time I have added the returns that Temasek claims to have earned over the same time period. Given that Temasek has been a large investor on the Singaporean exchange, owning at times more than 25% of the Singaporean stock market, they should be closely related.
As one can clearly see, Temasek performs much better than even the stock market in its home country of which it is the major investor. In fact, much MUCH better. Is it technically possible Temasek earned this return? Yes. Is it probable? No.
Maybe Temasek could begin investing my money if they are that good? Maybe someone in Singapore would like to invite me for coffee to discuss?
Note: Because Temasek does not break out its returns year by year, I assumed that it earned 17% every year. While this will change the year to year valuations, it does not impact the final valuation.
Related: The Mess that is Singapore (here)
Monday, May 14, 2012
Professor Christopher Balding (Peking University): The Mess that is Singapore
by Christopher Balding
*The writer is a professor of business and economics at the HSBC Business School at the Peking University Graduate School. An expert in sovereign wealth funds, his writings have been published in such leading journals as the Review of International Economics, the Journal of Public Economic Theory, and the International Finance Review on such diverse topics as CDS pricing, the WTO, and the economics of adoption and abortion. His work has also been cited by a variety of media outlets including the Wall Street Journal and the Financial Times.
[Note] Lucky Tan's comment is appended at the end of this post.
Part 1: Explaining the Debt
TR Emeritus, May 12, 2012 (source)
Ever since my paper [note*] on Temasek and Singapore was covered in Mostly Economics writing a plea for “clarifications from Temasek and SG govt”, I have begun receiving emails and postings to either explain or defend something further. Today, I will focus on the questions pertaining to the debt side.
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[note*] A Brief Research Note on Temasek Holdings and Singapore: Mr. Madoff Goes to Singapore by Christopher Balding, Feb 8, 2012 (here)
Abstract:
Financial data reported by Temasek Holdings and Singapore reveal problematic characteristics. First, Temasek reports an average annual return of 17% for 35 years despite Singaporean stock returns averaging less than 8% during this same time period. Given the range of stock market returns and its portfolio companies’ returns, it is highly improbably that Temasek has earned the returns claimed in its annual reports. Second, Singapore has become one of the most indebted countries in the world despite supposedly running large and sustained government surpluses. Given publicly available economic data on Singaporean finances, there is a minimum of $350 billion SGD or $275 billion USD unaccounted for from historical surpluses and financing operations. Third, given these results I find that for every $1 SGD in public borrowing, Singapore has received only 25 cents of publicly held Singaporean assets. Either financial returns have been drastically overstated or there are large unreported Singaporean controlled holdings.
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The basic question numerous posters and email have raised is whether public Singaporean debt is actually attributable to state owned enterprises or the social security fund known as the Central Provident Fund? There is a short answer and a long answer. The short answer is that it doesn’t matter. Think of a company like GE. If GE Capital goes out and borrows money, there is still an increase in the total debt of GE the parent company. So whether it is the Central Provident Fund or the state owned enterprises, at the end of the day there is still a rapid increase in the total debt of Singapore.
The longer more detailed answer is even more unpalatable. While there is most definitely a significant portion of Singaporean public debt issued by the Central Provident Fund but guaranteed by Singapore, the important part is not who holds the debt, but rather what happened to the money that was borrowed. If the Singapore state issues debt, whether it is to a foreigner, a private citizen, or the Central Provident Fund, Singapore now has more funds that they must either spend or invest. That inflow from issuing debt does not just disappear.
Since 1990, the Singaporean government has realized cash flow from increasing borrowing of $250 Billion SGD. To add on to this, the Singaporean government has enjoyed public surpluses of $262 Billion SGD. Think about that for one minute: free cash flow into government coffers between additional borrowing and surpluses averaging more than 16% of GDP between 1991 and 2010. Since 1991 alone, without factoring in revenue from interest, accumulated cash flow from additional borrowing and government surpluses has totaled $512 Billion SGD.
To give you two numbers to help you wrap your head around that number, that is equal to 155% of 2011 Singaporean GDP or roughly equal to the combined assets of Temasek the the Government Investment Corporation of Singapore (The GIC does not publish assets under management but most estimates have it in the $250-300 billion USD range). The $500 billion dollar question then is: where did all this money go? In other words, how does the total increase in debt and the total government surpluses equal the estimated amount of assets under management? (It is also important to remember that this data only goes back to 1990, not the 1974 since Temasek inception).
