We have successfully conducted our Singapore Budget 2019 Forum today.

We thank all who have attended and also great appreciation to those who have helped to make this possible.

The following is our official statement on PAP government's Budget this year:

Budget 2019: Political Gimmicks without Bold Vision

Expansionary Budget with Money locked up in CPF and Medisave?

1. Finance Minister Heng Swee Kiat has declared that his Budget 2019 for Singapore government is an “Expansionary” budget and he cited the projected budget deficit of $3.5 Billion after taking into account of the net effect NIRC and Special Transfers of $3.6 Billion as supporting fact. However when we put the details of the Budget at closer examination, we have come to the conclusion that this Budget is NOT the usual “Expansionary” budget but just full of political gimmicks without bold vision.

2. A government Budget is an important tool of fiscal policy that is used to manage the economy. An Expansionary Budget would result in fiscal stimulations of the Nation’s economy in anticipation or direct mitigation of any potential economic slowdown or recession. But in Minister Heng’s Budget 2019, there is no mention of any job creation initiative nor bold vision for Singapore’s Future Economic development direction.
3. Most of the “additional spending” announced for the populistic Merdeka package ($6.1B), Long Term Care ($5.1B) and other the various injections of money into healthcare, workfare, schemes for SMEs ($4.6B) and education (Total of $15.3B of Special Transfers) are either just money transfers credited into CPF or Medisave accounts or deferred expenditure across a few years which do not have an immediate direct impact on overall spending in the economy.

4. It basically means that these money are effectively an “expected surplus” (over the announced $3.5B deficit) ultimately stashed away into the reserves via such Special Transfers arrangement.

5. Thus we do not really see this year’s Budget as “Expansionary” but rather a pack of Budgeting Acrobatic Gimmicks which channeled money back into the reserves masqueraded as “Goodies” for Singaporeans without real positive impact on the Economy.

Cost of Living

6. In a normal free market economy, inflation is normally caused by an excess demand on goods and services. This will drive up the cost of living for everyone.

7. However, in Singapore, inflation is mostly caused by the PAP government and its Government Linked Companies. The rise in water tax, electricity tariffs, public transport fares, healthcare cost, the rapid increase in rentals by GLC REITS, petrol and diesel prices etc. are the direct results of PAP governance.

8. How could the derisory $300 GST voucher cover the inflation caused by all these increases?

9. The BEST gift to ALL Singaporeans is NO GST instead of GST vouchers!


Cost of Healthcare

10. Any increase in healthcare subsidies for Merdeka generation could easily be offset by another round of increase fees in polyclinics and public hospitals.

11. We have witnessed how fees at public polyclinics and hospitals increased right after the last Pioneer Generation Package was announced in 2015.

12. At many instances, the fees at these public “restructured” healthcare entities are even higher than private clinics or hospitals before subsidies were taken into account.

13. There is a need to rethink whether the current model of “Restructured Hospitals” really serve Singaporeans’ interests at all.



Adverse Impact on SME

14. There are a couple of new but insignificant programs initiated in this year’s budget to help SME and workers to cope with changing dynamics of the economics.

15. However, out of the $4.6B slated to help both SMEs and workers over next three years, only $100million was put into funds for helping SMEs to upscale.

16. Although we agree to the overall strategy of reducing dependency of Foreign Workers in the long run, but we do not think it is a good move at all to apply such one-size-fit-all policy of reducing the Dependency Ratio Ceiling to cut across the board for the whole Service Sector.

17. Local SMEs are always grossly disadvantaged by the foreign workers policy whereby larger foreign companies enjoy concessions through government special incentives or technical advantage in sourcing their foreign labor via internal transfers from foreign bases.


Where are the Good Jobs?

18. Within the Service Sector, there are many sub-sectors which have very different labor situations. Singaporeans generally shy from certain industry or service sectors like hospitality, Food and Beverage sectors while there is a great underemployment for Singapore PMETs who cannot find jobs in other service sectors like banking, finance or IT etc.

19. A more calibrated approach should be implemented to focus more on reclaiming PMET jobs for Singaporeans in service sector instead.


