by Chris Kuan
TODAY reports the would-be Madam President as saying making a decision to unlock the nation’s reserves is not just based on numbers but involves exercising judgment gleaned from years of experience in policymaking,
Come early next year. The Finance Minister will present the President with the proposed EXPECTED Long Term Real Rate of Return (LTRROR) to draw into the 2018 budget earnings from the reserves permitted by the constitution, the Net Investment Returns Contribution. The amount will be up to 50% of the EXPECTED (not realized) long term real returns on net assets managed by GIC, MAS and Temasek.
For the sake of simplicity, let's say the EXPECTED LTRROR for all three entities is 4.2% - the President with consultation with the Council of Presidential Advisors (CPA) may query whether this is appropriate since this is higher than the realised LTRROR of 3.8%. The government may wish to draw more but is limited by the 50% cap. That leaves the only variable the Expected LTRROR. So to whom does the President refer the matter of whether the 4.2% is appropriate? Well, back to the MD, CIO and CEO of the three reserves management entities. who certified the Expected LTRROR in the first place.
If the President is still not satisfied, he/she may veto the proposal. But then if the veto is not supported by the CPA, i.e. by majority they disagree with the President and agree with the government and the matter will be settled by 2/3rd majority in Parliament. On the off chance that the CPA agree with the Presidential veto, i.e. disagree with the government (fat chance of that!), only then would the applicable LTRROR revert to the realized LTRROR.
So if you tell me the President is the jaga of our reserves, my question is what jaga? And as for the hopeful Presidential candidate about "exercising judgment gleaned from years of experience in policymaking", then the question is exercise what independent judgment? Okay experience in public policy matters even at the peripheral may help a bit but the office of the Elected President isn't designed for much independence. At best, the President can just voice his/her disagreement but approve nonetheless.
PS In Norway any change in the Expected LTRROR to draw the earnings from the Governance Partnership Facility (GPF) reserves is debated and approved by the Norwegian Parliament. But unfortunately this route isn't much better in terms of scrutiny, transparency and debate in Singapore, given the already insipid budget debates.
This post was first published at Chris Kuan's Facebook page and edited with permission.
Explanatory note by Carlton: The concern here is that the government can draw more money from the reserves than it should by using a higher expected LTRROR figure. This involves overestimating the potential return on investment. If it turns out that the expected LTRROR is an overestimation (i.e. the actual return is less than expected), the government would effectively have drawn more than 50%, rendering the 50% cap meaningless. The Elected Presidency is supposed to act as a check on this, but there are two problems. First, the president has to rely on the same people who certify the expected LTRROR for information about the expected LTRROR. This is because of the lack of transparency within these institutions. The second problem is that the president's veto can itself be vetoed by the Council of Presidential Advisors, an unelected body. Therefore Halimah Yacob's promise to exercise judgment gleaned from years of experience in policymaking is a promise with little substance.