Billions of reserves used to prop up SGD

According to the Yahoo news report “Billions of reserves being used to prop up weak SGD” (Mar 13, 2015) – “Singapore is spending billions of reserves to prop up its currency, a report by DBS revealed.

According to DBS, Singapore’s reserves have fallen by US$34 billion since July, a trade-off of keeping the SGD on its appreciation path.

“In six short months, reserves have fallen by the equvialent of 11% of a full year’s GDP.”


“Known” use vs “unknown” use of the reserves?

This is a case of the reserves being used that is known to the outside world.

But, what about the use of the reserves in the past, which was not disclosed to anyone?


Reserves were used 55 times

Well, in reply to a question by NCMP Mrs Lina Chiam in Parliament in July, 2013 – it was disclosed that “past reserves have been drawn on 55 times since 2002 for land acquisition and development purposes …

Out of this, 23 projects were to create new land by reclamation from the sea or underground excavation.

The remaining 32 occasions were for land acquisition costs, like the Selective En Bloc Redevelopment Scheme (SERS), in which the Government redevelops existing HDB estates into housing that uses the land more intensively.”


Not drawdown because from financial assets to state land?

Mr Tharman said that tapping past reserves in this way is “in essence a conversion of past reserves from one form (financial assets) to another (state land), rather than a drawdown of reserves”.

In this connection, I came across a very interesting article from which some parts are reproduced below.

“I would like to refer to the article “Reserves: ‘No’ to dipping into coffers” (Straits Times, Apr 19, 2013).


Dipped into the past reserves only once?

It states that “The Government has dipped into the past reserves only once. In 2009, it obtained the President’s approval to draw down $4.9 billion from past reserves to fund special schemes in the light of Singapore’s worse recession since independence. In 2011, it put back all the money – $4 billion – it used into the reserves.”


Used more than 27 times, but nobody knows?

Contrary to the above, “President Nathan revealed just before he left the presidency (August, 2011), that the past reserves have been used more than 27 times since 2002, for projects like land reclamation and the Selective En-bloc Redevelopment Scheme (Sers)”. (“President guards Reserves: Really?“, Aug 24, 2011; “How much of the Reserves has been really used?“, Aug 10, 2011)

So now, if not for NCMP Mrs Lina Chiam’s question, no one would have known that the Reserves have been used 55 times, instead of the 27 times disclosed by our former President.


President also don’t know it was 55 times?

Why did our past President reveal that the Reserves has been used 27 times, when it was actually used 55 times?


Before 2002, never use is it?

Since the reply in Parliament now says “Past reserves have been drawn on 55 times since 2002″ – does it mean that the Reserves were never used before 2002?

If this is indeed the case, then why say “since 2002″?

As to “tapping past reserves in this way is “in essence a conversion of past reserves from one form (financial assets) to another (state land), rather than a drawdown of reserves”” – the issue may be not what the drawdown in essence means, but why it was never disclosed?


Rainy day only?

Singaporeans have been told that the Reserves would only by used for a rainy day, and until our former President’s disclosure just before he left office, all of us were given the impression that the Reserves was only used once for the Job Credit scheme during the 2009 recession.


Pecuniary interest?

Also, allow me to use an analogy to illustrate a possible issue – Let’s say my bonus depends on GDP growth. I use the Reserves to reclaim land and SERS. So, in essence I may be pumping money into the economy (kind of like “Quantitative Easing” (QE) (For further reading: 2009-13 QE bubble)). In so doing, am I not in a way increasing GDP and thus indirectly my bonus too?


Under reporting Budget expenditure?

Let’s try to explore the use of the Reserves further. When land is reclaimed, we may be increasing GDP, and under reporting on the Budget expenditure, because if not for the use of the Reserves, the land reclamation expenditure may reduce the Budget surplus or even result in a Budget deficit.

After the land is reclaimed and sold to perhaps the highest bidder (including the HDB?), the land sales proceeds are not reported as Budget revenue, but would be considered as Budget revenue under IMF reporting standards.

In other words, we may then be under reporting the Budget surplus.


Impact on NIRC?

Also, the use of the Reserves in this manner may impact the Net Investment Returns Contribution (NIRC) (reduce it?), as I understand that “financial assets’” returns are included in the calculation of the NIRC, but not “state land”. Therefore, this may also have a direct bearing on how much money the Government can spend every year, which affects Singaporeans as well.


The real biggie?

But you know what! The real biggie is that the most important piece of information is missing. How much of the Reserves were used!

Imagine I tell you I took money from the bank 55 times, but never tell you how much I took. If you don’t ask – are you not stupid! Or rather if I didn’t tell you in the first place – Maybe I think that you are stupid enough not to ask?”


Implications of “secret” QE?

The key issue may be that if other developed countries had in effect consistently used “quantitative easing” without disclosure – what do you think will happen when this information becomes public?


Win battles lose war

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