Tax Cut for Taxi Companies while Higher Tax on Taxi Drivers?

20. The increase of diesel tax will affect SMEs greatly with an increase in business cost despite of the cut in road tax for diesel vehicles.

21. We are particular concerned on the impact on taxi drivers. While the PAP government gave a generous reduction in Special Tax on Diesel Taxi by $850, but this may only benefit taxi companies while taxi drivers suffer higher diesel price due to the double of diesel tax.


The Real Vision and Plan to Cut Pollution

22. A great percentage of commercial vehicles used in Singapore runs on diesel engines. The increase of Diesel Tax will not have significant effect on lowering the consumption of diesel for these commercial vehicles because the demand is totally inelastic.

23. Raising Diesel Tax now without providing a viable alternative to businesses will only result in a drastic rise in business cost. This may affect our leading position as logistic hub in Southeast Asia.

24. PAP government lacks the bold vision to explore clean alternatives for commercial vehicles running on diesel.

25. The key problem with diesel engines lies with the toxic cancer-causing nitrogen oxide emission. Thus we should phase out diesel vehicles from our roads totally instead of just raising diesel tax.

26. In fact, our long term plan should aim to reduce air pollution on the roads by phasing out both petrol and diesel vehicles totally by replacing them with electric vehicles.

27. Instead of harming our SMEs and economy by raising diesel tax now, we should be putting more investment and focus efforts to implement a comprehensive plan to promote electric vehicles by building relevant infrastructures and battery waste management system.

28. Singapore is lagging behind countries like China and Norway when it comes to implementation of a systematic plan of replacing diesel and petrol vehicles by electric vehicles to cut down harmful air pollution. This is due to the lack of bold vision and political will of PAP leadership.


CPF Inadequacy

29. About 75% of retirees are getting less than $500 from CPF payout. This is totally inadequate which resulted in many retirees living in absolute poverty.

30. It is an irony that Singaporeans had paid 37% of their monthly salary into CPF but yet they could not retire comfortably with a good payout from CPF.

31. It basically means that the CPF system along with the HDB and Medisave policies had failed to secure a decent retirement for most Singaporeans.

32. This will have to be looked into and only with Bold Vision could a government come up with bold plans to revamp the whole structure.


Long Term Care for Ageing Population

33. We will be facing the Silver Tsunami very soon when the baby boomers from 1950s to 1970s start to reach retirement age.

34. Putting billions into funds as future subsidies is a passive act which lack forward looking planning vision.

35. We would rather spend these billions now to build up both infrastructure and human resource capacity for long term care to prepare for the inevitable Silver Tsunami in the coming decade.


Pre-School Childcare and Education vs Fertility

36. The cost of Pre-school education is extremely high even after subsidies.

37. This is one important factor among the many issues that cause low fertility rate in Singapore.

38. Instead of putting more money in Edusave, it is time to focus to solve this pertaining issue of Pre-school education.

39. A cheap or even free Pre-school education system for all will also level up for children from poor families which will improve future potential social mobility.


Our Concerns:

HDB

40. There is no mention on any plan for PAP to resolve the huge problems which they have created in the past via Asset Enhancement Scheme.

41. No funds is allocated for any initiative on solving the time bomb of a huge stock of ageing HDB flats in the coming decades.

42. On the contrary, the Ministry of National Development has the biggest cut in its budget by 19.3%!


Financing Huge Infrastructure Spending via Borrowing

43. It is mentioned that part of the huge infrastructure spending like Changi Terminal 5 will be partially financed by borrowings.

44. It is also mentioned that Government will provide guarantee to these loans.

45. Is there a necessity for Government to finance such infrastructure spending when we have a huge National Reserve well above $500B?

46. Financing such infrastructure through borrowing would mean such spending on extremely expensive mega projects will escape rigorous scrutiny by parliament while the government has taken up huge potential liability as a guarantor.

47. The lack of accountability to parliament when the government takes up such huge liability will result in unchecked ex-Budget spending which could go wrong.


