Ministry of Finance contradicts Minister of Finance?

The obfuscation just keeps pouring in. In a ST report on July 9th 2014, the Ministry of Finance revealed the $5b in capital injection into Temasek came from proceeds from the Singapore Government Securities (SGS), as well as government budget surplus and the proceeds from government land sales. The Ministry also told the ST that “the capital injection did not include proceeds from the Special Singapore Government Securities (SSGS)which are instruments that the CPF Board uses to invest Singaporean’s CPF savings. In other words, Temasek does not manage any CPF monies, an MOF spokesperson reiterated”

What Tharman said in Parliament.

On July 8th 2014, DPM Tharman, the Minister of Finance, in reply to a question from opposition leader Low Thia Khiang

“The GIC, because it has a large diversified portfolio, does aim to invest for the long term, and aims to do better than the SSGS obligations. But that is only because the GIC is not just managing SSGS obligations, it’s not just managing CPF liabilities.

GIC is fund manager for the Government, not owner of the assets and liabilities. It seeks to achieve the Government’s mandate of achieving good long-term returns, without regard to the sources of the funds that the Government places with it – for example, whether they are proceeds from SGS, SSGS or government surpluses”

He went on to say

“Our strength is that the Government has net assets, including unencumbered assets – proceeds from land sales over the many years, proceeds from the Government surpluses, especially in the earlier years, and the investment returns on those proceeds. Those give us unencumbered assets and by pooling the SSGS monies together with those unencumbered assets in one pool”

About those SGS

The SG government’s total debt to GDP ratio was 108% in 2013. This works out to be a total of $402b. Debt owed to CPF via Special SGS is $241b. That leaves $161b in SGS but all cannot be in Temasek as the capital injection statement seems to infer. Let us discount Temasek market value of $223b at a rate of 6% (allowing for extraction of returns by the government, loss provisions and operating costs from its 16% long term return), we arrive at a sum of just $30b 35 years ago. That means the total amount of capital injection should not exceed $30b. So the rest of the SGS proceeds must be in GIC as Mr. Tharman had inferred.

Capital Injection came from the same pool but no CPF monies?

All funds are mingled in one pool as Mr. Tharman said and this would have been in the SG Government Treasury, then allocated to GIC, and Temasek through MAS. This is similar to any pooling of funds in the treasuries of banks, large companies and asset managers. Imagine Ismail Rashid’s $10,000 fixed deposit at DBS – once the money is deposited at the bank, it is mingled with thousands of other deposits and monies in a funding pool which is then allocated for making loans etc. But DBS does not specifically give Rashid’s deposit directly to Tan Ah Huat’s car loan. The funds come from a common pool.

As such, how did the Ministry of Finance spokesperson know the $5b in capital injection contains SGS proceeds or conversely no Special SGS proceeds and hence no CPF monies? If SGS funds are in both GIC and Temasek, then how is it possible that Special SGS funds are not in both since they came from the same pool? Either the spokesperson has contradicted the DPM’s “one pool” or there are segregated accounts which the DPM does not wish to reveal. If the capital injection is from segregated monies, it begs the question why Special SGS funds and therefore CPF monies are not similarly segregated for the sake of transparency. Then consider what the Ministry of Finance website has to say about the Net Investment Return Contribution (NIRC);

“comprised up to 50% of the net investment returns on the net assets managed by MAS and GIC and up to 50% of the investment income from the remaining assets which includes Temasek”

Notice the same term “net assets” in Mr Tharman’s Parliamentary statement as in this description of the NIRC vis-a-vis MAS and GIC and the conspicuous absence of the term vis-a-vis Temasek. It strongly suggests that the entire burden of paying the interest on the $402b of SGS and Special SGS falls on MAS and GIC but not Temasek even if indeed it receives capital injection containing proceeds from SGS. It is little wonder that Temasek which the government insist has no CPF monies, has such a rosy long term rate of return since it is given every advantage, including the valuable GLC portfolio which provide significant protection against forex risk at the expense of GIC which, as the government kept admitting these days, manages CPF monies.

Chris K
* Chris K holds a senior position in a global financial centre bigger than Singapore. He writes mostly on economic and financial matters to highlight misconceptions of economic policy in Singapore.

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