Now let’s turn to where the money has gone. Here is a graph of the hypothetical growth of assets under management by government linked entities such as Temasek or the CPF.
If these free cash flows averaged annual growth of only 1%, assets would still amount to more than Temasek and the GIC combined. If annual growth was the GIC average of 7%, Singapore would still be sitting on more than $1 trillion SGD rather than the current estimate of around $500 billion. A 10% rate of return would leave Singapore with $1.4 trillion SGD. If public surpluses and borrowing were invested and returned even a balanced portfolio average, the current assets managed by public bodies in Singapore would truly be staggering.
As was noted in the original paper, this implies one of two things: 1) the returns are fictitious and there has been a lot of money lost OR 2) there are enormous unreported holdings controlled by Singaporean public entities. You simply cannot explain $500 billion SGD in surpluses and increased indebtedness without asking where that money has gone. As of right now, there is no record of public Singaporean assets to match what we would expect to find. Show me additional assets that should be there. Temasek and GIC don’t have them. Where is the missing money? If it wasn’t spent, and there is no public record of that, then it should be a financial asset under public Singaporean control.
As a last point, if these surpluses and additional borrowing even matched the rate the CPF pays out to Singaporean citizens of 4% would equal approximately $750 billion SGD. This is 50% more than the estimated holdings of Temasek and the GIC. Unless someone can find hundreds of billions of unreported Singaporean public assets, we should assume this money has gone to money heaven.
Next time, I will describe exactly how the Central Provident Fund plays in to all this and why Singaporean should be worried…..very very worried.
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Part 2: Explaining the role of CPF
TR Emeritus, May 13, 2012 (source)
In our last post, I gave a short and a long answer to questions about the importance of who owns the debt. The short answer is that it doesn’t matter who the government of Singapore owes money to, it still owes money to them. Some readers and posters said that if the Central Provident Fund (Singaporean social security) owns the debt issued by the Singaporean government, then it doesn’t really matter. Let’s examine that question in greater detail.
The CPF collects mandatory contributions from Singaporean citizens and pays a statutory rate of return to its account holders currently ranging from 2.5% to 4% depending on the type of account. The contributions are intended to be used for old age income support and health care among other basic services. The CPF holds $185 billion SGD of investment assets under management but also $185 billion SGD in liabilities in the form of member accounts with a net surplus $1.9 billion. In other words, there is only a small amount of net assets under management at the CPF.
According to CPF financial statements, 95% of CPF investment assets are “special issues of Singapore Government securities”. In other words, the CPF is the primary purchaser of the debt issued by the government of Singapore.
The CPF is then part of a large circle that takes money from the citizens pays them interest and lends it to the government Singapore matching the interests rates between the two rather closely. This leads to three important and inescapable conclusions:
1. The CPF has minimal net assets under management and cannot really add to our search for missing assets. In other words, the CPF cannot add to our understanding of where we might find large amounts of net public assets.
2. Singaporean citizens have provided enormous free cash flow to the Singaporean government in the form of structural budget surpluses and large amounts of lending. As I said in the last post, from 1991 to 2010 alone the sum of budget surpluses and net lending totaled $512 billion SGD.
3. All roads still lead to the Singaporean government. The enormous volume of free cash flow in the form of budget surpluses and increased borrowing flowed through Singaporean government finances and was under their management.
Returning to the question I posed in the previous post, if the Singaporean government enjoyed free cash flow from budget surpluses and borrowing totaling $512 billion SGD between 1991 and 2002, where did the money go?
To be clear there is no public record of expenditures by the Singaporean government to account for the $512 billion SGD in free cash flow since 1991. Nor is there as public record of assets held by Temasek, GIC, or other public body in large enough amount to account for such a large discrepancy. Remember if this $512 billion earned the 7% GIC claims to have earned there should be more than $1 trillion in assets.
The reason the CPF matters and should concern Singaporeans is simple. The government of Singapore is borrowing money from its citizens through the CPF payed 2.5-4% and investing that money in other assets through GIC and Temasek hoping to earn a higher return. Publicly, GIC and Temasek claimed to have earned 7% and 17% since inception meaning they are earning a comfortable spread above the 2.5-4% they must pay for those funds. If Temasek and GIC earn less than the 2.5-4% they pay to the CPF, the government must essentially subsidize the losses to keep the CPF whole.