Conclusion: A Budget that Lacks Bold Vision

48. We are utterly disappointed by this year’s Budget which basically mimics the 2015 Election Budget without Bold Visions and lacks New Ideas.

49. This Budget contains a pack of gimmicks that attempt to make Singaporeans feel good and make believe that they had gained something substantial from it. However, most of these goodies are deferred goodies.

50. Unfortunately, these political gimmicks are done at the expense of the need of REAL immediate expenditures on various areas which we have listed out here.

51. Singaporeans deserve a better deal than what the current Budget could offer.
52. The reduction of GST relief and duty free alcohol concession for travelers is the best key feature to sum up this Budget 2019 – Small Mindedness without Bold Vision.

Goh Meng Seng
Secretary General
For CEC People’s Power Party Singapore

The Cheated Generations

The "Cheated" Generations

From 1970s till early 1980s, one can buy a 4 room HDB flats for a mere $20K-$30K. They introduced the inclusion of land price some time in mid 1980s and the prices of HDB flats started to climb.

By early 1990s-1995, GCT came up with the Asset Enhancement Scheme which entice Singaporeans to spend more of their CPF to buy HDB flats. They relaxed the rules on the secondary market for HDB flats. By 1990s, some of the HDB flats were about 20 years old and they started the HDB upgrading.

Unknown to many Singaporeans, they had also started to peg the price of new HDB flats to the "market prices". It was not until a couple of years later, they made known to public that they were giving "market subsidy" for new HDB flats. There is a VAST difference between "Market Subsidy" vs "Real Subsidy". Basically it means the Government can now earn profits from the sale of HDB flats (as a whole) but at lesser amount from market rates.

The impact of such Asset Enhancement Scheme has multiple dimensions.

1) From cashflow perspective, it reduces or even eradicate the burden of the government in providing the return for CPF.

2) If Singaporeans used up half of their CPF to buy their HDB flats taking a loan from HDB, it means they will have to pay 2.6% interests to HDB. To the government, this can be transferred to pay for the interests accrued to the other half of the CPF money which was deposited in CPF.

3) When Singaporeans sell their HDB flats, they have to pay back the amount of CPF money they have spent in paying their mortgages PLUS the accrued CPF compounded rate of 2.5% as return for these CPF money they had used. In effect, Singaporeans are paying 2.6% Plus 2.5% in total interests if they sell their HDB flat. If they only use half of their CPF money to pay their mortgage. it means that Singaporeans are actually paying for ALL the returns of their CPF money and Government didn't need to pay a single cent for their retirement financing. Mortgage rate from HDB is always pegged 0.1% above CPF rate.

4) It means that in reality, Singapore Government basically do not need to pay any Interest to most of our CPF money and in fact, had earned quite a substantial amount of money via land sales and price above the cost of building the flats. These are thrown into Temasek Holdings and GIC. These are basically "Interest Free" money right from our CPF! The buying of government bonds from government by CPF is just a formality.

It was only later that Singaporeans were allowed to take mortgage from private banks for their HDB purchases. On the other hand, CPF was allowed for the purchase of private properties. These policies were made to help boost the banking and private property market.

5) For my generation, we were sold the dream of 5 C and HDB as a "valuable asset" which we could depend for retirement financing. The whole plan is basically flawed.

6) MAS has already fix the rule for the limited loan that financial institutions could make to anybody who is buying a flat which is more than 40 years old.

7) All lawyers know what the 99 year lease means. The value of the property which reached 99 years will become ZERO. How could our HDB flats be growing in value forever?

8) HDB is the only asset most Singaporeans will have. The only way for us to "monetize" HDB for retirement is to either rent it out or downgrade. However, selling an asset which is reaching 40 years old will be challenging unless rules are changed.

9) PAP government has not changed the rules but misled my whole generation and the future generations of Singaporeans after us that HDB could really be a good "investment" asset.

10) In the end, we were made to pay almost 10 times of the price which older generations in 1960s and 1970s had paid, without any promising "investment value" for retirement financing.

