The Truth about that IMF Loan

By Kenneth Jeyaretnam

Yesterday I received confirmation from the President’s office that his permission had not been sought for our republic’s loan to the IMF.

So now we know three things in addition to the recent confirmation by the President.

  1. We know that parliamentary approval was not sought because it is not in the Hansard
  2. We also know that Article 144(1) of the Constitution governing loans has not been followed because this requires the President to concur with parliament. Both in fact must approve.
  3. We know that the government is going to pass this over to the MAS because the President’s letter tells us so.

Actually we know a lot more than this. We also know that the President can’t give a simple yes or no answer to a letter about the role he was elected to do. In fact he cannot give an answer at all unless snookered into it. I am not proud of having to resort to that but as the PAP has sewn up every avenue and imposed a blackout on me in the media, I was left with no choice.  I had to exhaust that option before I could make any progress.

These three things tell us a whole other bunch of stuff, most of which is not fit to print here but check out the comments on TRE and TOC if you want to know more.  Above all else these three simple facts tell us that we should have fought harder against the introduction of an EP in 1991.k   Mr.  Jeyaretnam senior and Mr Chiam did their best but it was not good enough. Luckily we have video evidence of the debate to refer to and I would urge everyone to have a look on Youtube and see what was said at that time.
This IMF loan issue has taught us the EP role is an impotent one. It is the executive who should be accountable to the people through a sovereign Parliament.  It is you who elect them to that role and you have every right to expect them to take care of your money and to be transparent about where it is and what it is used f/r.

The final fact we can glean so far is that the Ministry of Finance has tried to completely evade Parliamentary accountability by making use of the MAS as the vehicle to loan money to the IMF.  Yes, we are not a democracy. They do not care to be accountable. Why should they? They have eroded your rights over the decades and tightened the invisible grip of fear until they can act with impunity.

Leaving aside the issue of their high handedness and their arrogance and silence,  has the executive acted correctly in using the MAS or have they in fact acted unconstitutionally?

First a bit of context.

Back on 20th April 2012, ( Yes, two whole months ago and my release on discrepancies in our budget goes back to February) the IMF Committee announced the decision to raise the IMF’s lending capacity and thanked Singapore for its contribution.  I first noticed it then and later the government-controlled media carried a short piece and I wrote about it at more length in my blog at www.sonofadud.com on 25th April and 28th April 2012.  The article noted that  Singapore had agreed to contribute to the fund and that China and the US had not.  The manner in which this was announced in the foreign press as a done deal certainly made me feel that the loan had not gone through the necessary safeguards and that the manner in which it had been agreed could not have been constitutional.

A lot of people, including lawyers, straight away told me,” don’t be silly the PAP will have sought Presidential approval.” But rather than cast wild aspersions I decided to write to the Minister of Finance and ask him to explain. There followed a deafening silence. I wrote again. Silence. So I write to the President again twice and now of course it  turns out that his approval was not sought and that he is leaving MAs to deal with it.

Let us visit the relevant Acts that could explain this starting with Article 144(1).

The giving of loans and guarantees is governed by Article 144(1) of the Constitution which states as follows:

144.

—(1)  No guarantee or loan shall be given or raised by the Government —

 (a) except under the authority of any resolution of Parliament with which the President concurs;

 (b) under the authority of any law to which this paragraph applies unless the President concurs with the giving or raising of such guarantee or loan; or

 (c) except under the authority of any other written law.

We know from the record that Parliamentary approval was not given and neither was the President’s so that rules out (a).

Article 144(3) of the Constitution provides a list of the laws to which (1) (b) applies. However the only one relevant in these circumstances is the Bretton Woods Agreements Act which governs Singapore’s relationship with and subscriptions to the IMF. This is the amount of gold and local currency that the country deposits with the IMF. This in turn governs its votes as a member of IMF and also the amount it can borrow in foreign currency should it need to.

This Act itself has an inbuilt lack of accountability since it says that the MAS can accept a subscription increase at the IMF on behalf of the Government with the approval of the Minister of Finance. No resolution of Parliament is required though Presidential approval is still required.

However the IMF itself has stated that this new round of commitments is over and above countries’ current subscriptions to the IMF. Therefore Singapore’s loan commitment does not fall within 144 (1) (b).  I put this in an open letter to the Minister of Finance dated 29th May 2012 ( http://thereformparty.net/about/press-releases/an-open-letter-to-the-minister-for-finance/):

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.