According to the data published by Temasek and the best estimates of GIC, they hold around $500 billion SGD essentially matching the $512 billion SGD in budget surpluses and increased borrowing or a total return of about 0%. This leads to two frightening conclusions:
1. While estimated GIC and Temasek assets essentially produce a 0% nominal return, when factoring in inflation, this produces real investment losses of about 35%!!
2. The government of Singapore has essentially been subsidizing GIC and Temasek losses by paying their implied obligations to the CPF even though the they have not earned a rate of return sufficient to cover the cost of debt capital. In other words, the government of Singapore is subsidizing GIC and Temasek losses to the amount of the rate of return earned by GIC or Temasek minus the 4% it pays to CPF account holders. Financial losses attributable to GIC and Temasek but covered by the government of Singapore, significantly increase the risk of CPF deposits.
There are two final points worth mentioning. First, we continue to search for enormous amounts of missing assets. For instance, it has been suggested that GIC and Temasek have not produced accurate accounts that would reconcile the difference. Given that there is a minimum of $500 billion SGD in missing assets, I am very skeptical that this is simply due to sloppy accounting. However, the fundamental point is to focus on locating in public records the missing assets. There needs to be a bare minimum of $500 billion SGD in unreported assets to begin to bridge the gap between what exists and what should exist.
Second, due to the length of this post, I only covered the CPF today and could not cover the Monetary Authority of Singapore and its foreign reserves. In the next post on Monday, I will analyze the MAS. Needless to say, it doesn’t in anyway change the analysis.
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Part 3: Explaining the role of the Monetary Authority of Singapore
The Balding Blog, May 14, 2012 (source)
Part 1 and 2 of this series of Singaporean public finances focused where the cash from the increased indebtedness has gone and the role of the Central Provident Fund in providing a low cost easy access source of funds for the government of Singapore. Since I answered most questions about the CPF in Part 2, people started asking about the Monetary Authority of Singapore (MAS) and its $300 billion SGD in foreign reserves.
The short answer is that the existence of $300 billion in foreign reserves held by the MAS does not change the analysis in anyway. Let me explain why.
Countries normally have three sources by which they can raise revenue or increase wealth. Taxes in all their forms, borrowing, and using foreign exchange. We have already discussed the fact that the government of Singapore has run a large long term public surplus and increased borrowing rapidly totaling $512 billion SGD since 1990.
However, another source of government wealth is foreign reserves which grow generally due to current account or trade surpluses. Foreign reserves are normally controlled by the central bank, in this case the Monetary Authority of Singapore (MAS).
Since 1980, Singapore due primarily to its currency management policies has run a structural trade surplus averaging 10.2% of GDP. To provide some perspective on this number, over the same time period the oil exporting countries Saudi Arabia and the United Arab Emirates averaged only 4% and 9.7% respectively. The current account surplus peaked in 2006 at an astounding 25.4% of GDP. To prevent the currency from appreciating rapidly due to the large and sustained current account surplus, the central bank (the Monetary Authority of Singapore or MAS) buys large amounts of foreign currency. These currency purchases designed to minimize appreciation pressures then become foreign reserves.
To provide some hard numbers, since 1980 Singapore has run an accumulated current account surplus of $353 billion USD. If this number was converted into SGD based on the year the surplus was incurred, this would translate into $556 billion SGD. Including the current account surplus has a number of implications for our analysis of Singaporean public finances and the foreign reserve assets held by MAS.
First, the source of the MAS foreign reserves are totally and completely separate from the other revenue sources under discussion. The existence of $300 billion SGD in reserves given the long term current account surplus is no surprise and is distinct from government surpluses or borrowing. In other words, the existence of $300 billion SGD in foreign exchange reserves cannot add to our knowledge when searching for missing funds.
Second, the MAS foreign reserves have been fully funded and paid for by the near constant current account surplus run by Singapore since 1980. Even in the year between 1980 and 1987 when Singapore was running trade deficits, the foreign exchange reserves grew from $6.5 billion USD to $15 billion USD or $13.9 billion SGD to $31.6 billion SGD based upon exchange rates at the time.
