Wednesday, May 30, 2012

On Singapore's loan commitment to IMF: Kenneth Jeyaretnam

Kenneth Jeyaretnam’s Open Letter to the Minister for Finance

Published by The Online Citizen on May 30, 2012 (source)

Kenneth Jeyatretnam

Dear Minister,

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

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

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

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

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

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

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

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

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

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

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

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

Tharman joins the King of Spain in a Royal Elephant Shoot

Royal Elephant Shoots Part 2

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

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

Kenneth Jeyaretnam is the Secretary General of The Reform Party.


Parliamentary Approval of Loans: A Case of Déjà Vu?

Kenneth Jeyatretnam

Published by The Online Citizen on May 31, 2012 (source)

Following my letter to the Ministry of Finance a lot of people have been asking whether we have been here before with the Indonesian loan shenanigans of 1997. Isn’t this just déjà vu? My answer to that is that I don’t believe so. We shouldn’t get ready to throw in the towel yet.

The world has moved on since 1997 and even Singapore is changing, albeit still under the rule of the same political Party who gained a majority and a stranglehold by default in 1960. That same Party has just been given a resounding defeat in Hougang. They attempted to run a campaign that really did seem like a case of déjà vu and it backfired. In 1997 we had only two MPs and one NCMP in Parliament and notably it was the NCMP who spoke up. Fifteen years later we now have six MPs in Parliament. It doesn’t matter that those 6 MPs may have voted with the government on the Budget. They brought down a GRC in 2011 and the Hougang by-election result has kept up the pressure.

It is the 40% of ordinary Singaporeans who voted in that watershed election against the government, despite all the veiled threats and intimidation, who will keep them feeling that pressure. That pressure made our ministers fall on their swords and take a pay cut. The voices of those 40% are still being heard through the new media.

With its push to become a global city Singapore cares much more about its international reputation. I have already pointed out how the Norwegian Finance Minister went to Parliament on the 15th May to ask for approval for his country’s loan to the IMF.. Our Finance Minister is Chairman of the International Monetary and Financial Committee of the IMF so he would hardly wish to be seen as opposing greater transparency and accountability, an explicit objective of the IMF.

In 2012 the economic background is one of major institutional collapse, double dip recession and a crisis in the Eurozone that hurts us all. We are also seeing a new scrutiny put on transparency and regulation and again the IMF itself is well aware that good governance is key to financial stability. They won’t easily forget that Greece falsified its way into the Eurozone by manipulating its figures. As a result of this not only has Temasek Holdings been forced to increase the amount of information it provides but even the very secretive Abu Dhabi SWF has coughed one up.

We are on very safe ground now in demanding accountability from our Ministry of Finance and we will receive support in this. So, while it is always possible that the government will take the same tack as in 1997, try to bamboozle us with Latin and financial terms , I do not think we should worry too much. In any case I know the financial terms and even better I know Latin!

For those who aren’t familiar with the case, back in 1997 a similar question was asked in Parliament by an NCMP about the constitutionality of granting a US$5 billion loan to Indonesia without seeking Parliamentary or Presidential approval. This was brushed aside by the PAP government on the advice of the then AG Chan Sek Kheong. ( he of the miraculous materialisation into a polling booth decision) The PAP argued that Clause 144(1) of the Constitution, which states that

“No guarantee or loan may be given or raised by the Government”, should be interpreted as meaning;
“No guarantee may be given or loan raised by the Government”. This meant that while the giving of a guarantee required Parliamentary approval, the giving of a loan did not.

Some Latin was used to explain it away.

I am not a lawyer but I do believe that the then AG erred in his interpretation of Clause 144(1). The natural and ordinary meaning of the words, it is clear to me, is that both guarantees and loans cannot be given or raised by the government except with parliamentary approval. If the intentions of the drafters of this clause had been to say that only the giving of guarantees but not loans needs to be approved by Parliament then surely the clause would have read

“No guarantee shall be given or loan raised …”.

Rather than
“No guarantee or loan may be given or raised by the Government”,

It also makes no sense from an economic or accountability standpoint that guarantees, which are merely contingent liabilities, should require Parliamentary approval while loans, which involve an actual payment, are exempted. It seems to require some very convoluted logic to explain why one would need scrutiny but not the other.

The Parliamentary question from Desmond Lee, from Tharman’s own GRC, has all the hallmarks of a stage managed exercise. I am convinced the question was tabled solely to convince the IMF that the loan commitment has been ‘robustly’ debated in Singapore’s Parliament. I was accused of being convoluted in my letter but I was writing as one economist to another and quoting Tharman’s convoluted speech back to him.

The truth is Tharman and Lee’s language to the house was unnecessarily complicated. Tharman’s job is to be accountable to the people , to provide for effective Parliamentary scrutiny of the Executive. It is not his job to obfuscate. Just as in the Budget, which I pointed out is not set out to IMF standards, which is a masterpiece of opacity and misdirection (here).

Of course couched in Tharman’s language my letter may have been difficult to follow so let me spell it out for you with a bluntness that was of necessity lacking previously. I’ve written as in lines from a short play.

The setting: A Company Shareholder Conference.

Employee: ( posing as concerned shareholder) Boss, we work so hard all our lives, even after death pay and pay and we never get any safety net or free school or health and you save up all our money ‘cos our Gahmen is so clever it never spends any on us. So now we got big reserves is it?

Boss: That is correct.

Employee: These lazy ang moh get everything free even they never work, they get welfare, they get free child birth, free school, hospital even they got expression free is it?

Boss: Correct again.

Employee. You loan five billion dollars of our savings to these Ang mo who destroy their economy is it?

Boss: Yes

Employee: Thank You. You are great

In any case whatever the correct interpretation of Clause 144(1), I still stand by the point that the principles of good governance and accountability require that the government seek Parliamentary approval for loans and guarantees. More importantly I cannot believe the IMF would have appointed Tharman to head of a committee without expecting him to demonstrate exceptional levels of commitment to good governance and accountability free of tricks, semantics, Latin and an AG who believes in magic.

It’s your money! You have a right to know how much there is, where it is and to have a say in how it is used.

Carpe Diem!


Kenneth Jeyatretnam's Open Letter to the President of Singapore

1st June 2012 (source)

His Excellency Tony Tan Keng Yam
Office of the President of the Republic of Singapore
Orchard Road, Singapore 238823

Dear President,

Firstly I would like to thank you for your gracious response to our invitation to the JBJ Memorial event last year, even though you were unable to attend due to a prior engagement.

On 29th May I wrote to the Finance Minister asking whether Parliamentary approval had been obtained for our republic’s recent loan commitment of S$5 billion to the IMF. I asked also whether Presidential approval had been obtained as would appear to be required under Article 144(1) of our Constitution. I enclose a copy of my letter to the Finance Minister for your reference.

As I have not received a reply from the Finance Minister I am writing to you to ask whether you would kindly enlighten me as to whether Presidential approval was ever sought or given for this loan commitment.

Yours faithfully,

Kenneth Jeyaretnam
Secretary General
(The Reform Party)

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