This leaves 144 (1) (c) “except under the authority of any other written law” as the only way in which the government can sidestep the need for Parliamentary and Presidential approval of the IMF loan commitment.

By stating that the President has referred my letter to the MAS for an answer we can see the way this is going.

MAS may now attempt to argue that this is within their powers because the IMF loan commitment falls with Article 24 of the MAS Act. I reproduce this below:

24. The funds of the Authority may be invested in all or any of the following:

a)      gold coin or bullion;

b)    notes, coin, money at call and deposits in such country or countries as may be approved by the board;

c)    Treasury bills of such government or governments as may be approved by the board;

d)      securities of, or guaranteed by, such government or governments or international financial institutions as may be approved by the board;

e)      such other securities, financial instruments and investments as may be approved by the board.

It is quite clear from this that it is intended that MAS can only invest in tradeable securities and liquid instruments such as Treasury bills commensurate with its role as the central bank. Loan commitments are not securities.

Only (e)  seems to provide a loophole.

Financial instruments are defined under the Securities and Futures Act (Cap. 189) as:

“financial instrument” includes any currency, currency index, interest rate instrument, interest rate index, share, share index, stock, stock index, debenture, bond index, a group or groups of such financial instruments, and such other financial instruments as the Authority may by order prescribe;

 Again this pretty clearly does not include loans.

That leaves investments. 

The OECD discusses various definitions of investment (http://www.oecd.org/dataoecd/3/7/40471468.pdf). Most would seem to include loans but this is qualified normally by the inclusion of the qualification that there has to be some degree of control exercised over the institution to which the money is lent. The Canadian model does not include loans unless they count towards regulatory capital (quasi-equity) at the financial institution to which the money is lent. This is not the case here where the IMF has requested over and above Singapore’s quota at the IMF, which determines our shareholding at that institution.

However, rather than engage in a semantic debate with the government over whether this loan commitment is covered by the definition of investment, there is a more fundamental objection to the use of the MAS to evade Parliamentary and Presidential scrutiny.

Article 24 states the “funds of the Authority.” MAS acts as the manager of the official foreign reserves of Singapore but this does not mean they are the Authority’s funds just as when I managed a hedge fund the investors’ money did not belong to me. The actual funds of the MAS are the General Reserve Fund ($41 million as of 31st March 2011) and the Currency Fund Reserves ($7,340 million as of the same date).

This makes it obvious that the loan will not be coming from the MAS’s own funds but from the official foreign reserves which MAS manages on behalf of the government when it is drawn upon. The Finance Minister has admitted as much when he said in his stage-managed Parl)amentary answer designed to give the illusion of accountability to the IMF:

“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.”< %rFp>

Clearly then this loan commitment falls under Article 144 (1) (a) which states that “(No guarantee or loan shall be given or raised by the government) except under the authority of any resolution of Parliament with which the President concurs .

The Finance Minister should definitely have sought both Parliamentary and Presidential approval before he made this loan commitment particularly given his conflict of interest as head of the International Monetary and Financial Committee of the IMF. In democratic countries Ministers have been summoned before Parliament and forced to resign if they were found to have misled Parliament or broken the Constitution.

The conclusion that flows from this is: The Minister appears to have broken the Constitution and misled Parliament by not submitting this loan commitment for approval. He should be summoned before the House and asked to explain.

Until that happens,  I believe that the IMF cannot accept our republic’s contribution. I shall be writing to Madame Lagarde to explain my reasons.

For the record I attach my four letters below . You will see that in addition to refusing to acknowledge my concerns over the IMF loan, MOF have also refused to acknowledge or answer my queries as to discrepancies in the Budget. I will come to that next.

 

_______________________________________________________________________________

29th May 2012

An Open Letter to the Minister for Finance

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

Dear Minister,

I note that a question in three parts was tabled during the Parliamentary sitting on 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 at www.sonofadud.com 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:

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

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

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

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

Kenneth Jeyaretnam

Secretary General

_______________________________________________________________________________

1st June 2012

An Open Letter to the Minister for Finance

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

Dear Minister,

I wrote to you on the 29th May raising concerns about our republic’s recent loan commitment to the IMF. In particular I questioned whether the necessary resolutions under Article 144(1) of the Constitution had been obtained. Even if the loan was entirely constitutional and it was not necessary to seek Parliamentary or Presidential approval, I argued that Parliament should still have been consulted in its role as a check on the Executive.