11) Singaporeans who bought their flats in 1960s and 1970s, or even 1980s won't understand my generation's anger. We have been misled and felt cheated, suffered high HDB prices and in the end, many of us left very little for our retirement.

12) Asset inflation doesn't really create value but in fact, only create Rent Seeking Economy which only kick the problems down the road. It is basically transferring the problems of retirement financing to the future generations in terms of extraordinary high property or HDB prices.

13) HDB prices for a 4 room flat rises from $20K to $200K in 1990s and continue to rise. Who suffers? Only those who bought early in 1970s and 1980s "enjoy" such wealth effect (most of them cannot just sell their HDB flats off) while their children, grandchildren and future generations suffer.

14) The inflation of HDB prices have outstripped salary increase over the last few decades. This could only mean that we are paying more, maybe not in cash but eating into our CPF savings.

15) If you take any average guy from my generation, those who are late 40s to 50s who are staying in HDB flats, ask them whether they could make money out from their HDB to finance their retirement in 15 years time, the answer is definitely a NO. on average, if they bought their flats when they were 27 years old, by 62 years old official retirement age, their flats would reach 35 years old. They couldn't possibly sell their flats for a profit or with any cash left after repaying the 2.5% CPF compounded interests over 35 years.

16) It would be even worse if they bought their flats from the secondary market.

17) Thus, has the so call Asset Enhancement Scheme helped them?

18) It doesn't need a super Mathematician to calculated in advance how much one would need to sell their aging HDB flats in order to have any cash available for them to retire after 35 years. Was it a deliberate plan to mislead or just a deliberate negligence?

19) As far as I know, we have been misled and cheated by PAP government because the results are obvious. What has been promised, claimed and sold to us, will collapse in time to come.


Goh Meng Seng

TOTD: Mis-selling of Dangerous High Risk Financial Bonds to Retail Investors

Thought of the Day - Mis-selling of Dangerous High Risk Financial Bonds to Retail Investors

Just a couple of weeks ago, news broke out on Hyflux defaulting on its interest payment to the perpetual bonds it had sold to investors, which include retail investors.

Most Singaporeans do not understand what is a perpetual bond. For normal bonds, be it government or private company's bonds, they will have an expiry date. It basically means that when you buy these bonds, it promises to pay you an interest every year and at the end of 10 or 20 years, or any number of years dictated on the bond as a contract, it promises to pay you back the amount stated on the bond.

For example, there could be a $100K coupon bond which promises to pay you 5% of $100K each year for 20 years and at the end of the 20 years, it will repay you the 100K stated on bond. You may not pay $100K for the bond because it depends on the interest rates of the market. You may pay higher than $100K if the current interest rate is lower than 5%. Or you may pay lower than $100K for this bond if the current interest rate is higher than 5%. i.e. the price of this bond is inversely related to current interest rate.

Technically speaking, you can trade on these bonds. You can buy or sell these bonds before the maturity of the bonds.

What is perpetual bond then? It basically means that the company will be selling you these bonds and it promises to pay you the coupon rate, eg 5% every year but it will go on forever and it will not repay the principal amount of these bonds. i.e. it will be borrowing these money from you or other investors perpetually... FOREVER.

You can only "cash out" from these bonds by selling to other people who are willing to buy it.

The pricing of such bonds are more complex as the longer the bond maturity is, the higher risk it involves. And now, when technically speaking the maturity is infinity, aka no maturity, then the risk is extremely high.

This is why Perpetual Bonds are NOT MEANT for retail investors but more for institutional or professional investors. MAS, as the regulator of the financial market, should not even allow such perpetual bonds to be sold to retail investors!

But we now know, MAS has actually closed both eyes on such issue. Now that Hyflux has defaulted on the interest payment on its perpetual bonds, these bonds have basically become JUNK bonds in the market with little value left. The retail investors would suffer huge losses in such situation.

Ironically, Termasek Holdings under Ho Ching, has planned to sell perpetual bonds to retail investors, putting up such slogan on "supplementing CPF" earnings!

First of all, it is totally inappropriate to sell perpetual bonds to retail investors.

Secondly, how could a Sovereign Wealth Fund issue such a bond?