Third, given the level of foreign exchange reserves and historical current account surplus, the numbers appear quite plausible at their current levels with also the distinct possibility to have funded additional investments in GIC or Temasek. We do not expect all of a current account surplus to be translated into foreign exchange reserves as there are many things that influence this such as a moderately but steadily appreciating currency or liquidity operations. In other words, given the $353 billion USD cumulative current account surplus since 1980, the $237 billion USD in foreign reserves is quite plausible and also leaves significant room for significant investments in Temasek or GIC. It is important to emphasize that not all current account surpluses are translated into foreign reserves, however there is a close correlation between them.
The fundamental point that is being made here is this: the MAS foreign reserve assets have already been paid for from the current account surplus due to managed currency operations. Furthermore, given the numbers while we do not have access to the data, it is quite plausible that transfers were made from MAS to GIC for investment purposes. Finally, the MAS foreign reserve assets as sole and separate from government surpluses and borrowing, cannot add to the discrepancy in assets that should exist and the estimated assets believed to exist.
We still need to find significant amounts of unreported assets.
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Part 4: How big is the GIC or the $500 billion question (here)
The GIC and Temasek endgame, by Christopher Balding (here)
The Abysmal Singapore, Temasek, and GIC Balance Sheet, by Christopher Balding (here)
Singapore, Inc.: Just When You Thought it Couldn’t Get Any Worse, by Christopher Balding (here)
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Comment by Lucky Tan (source)
Christopher Balding is a professor in Peking University, HSBC Business School [Link]. You can read his article in full but I’ll summarize it as usual so there is clarity on the issues and questions he asked:
The Mess that is Singapore: Part I Explaining the Debt
1. Most of the public debt issued by Singapore govt consists of money borrowed from the CPF Funds of Singaporeans.
2. Since 1990, the Singapore govt borrowed $250B and has another $262B in budget surpluses, giving a total of of more than $500B.
3. GIC + Temasek do not publish their assets but it is estimated to be roughly $500B.
4. Even if they return 1%, they should have significantly more money and if returns are 7% as widely believed, the money should have been doubled.
5. What happened to the money? Is it lost or hidden?
The simple answer to this question is, the Singapore govt has never published the total assets of the GIC so we don’t know. There is no reason yet to believe anything sinister is going on. Former President Ong tried to get a full list of the assets but was told it is not a simple task. Over the years, there were reports of GIC investing in real estate, commercial properties around the world and those have to be revalued. It’s not a mess as Christopher Baling alarmingly claimed but a lack of information.
In his next posting, The Mess that is Singapore: Part II Explaining the Role of the CPF:
This issue has been discussed on my blog. If GIC makes above 2.5% (-4%), it keeps the excess returns. If it makes less than 2.5%, how does it pay the debt owed to CPF/Singaporeans? They would have to collect more taxes or print money to monetize the debt. The other way is to kick the can down the road by delaying CPF withdrawals. Countries build up reserves to guard against crisis and financial instability. However, GIC and Temasek’s fund are invested in various risk bearing assets that will be affected by crisis – the last crisis they lost $50B. To fund the deficit in the budget due to the jobs credit in the last crisis roughly $4.5B of reserves was used. The size of the reserves are far bigger than what is needed to cushion against crisis – remember if the crisis is very big e.g. local bank failures, etc it is best not to use reserves created from borrowings from CPF to do it.
My main objection to the whole system is the fix returns for CPF account holders who at the end of the day bear the risk if there are investment losses and inflation but get none of the excess returns. The 2nd problem is even basic information on the total assets is not made public by the GIC. Third issue is the size, you can’t just keep building and controlling it because a large part of it is paid for by ordinary Singapore taking up high debts for housing. There has to be a limit beyond which the surplus should be used to benefit Singaporeans in more direct ways rather than go into reserves controlled by a small group of elites.
Our contribution to the CPF is extremely high but retirement is still a worry for Singaporeans. This is caused by 2 things – low fixed returns on CPF money and use of CPF for expensive public housing. Both results in flow of money to the GIC to build up govt coffers and causes major retirement problems for ordinary Singaporeans. Many Singaporeans accept the system as it is thinking they can always monetize the homes for retirement (overseas?), it makes the system all the more vulnerable as housing prices get linked to Singapore’s ability to retire for poor and lower middle income Singaporeans. The whole system passes the risk to Singaporeans who are already shouldering plenty of risks due to the healthcare system and the lack of social safety nets.