I am writing to you for a second time to raise legitimate questions about the way the Budget is presented to Parliament. I raised these questions in the Reform Party’s response to Budget 2012 but the state-controlled media declined to print them. I provide the link here in case you have not seen it (http://thereformparty.net/about/press-releases/budget-2012-part-one/)

In particular I have questions about the following:

  • Why is the Budget not set out according to the IMF framework? As Chairman of the International Monetary and Financial Committee of the IMF, surely we need to set an example of transparency and go beyond the minimum standards set by the IMF?
  • Why does the Budget not include the figures for the General Government Finance surplus which is obtainable only from the Yearbook of Statistics which is a year out of date? How is this prepared? Does it include all investment income and capital gains or losses on financial assets?
  • Would you not agree that by only presenting the Operational Budget Balance including top-ups to Endowments and Trust Funds and only up to 50% of the Net Investment Returns you are giving a misleading picture of the government’s finances?
  • Even if the current government is barred by the Constitution from spending past reserves without the President’s permission, should Parliament still not have access to the information about the performance of those reserves?
  • Why is there no statement to Parliament of the total net investment income including capital gains or losses and the amount that will accrete to past reserves?
  • Under the Constitution you are required to present an audited Statement of Assets and Liabilities to Parliament at the same time as the Budget. Why is there no information as to the basis on which the statement has been prepared or the valuation policies used?

As I state above, it is the figures for the General Government Finance surplus which are relevant. I am much obliged to the helpful staff at the Statistics Department for sending me the figures dating back to 1980. I assume that these figures include net investment income but there is no information as to whether they include capital gains or losses. I have looked at these in conjunction with the Statements of Assets and Liabilities (SAL).

I have the following preliminary questions:

  • What is responsible for the big rise in government indebtedness between the SAL balance sheet dates of 31st March 2009 and 31st March 2011?
  • Why was the rise in net assets (defined as Total Assets minus the Government Securities Fund and Deposit Accounts) only some $14 billion between 2009 and 2011 or some 4% of net assets at 31st March 2009? During this period global equity market indices rose by over 60% and Temasek reported a return of 22% annualized over this two year period.
  • The data on general government surpluses between 1980 and 2010 add up to approximately $340 billion. Yet at the SAL balance sheet date of 31st March 2011 the total net assets of the government are shown as only $326 billion defined on the basis above. Do the surpluses include capital gains? If they do not, then the net assets total seems much too low given the rise in global equity markets and falls in interest rates since 1980.

To quote from my Budget response:

The foreword to the IMF manual also said that one of the aims of the analytical framework was to provide an early warning system as to when things started to go wrong. The other side of the coin of the lack of transparency with regard to the government’s true net asset position is that Singaporeans will never find out till it is too late if the reserves have been squandered due to bad management.

 I am confident that there is a simple explanation for these apparent discrepancies and that you will easily be able to reassure Singaporeans and set their minds at rest.

However for a country aspiring to be in a leadership position at the IMF and for a person whose name has been mentioned as possible future head of that body, it is imperative that we go beyond basic standards of transparency and accountability and have ones that are at least as rigorous as those in other First World nations such as Norway, the UK or the US.

I look forward to your response.

Kenneth Jeyaretnam

Secretary General

_______________________________________________________________________________

1st June 2012

An Open Letter to the President of Singapore

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

_______________________________________________________________________________

16th June 2012

A Further Open Letter to the President of Singapore

His Excellency Tony Tan Keng Yam

Office of the President of the Republic of Singapore

Orchard Road, Singapore 238823

Dear President,

I refer to my letter of 1st June 2012 in which I asked whether Presidential approval had been sought or given for our republic’s loan commitment to the IMF under Article 144(1) of our Constitution.

I received no response to that letter which puzzles me considering the speed with which your gracious decline of our invitation to the JBJ Memorial Event was received.

With the greatest respect there is  a great deal of public interest in this matter and I feel it is entirely reasonable that the President be called upon to clarify his role even if that clarification is merely to state the case that presidential approval was not necessary.

I must therefore take it that your failure to respond in order to set the record straight and clarify that Presidential approval was indeed sought and obtained, is confirmation that it was not.   Unless you are good enough to deny that this is indeed the case by Wednesday 20th June 2012, (a reasonable interval since the date of my original letter), then I will be guided by that confirmation in attempting to gain transparency as to the constitutionality or otherwise of the IMF loan commitment.

Yours faithfully,

Kenneth Jeyaretnam

Secretary General