Last but not least, 4.5% may look comparatively attractive to the 2.5% or 4% given by CPF, but the amount of risk in perpetual bonds are very much higher! Normally, such bonds are sold at a discount to institution investors but it seems that it is more lucrative to sell to inexperience retail investors at higher price or at its principal value because they do not understand the risks they are taking!

Considering the Prime Lending Rate is at 5% now, the interest for Perpetual Bond should be higher than this rate because, it is basically a loan for forever which will involve greater risk!

Termasek Holdings, as our Sovereign Wealth Fund, is actually taking advantage of Singaporeans, by borrowing from them below Prime Rate with indefinite maturity! Try asking any banks to lend to you $100K FOREVER at prime rate and see what you get from them!

Truly, I must warn all Singaporeans not to be taken advantage by our very own Sovereign Wealth Fund. I do not know why they need to raise funds through perpetual bonds when they are already handling so much funds up to the hundreds of billions but with the opaque manner in which they run their business, the risk is even higher than one could imagine.

Risk arises when there is uncertainty with lack of transparency and information. Please do not be fooled by such "good investment opportunity" sales talk. Else, you may end up like those Minibonds victims, die liao also don't know why and MAS will just brush you aside.

Goh Meng Seng

TOTD: Awakening from the HDB-Asset Enhancement Myth

Thought of the Day - Awakening from the HDB-Asset Enhancement Myth

Several friends asked me "What is Lawrence Wong trying to do?"

They are referring to why Lawrence Wong keeps reminding Singaporeans that your HDB flat will have ZERO value when the 99 Lease hold expires.

They are confused and full of anxiety.

I simply told them, this is nothing new, I have talked about it more than a decade ago!

Almost all of them now consider to sell off their HDB flats in anxiety. Then I ask, where are you going to live?

Some ask me is that the reason why I sold my own HDB flat back in 2010? I said, yes, partly so but most importantly, I need the cash for the General Elections. I have no regrets.

Then they ask me, why didn't my relatives or the flat my mother owns in Ang Mo Kio sold? Here again, I said, where can they live if they sell their HDB flats?

The key difference here is that, my parents bought their flat in Ang Mo Kio, way before this nonsensical "Asset Enhancement Scheme" came about in late 1980s throughout 1990s, Goh Chok Tong's time. They bought it cheap. There is no anxiety of having a "costly HDB flat" turned into worthless ashes in the end.

Unfortunately, many people were caught by that TOTALLY MISLEADING Koyok of "Asset Enhancement Scheme" which was the Theme of PAP back in 1990s till 2000s that kept them in total monopoly of power. A few generations of Singaporeans have been misled into believe in such nonsense. Even up till GE 2011, PAP's MBT still tried to sing song about Asset Enhancement Scheme for "Monetizing HDB Flat" for retirement financing.

Well, lucky for MBT and PAP, he didn't dare to take up my challenge of OPEN LIVE DEBATE over his HDB-Asset Enhancement Scheme Policy, else he will be knocked out and black out totally. But their lucky is Singaporeans' misfortune. Most Singaporeans are still submerged in such devious myth of HDB Asset Enhancement Scheme for another 6 years, until Lawrence Wong broke the truth.

Lawrence Wong is simply telling the Truth, nothing but the Truth. Your HDB flat will become Zero Value when the 99 year lease expires. Why is he talking about this NOW?

This is because PAP government is not going to carry out SERS Enblock for most of the HDB flats, which is the only way to save you from the eventuality of Zero Value, because it is not profitable for PAP government to do it. They are just mentally preparing the massive Singaporeans living in HDB flats that they should not expect much from their HDB flats at the end of the 99 lease. They should be prepared to live with their whole life's saving in CPF being wiped off when the lease is nearing expiration.

The PAP government, if they still exist by then, will not renew your HDB lease at all.

Singaporeans should wake up from this TWO DECADES Myth about HDB-Asset Enhancement Scheme. This is especially so for the younger generations, those who are thinking of paying extraordinary high prices for their BTO or HDB resale flats.