Lucky Tan
* Lucky Tan is an avid online blogger since 2005. He likes to study the thoughts of Singapore leaders and the laws of Singapore. He blogs at http://singaporemind.blogspot.com.
Related: Is Madoff in the House? (here)
*The writer is a professor of business and economics at the HSBC Business School at the Peking University Graduate School. An expert in sovereign wealth funds, his writings have been published in such leading journals as the Review of International Economics, the Journal of Public Economic Theory, and the International Finance Review on such diverse topics as CDS pricing, the WTO, and the economics of adoption and abortion. His work has also been cited by a variety of media outlets including the Wall Street Journal and the Financial Times.
[Note] Lucky Tan's comment is appended at the end of this post.
Part 1: Explaining the Debt
TR Emeritus, May 12, 2012 (source)
Ever since my paper [note*] on Temasek and Singapore was covered in Mostly Economics writing a plea for “clarifications from Temasek and SG govt”, I have begun receiving emails and postings to either explain or defend something further. Today, I will focus on the questions pertaining to the debt side.
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[note*] A Brief Research Note on Temasek Holdings and Singapore: Mr. Madoff Goes to Singapore by Christopher Balding, Feb 8, 2012 (here)
Abstract:
Financial data reported by Temasek Holdings and Singapore reveal problematic characteristics. First, Temasek reports an average annual return of 17% for 35 years despite Singaporean stock returns averaging less than 8% during this same time period. Given the range of stock market returns and its portfolio companies’ returns, it is highly improbably that Temasek has earned the returns claimed in its annual reports. Second, Singapore has become one of the most indebted countries in the world despite supposedly running large and sustained government surpluses. Given publicly available economic data on Singaporean finances, there is a minimum of $350 billion SGD or $275 billion USD unaccounted for from historical surpluses and financing operations. Third, given these results I find that for every $1 SGD in public borrowing, Singapore has received only 25 cents of publicly held Singaporean assets. Either financial returns have been drastically overstated or there are large unreported Singaporean controlled holdings.
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The basic question numerous posters and email have raised is whether public Singaporean debt is actually attributable to state owned enterprises or the social security fund known as the Central Provident Fund? There is a short answer and a long answer. The short answer is that it doesn’t matter. Think of a company like GE. If GE Capital goes out and borrows money, there is still an increase in the total debt of GE the parent company. So whether it is the Central Provident Fund or the state owned enterprises, at the end of the day there is still a rapid increase in the total debt of Singapore.
The longer more detailed answer is even more unpalatable. While there is most definitely a significant portion of Singaporean public debt issued by the Central Provident Fund but guaranteed by Singapore, the important part is not who holds the debt, but rather what happened to the money that was borrowed. If the Singapore state issues debt, whether it is to a foreigner, a private citizen, or the Central Provident Fund, Singapore now has more funds that they must either spend or invest. That inflow from issuing debt does not just disappear.
Since 1990, the Singaporean government has realized cash flow from increasing borrowing of $250 Billion SGD. To add on to this, the Singaporean government has enjoyed public surpluses of $262 Billion SGD. Think about that for one minute: free cash flow into government coffers between additional borrowing and surpluses averaging more than 16% of GDP between 1991 and 2010. Since 1991 alone, without factoring in revenue from interest, accumulated cash flow from additional borrowing and government surpluses has totaled $512 Billion SGD.
To give you two numbers to help you wrap your head around that number, that is equal to 155% of 2011 Singaporean GDP or roughly equal to the combined assets of Temasek the the Government Investment Corporation of Singapore (The GIC does not publish assets under management but most estimates have it in the $250-300 billion USD range). The $500 billion dollar question then is: where did all this money go? In other words, how does the total increase in debt and the total government surpluses equal the estimated amount of assets under management? (It is also important to remember that this data only goes back to 1990, not the 1974 since Temasek inception).
Now let’s turn to where the money has gone. Here is a graph of the hypothetical growth of assets under management by government linked entities such as Temasek or the CPF.
If these free cash flows averaged annual growth of only 1%, assets would still amount to more than Temasek and the GIC combined. If annual growth was the GIC average of 7%, Singapore would still be sitting on more than $1 trillion SGD rather than the current estimate of around $500 billion. A 10% rate of return would leave Singapore with $1.4 trillion SGD. If public surpluses and borrowing were invested and returned even a balanced portfolio average, the current assets managed by public bodies in Singapore would truly be staggering.
