Jamus Lim tells MP Saktiandi Supaat who wants to keep reserves secret: All exchange rate policy is monetary policy

On Wed (24 Feb), NCMP Hazel Poa from the Progress Singapore Party (PSP) asked in Parliament for more transparency on Singapore’s financial reserves. Ms Poa argued that MPs were being asked to vote on a Budget that would require a draw on the reserves, without being informed of its actual size.

“While I do not yet know the answer to that question, I do know that Members of Parliament are being asked to vote on a Budget that would require a draw down on our reserves without knowing its size. Without knowing our nation’s financial position, it would be difficult to make sound and prudent decisions, and certainly not informed ones,” she said.

“So again, I ask that more transparency with regards to the National Reserves be made, if not only that Singaporeans better understand the rationale for difficult decisions like the need to raise the GST to 9% in the future.”

Ms Poa also asked if President Halimah Yacob is aware of the exact size of the reserves when she made decisions on its draw down.

Yesterday (25 Feb), People’s Action Party (PAP) MP Saktiandi Supaat (Bishan-Toa Payoh GRC) spoke out against revealing the full extent of Singapore’s national financial reserves.

“Publicising data from our reserves is akin to revealing the size of our ammunition, to hedge funds and speculators out there with large pools of funds to play with,” he said, echoing what the Finance Ministry has been saying all along.

Saktiandi was formerly working at the Economic Policy Department of the Monetary Authority of Singapore (MAS) before joining Maybank. He is currently the foreign exchange research head at Maybank.

He explained that Singapore uses the exchange rate as its instrument of monetary policy – unlike most other countries which use interest rates. He said that this rendered Singapore vulnerable to currency speculation and attacks.

“As a financial centre, there’s also the risk of capital flows if our currency is attacked for speculative reasons. I don’t think we want to add in the element of this risk into the equation for our Singaporean job seekers,” Saktiandi said.

He added that the potential risks and downsides outweigh the benefits of transparency. “Transparency is practised where it is safe and sensible to do so, and it isn’t true that our reserves are completely undisclosed.”

“For example, Temasek and MAS’ (Monetary Authority of Singapore) fund sizes are made public, only GIC’s is not.”

MP Jamus Lim countered MP Saktiandi 

Workers’ Party MP Jamus Lim then rose to say he disagreed with Saktiandi’s point that revealing the reserves would be destabilising. “It could also encourage stabilising speculation,” said Prof Lim, who is a economics associate professor and a council member of the Economic Society of Singapore (ESS).

Prof Lim actually worked outside of Singapore at the World Bank for seven years, from 2007 to 2014, serving in its Development Prospects Group and specializing in long-term macroeconomic projections. He was also an economist at the Institute for Southeast Asian Studies and the Abu Dhabi Investment Authority. As such, Prof Lim is less susceptible to any group thinking that might linger among PAP politicians and Singapore bureaucrats.

Prof Lim continued, “If we were off our fundamentally determined exchange rates, we could encourage market participants to actually engage in speculative activity that would get us back on to our fundamental exchange rate.”

“(And) while it is convenient to argue that we have a distinct system in terms of exchange rate policy, by purchasing power parity, all exchange rate policy is in fact monetary policy. So even though it is the case that we target explicitly the exchange rate, it will have implications for inflation.”

Saktiandi then tried to defend himself by essentially repeating his earlier assertion, “The impact of the currency attacks can never be stabilising. It has ramifications on the economy, it has ramifications on jobs.”

He talked about the Asian financial crisis, saying its impact on some countries in the region was significant to the point that their currencies depreciated, with cascading effects on the economy.

“That’s from my own lived experience in 1998, 1999,” Saktiandi said. “The theoretical element that you shared… does not make sense. Unless you’re talking about misalignments in the long run, that eventually correct themselves in time.”

Prof Lim then replied, “I should point out that I am in fact old enough to have also lived through the Asian financial crisis, and I’m aware of the conditions surrounding it. So this is not just in theory, it was also my lived experience.”

MP Saktiandi goes round and round on difference between Norway and Singapore

Stating that he does not think that the monetary policy between Norway and Singapore, Mr Lim asked if Mr Saktiandi could clarify why he thinks that there is a difference between the two.

Mr Saktiandi replied:

To answer the question about the difference between Norway’s monetary policy and Singapore’s monetary policy, they’re very distinct.  I mentioned in my speech about the different economic context of Norway where its petrol driven economy. And where Singapore is very trade driven economy and the reliance of using exchange rate as a controllable intermediate target in the Singapore economy is very distinct from Norway which uses a policy interest rate or deposit rates in the central bank. So the instrument being used, I think the distinct, the important issue here, we’re talking about reserves.

In this situation for Singapore when Singapore users exchange rate as its policy tool there is a direct intervention in the markets using currency spot to having direct impact on the Sing(agpore) dollar and that is very specific because we target exchange rate.

if you look at Norway, Norway use this policy rates and its exchange rate is freely floated.

So for Singapore’s case, the very fact that we we target an intermediate target of an exchange rate has some impact in terms of our ability to directly intervene the markets and thus rundown on our reserves from MAS reserves.

So there is a very direct impact from a policy perspective and thus ramifications on our ability to have a direct rundown on reserves. Whereas for Norway’s case, its policy target is totally different, it is using policy rates or interest rates.

The deputy Speaker stopped the exchange at that point, as to whether Mr Saktiandi answered Mr Lim’s question with his response, that is for anyone to judge.






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