I was amused and worried for those people who are forking out near to a Million dollars for a resale flat in some Prime location. You have to know that even if your HDB flat is located at Prime district or location, IT WILL DEPRECIATE eventually and BECOME ZERO in value when the lease expires.

Your HDB flat will start to depreciate when it reaches 40 year old. No banks will make normal loan when it passes 50 years old. When it reaches 70 years old, basically no bank will provide loan to  any buyer at all, regardless of where the flat is situated.

This is something PAP has been hiding from you while they were singing and praising themselves about HDB-Asset Enhancement Scheme as a political tool of Pork-Barrel politicking!  I would say that over 80% of all old HDB flats will not be Enblock. You just cannot "enhance" your HDB value when the eventuality of ZERO Value is definite!

The faster and earlier Singaporeans realize this FACT and TRUTH, the better it is for them. Else, you will end up destroying your own retirement financing plan.

I have not come to the CPF-HDB financing part yet.... that's for another article another day.

Goh Meng Seng

TOTD: The Return of the Gold Standards?

Thought of the Day - The Return of the Gold Standards?

(This is going to be a bit technical in economics)

In Economics term, we are living in an ever inflationary world basically because we are all using "Fiat" money which government around the world could just print money in the short term without caring the long term consequences.

Prior to 1971, US dollars were "convertible" to gold at the Federal Reserves if presented by other government. The Gold Standard was changed significantly when the Breton Woods Treaty was implemented after World War II. People could no longer exchange Gold for their money via their governments. It was a necessary step as the Great Depression of the late 1920s throughout the 1930s gave the Americans a very tough lesson on Monetary Policy. The Gold Standard has its limitation as it would reduce Money Supply when people just convert their money into Gold. This created a spiral effect on the economy with a reduction of Money Supply.

Breton Woods Treaty solved part of the problem of instability of Money Supply. However, Monetary play between countries took another toll on the arrangement with the Americans basically ceased the convertibility of US dollars into Gold in 1971.

But US dollars remains as a strong international currency basically due to the "Petrol Dollars" arrangement. It means that all trades in oil have to be done based on US dollars. This implicitly means that due to the high demand of oil and petrol, the US dollars are basically "backed by oil/petrol". That is why it is called "Petrol Dollar". It would also mean that the American governments could basically keep printing money to cover whatever trillions of deficits as it wishes without significant impact on its economy as most of these US dollars would be used in trading oil and other international trades.

But will this arrangement be sustainable? Apparently not. Oil would either face drastic reduction in demand due to the rapid growth of alternative renewable/Green sources of energy or it would just deplete and dry up. There will no longer be high oil trade to back US dollars up!

In 2001, Dr Mahathir proposed the revival of Gold Standard in terms of Gold Dinars among the Muslim countries. The largest Gold owners among the Muslim countries were Libya and Iraq. These two countries were oil exporter and supported the idea to trade oil in Dinars. This would mean that they are going to end the concept of "Petrol Dollar" earlier than its inevitable natural death! Now you know why the Americans invaded these two countries and the Gold stored in these two countries are unaccounted for!

The Gold Dinars idea was destroyed with the destruction of Libya and Iraq. However, a BIGGER Challenge evolves and they are not easy opponents like Libya and Iraq.

The BRICS led by China and Russia have been discussing the setting up of an alternative currency for international trades among themselves. This would also mean the sideline of the US dollars as the main international currency for trade. This new proposed currency will be back by Gold, partially, with a basket of currencies consisting of Chinese RMB.

It would mean a medium shake up or even sending shocks to the international trade and financial sectors. BRICS will be able to execute such bold plan because Russia is one of the largest oil exporter while China is one of the largest exporter of goods and services in the world! If they demand all oil or goods purchased by other countries from them need to be paid in this new BRICS currency, the US dollars would be totally made invalid and redundant.

US dollars will suffer a nose dive if that happened and it will create an unprecedented inflation within the US economy because those US dollars which could not be used in international trades will have to flow back and create a real demand on US economy!