As was noted in the original paper, this implies one of two things: 1) the returns are fictitious and there has been a lot of money lost OR 2) there are enormous unreported holdings controlled by Singaporean public entities. You simply cannot explain $500 billion SGD in surpluses and increased indebtedness without asking where that money has gone. As of right now, there is no record of public Singaporean assets to match what we would expect to find. Show me additional assets that should be there. Temasek and GIC don’t have them. Where is the missing money? If it wasn’t spent, and there is no public record of that, then it should be a financial asset under public Singaporean control.
As a last point, if these surpluses and additional borrowing even matched the rate the CPF pays out to Singaporean citizens of 4% would equal approximately $750 billion SGD. This is 50% more than the estimated holdings of Temasek and the GIC. Unless someone can find hundreds of billions of unreported Singaporean public assets, we should assume this money has gone to money heaven.
Next time, I will describe exactly how the Central Provident Fund plays in to all this and why Singaporean should be worried…..very very worried.
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Part 2: Explaining the role of CPF
TR Emeritus, May 13, 2012 (source)
In our last post, I gave a short and a long answer to questions about the importance of who owns the debt. The short answer is that it doesn’t matter who the government of Singapore owes money to, it still owes money to them. Some readers and posters said that if the Central Provident Fund (Singaporean social security) owns the debt issued by the Singaporean government, then it doesn’t really matter. Let’s examine that question in greater detail.
The CPF collects mandatory contributions from Singaporean citizens and pays a statutory rate of return to its account holders currently ranging from 2.5% to 4% depending on the type of account. The contributions are intended to be used for old age income support and health care among other basic services. The CPF holds $185 billion SGD of investment assets under management but also $185 billion SGD in liabilities in the form of member accounts with a net surplus $1.9 billion. In other words, there is only a small amount of net assets under management at the CPF.
According to CPF financial statements, 95% of CPF investment assets are “special issues of Singapore Government securities”. In other words, the CPF is the primary purchaser of the debt issued by the government of Singapore.
The CPF is then part of a large circle that takes money from the citizens pays them interest and lends it to the government Singapore matching the interests rates between the two rather closely. This leads to three important and inescapable conclusions:
1. The CPF has minimal net assets under management and cannot really add to our search for missing assets. In other words, the CPF cannot add to our understanding of where we might find large amounts of net public assets.
2. Singaporean citizens have provided enormous free cash flow to the Singaporean government in the form of structural budget surpluses and large amounts of lending. As I said in the last post, from 1991 to 2010 alone the sum of budget surpluses and net lending totaled $512 billion SGD.
3. All roads still lead to the Singaporean government. The enormous volume of free cash flow in the form of budget surpluses and increased borrowing flowed through Singaporean government finances and was under their management.
Returning to the question I posed in the previous post, if the Singaporean government enjoyed free cash flow from budget surpluses and borrowing totaling $512 billion SGD between 1991 and 2002, where did the money go?
To be clear there is no public record of expenditures by the Singaporean government to account for the $512 billion SGD in free cash flow since 1991. Nor is there as public record of assets held by Temasek, GIC, or other public body in large enough amount to account for such a large discrepancy. Remember if this $512 billion earned the 7% GIC claims to have earned there should be more than $1 trillion in assets.
The reason the CPF matters and should concern Singaporeans is simple. The government of Singapore is borrowing money from its citizens through the CPF payed 2.5-4% and investing that money in other assets through GIC and Temasek hoping to earn a higher return. Publicly, GIC and Temasek claimed to have earned 7% and 17% since inception meaning they are earning a comfortable spread above the 2.5-4% they must pay for those funds. If Temasek and GIC earn less than the 2.5-4% they pay to the CPF, the government must essentially subsidize the losses to keep the CPF whole.
According to the data published by Temasek and the best estimates of GIC, they hold around $500 billion SGD essentially matching the $512 billion SGD in budget surpluses and increased borrowing or a total return of about 0%. This leads to two frightening conclusions:
1. While estimated GIC and Temasek assets essentially produce a 0% nominal return, when factoring in inflation, this produces real investment losses of about 35%!!
2. The government of Singapore has essentially been subsidizing GIC and Temasek losses by paying their implied obligations to the CPF even though the they have not earned a rate of return sufficient to cover the cost of debt capital. In other words, the government of Singapore is subsidizing GIC and Temasek losses to the amount of the rate of return earned by GIC or Temasek minus the 4% it pays to CPF account holders. Financial losses attributable to GIC and Temasek but covered by the government of Singapore, significantly increase the risk of CPF deposits.
There are two final points worth mentioning. First, we continue to search for enormous amounts of missing assets. For instance, it has been suggested that GIC and Temasek have not produced accurate accounts that would reconcile the difference. Given that there is a minimum of $500 billion SGD in missing assets, I am very skeptical that this is simply due to sloppy accounting. However, the fundamental point is to focus on locating in public records the missing assets. There needs to be a bare minimum of $500 billion SGD in unreported assets to begin to bridge the gap between what exists and what should exist.
Second, due to the length of this post, I only covered the CPF today and could not cover the Monetary Authority of Singapore and its foreign reserves. In the next post on Monday, I will analyze the MAS. Needless to say, it doesn’t in anyway change the analysis.
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Part 3: Explaining the role of the Monetary Authority of Singapore
The Balding Blog, May 14, 2012 (source)
Part 1 and 2 of this series of Singaporean public finances focused where the cash from the increased indebtedness has gone and the role of the Central Provident Fund in providing a low cost easy access source of funds for the government of Singapore. Since I answered most questions about the CPF in Part 2, people started asking about the Monetary Authority of Singapore (MAS) and its $300 billion SGD in foreign reserves.
The short answer is that the existence of $300 billion in foreign reserves held by the MAS does not change the analysis in anyway. Let me explain why.
Countries normally have three sources by which they can raise revenue or increase wealth. Taxes in all their forms, borrowing, and using foreign exchange. We have already discussed the fact that the government of Singapore has run a large long term public surplus and increased borrowing rapidly totaling $512 billion SGD since 1990.
However, another source of government wealth is foreign reserves which grow generally due to current account or trade surpluses. Foreign reserves are normally controlled by the central bank, in this case the Monetary Authority of Singapore (MAS).
Since 1980, Singapore due primarily to its currency management policies has run a structural trade surplus averaging 10.2% of GDP. To provide some perspective on this number, over the same time period the oil exporting countries Saudi Arabia and the United Arab Emirates averaged only 4% and 9.7% respectively. The current account surplus peaked in 2006 at an astounding 25.4% of GDP. To prevent the currency from appreciating rapidly due to the large and sustained current account surplus, the central bank (the Monetary Authority of Singapore or MAS) buys large amounts of foreign currency. These currency purchases designed to minimize appreciation pressures then become foreign reserves.
To provide some hard numbers, since 1980 Singapore has run an accumulated current account surplus of $353 billion USD. If this number was converted into SGD based on the year the surplus was incurred, this would translate into $556 billion SGD. Including the current account surplus has a number of implications for our analysis of Singaporean public finances and the foreign reserve assets held by MAS.
First, the source of the MAS foreign reserves are totally and completely separate from the other revenue sources under discussion. The existence of $300 billion SGD in reserves given the long term current account surplus is no surprise and is distinct from government surpluses or borrowing. In other words, the existence of $300 billion SGD in foreign exchange reserves cannot add to our knowledge when searching for missing funds.
Second, the MAS foreign reserves have been fully funded and paid for by the near constant current account surplus run by Singapore since 1980. Even in the year between 1980 and 1987 when Singapore was running trade deficits, the foreign exchange reserves grew from $6.5 billion USD to $15 billion USD or $13.9 billion SGD to $31.6 billion SGD based upon exchange rates at the time.
Third, given the level of foreign exchange reserves and historical current account surplus, the numbers appear quite plausible at their current levels with also the distinct possibility to have funded additional investments in GIC or Temasek. We do not expect all of a current account surplus to be translated into foreign exchange reserves as there are many things that influence this such as a moderately but steadily appreciating currency or liquidity operations. In other words, given the $353 billion USD cumulative current account surplus since 1980, the $237 billion USD in foreign reserves is quite plausible and also leaves significant room for significant investments in Temasek or GIC. It is important to emphasize that not all current account surpluses are translated into foreign reserves, however there is a close correlation between them.
The fundamental point that is being made here is this: the MAS foreign reserve assets have already been paid for from the current account surplus due to managed currency operations. Furthermore, given the numbers while we do not have access to the data, it is quite plausible that transfers were made from MAS to GIC for investment purposes. Finally, the MAS foreign reserve assets as sole and separate from government surpluses and borrowing, cannot add to the discrepancy in assets that should exist and the estimated assets believed to exist.
We still need to find significant amounts of unreported assets.
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Part 4: How big is the GIC or the $500 billion question (here)
The GIC and Temasek endgame, by Christopher Balding (here)
The Abysmal Singapore, Temasek, and GIC Balance Sheet, by Christopher Balding (here)
Singapore, Inc.: Just When You Thought it Couldn’t Get Any Worse, by Christopher Balding (here)
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Comment by Lucky Tan (source)
Christopher Balding is a professor in Peking University, HSBC Business School [Link]. You can read his article in full but I’ll summarize it as usual so there is clarity on the issues and questions he asked:
The Mess that is Singapore: Part I Explaining the Debt
1. Most of the public debt issued by Singapore govt consists of money borrowed from the CPF Funds of Singaporeans.
2. Since 1990, the Singapore govt borrowed $250B and has another $262B in budget surpluses, giving a total of of more than $500B.
3. GIC + Temasek do not publish their assets but it is estimated to be roughly $500B.
4. Even if they return 1%, they should have significantly more money and if returns are 7% as widely believed, the money should have been doubled.
5. What happened to the money? Is it lost or hidden?
The simple answer to this question is, the Singapore govt has never published the total assets of the GIC so we don’t know. There is no reason yet to believe anything sinister is going on. Former President Ong tried to get a full list of the assets but was told it is not a simple task. Over the years, there were reports of GIC investing in real estate, commercial properties around the world and those have to be revalued. It’s not a mess as Christopher Baling alarmingly claimed but a lack of information.
In his next posting, The Mess that is Singapore: Part II Explaining the Role of the CPF:
“The reason the CPF matters and should concern Singaporeans is simple. The government of Singapore is borrowing money from its citizens through the CPF payed 2.5-4% and investing that money in other assets through GIC and Temasek hoping to earn a higher return. Publicly, GIC and Temasek claimed to have earned 7% and 17% since inception meaning they are earning a comfortable spread above the 2.5-4% they must pay for those funds. If Temasek and GIC earn less than the 2.5-4% they pay to the CPF, the government must essentially subsidize the losses to keep the CPF whole.”
This issue has been discussed on my blog. If GIC makes above 2.5% (-4%), it keeps the excess returns. If it makes less than 2.5%, how does it pay the debt owed to CPF/Singaporeans? They would have to collect more taxes or print money to monetize the debt. The other way is to kick the can down the road by delaying CPF withdrawals. Countries build up reserves to guard against crisis and financial instability. However, GIC and Temasek’s fund are invested in various risk bearing assets that will be affected by crisis – the last crisis they lost $50B. To fund the deficit in the budget due to the jobs credit in the last crisis roughly $4.5B of reserves was used. The size of the reserves are far bigger than what is needed to cushion against crisis – remember if the crisis is very big e.g. local bank failures, etc it is best not to use reserves created from borrowings from CPF to do it.
My main objection to the whole system is the fix returns for CPF account holders who at the end of the day bear the risk if there are investment losses and inflation but get none of the excess returns. The 2nd problem is even basic information on the total assets is not made public by the GIC. Third issue is the size, you can’t just keep building and controlling it because a large part of it is paid for by ordinary Singapore taking up high debts for housing. There has to be a limit beyond which the surplus should be used to benefit Singaporeans in more direct ways rather than go into reserves controlled by a small group of elites.
Our contribution to the CPF is extremely high but retirement is still a worry for Singaporeans. This is caused by 2 things – low fixed returns on CPF money and use of CPF for expensive public housing. Both results in flow of money to the GIC to build up govt coffers and causes major retirement problems for ordinary Singaporeans. Many Singaporeans accept the system as it is thinking they can always monetize the homes for retirement (overseas?), it makes the system all the more vulnerable as housing prices get linked to Singapore’s ability to retire for poor and lower middle income Singaporeans. The whole system passes the risk to Singaporeans who are already shouldering plenty of risks due to the healthcare system and the lack of social safety nets.
Lucky Tan
* Lucky Tan is an avid online blogger since 2005. He likes to study the thoughts of Singapore leaders and the laws of Singapore. He blogs at http://singaporemind.blogspot.com.
Related: Is Madoff in the House? (here)
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