But with the Gold which the US army had captured from Libya and Iraq, they could do something to anticipate such financial disaster. They could just use their new found fortune of Gold to create the new modern Gold Standards to neutralize that impact. At the same time, they will require other countries to support their effort by lending their Gold to US to create this new US dollars.

This is exactly what the Americans are doing, creating a new currency issued by its Treasury (instead of its Federal Reserves) which is theoretically and supposedly backed by Gold.

The BRICS arrangement will affect not only the US dollars but the Euros as well. This is the main reason why Germany is quietly demanding and shifting its Gold back from US in anticipating the "New World Currency Order". Germany is the LARGEST economy among the European Union. It will either have to use its economic muscles to back the Euro currency or to return to a Gold Standard Deutsche Mark in the event when Euros collapses due to the evolving of "New World Currency Order".

There will be turbulence ahead in the next few years and nobody knows exactly how it will work out. Will the world face inflationary pressures to the countries which didn't peg their currencies to Gold or will there be deflationary pressure on international trade when international currencies for trade will be restricted and limited from expansionary path?

Or would BOTH happen and we will be stuck in stagflation?

Goh Meng Seng

TOTD: Common Sense Lacking in Singapore Banks' Administration

Thought of the Day - Common Sense Lacking in Singapore Banks' Administration

I never have any problem in using the internet and ATM services provided by the banks in Hong Kong.

When I deposit money or do transfer money to another account, they will strike a good balance between "privacy" and providing "relevant" information.

For example, if I keyed in the account number to deposit or do transfer of money, when there is a confirmation page, it will show me the account number as well as partial name of the account holders., eg. Gxx Mxxg Sexx instead of a total blackout or lack of account information. This is to ensure that I am transferring to the correct account!

The printout slip should also review partial account number as well as partial account name to whom the money had been transferred or deposited into, instead of a total lack of account information!

As for the e-Statement, it is pretty silly to send me a "consolidated statement" with only opening and ending balances for my accounts!

Internet access only provide 6 months of details and what if I want to keep a set of my accounts?

Seriously, if this is the type of standards we have in Singapore banks, no wonder we are losing out to Hong Kong as a financial hub! And if our elite bankers are to remain so stupidly complacent and total lack of common sense in providing such customer service, then it is just a matter of time we are going to lose out to our neighbours as financial hub as well!

Goh Meng Seng

TOTD: Back to Fundamental of CPF

Thought of the Day -
Back to Fundamental of CPF

I was talking to a friend over CPF issues recently and it seems that I have some of the more "radical" thought over CPF.

CPF was supposed to be meant for retirement financing but in the end, it becomes some sort of "piggy bank" for PAP as well as Singaporeans for many purposes.

First, PAP allowed you to use CPF to buy properties. Most Singaporeans are happy with such arrangement as they feel that they will be able to own a property in their lifetime. I also used up all my CPF available to buy property but that is because I do not trust PAP with my money. This is another issue for another day.

Then PAP says that you can use your parents' CPF or your own CPF to pay for higher education. On top of that, you can use your CPF to pay for your parents, children, brothers, sisters etc medical fees!

Singaporeans thought that these are all "good arrangement" but the truth is, it will create two/three problems:

1) Over consumption of housing, education and medical care
2) Depleted CPF for your retirement
3) Kicking the can down the road

On top of that, it will create other problem of another dimension:

1) Over reliance on CPF money for anything, everything
2) Weakening of Financial management skills and planning
3) Total lack of saving habits

Most financial planners will tell you that you will need to save a certain percentage of your salaries every month for future retirement. It is normally set at 20% to 25% of your income, depending on your income level.

But due to PAP's conflicting policy needs, it has totally messed up the CPF system and in the end, it resorts to setting some unrealistic arbitrary "minimum sum" which many lower income earners could not meet mainly due to the over consumption of housing. i.e. they were allowed to buy properties which they couldn't afford and shouldn't buy in the first place, if they were to stick to the 25% savings rule for retirement!

The only right way to due with this situation is set the saving rate for CPF at 25% (contribution of employee and employer add together) while banning people from using it for just any other thing, especially for housing and medical fees for other family members!

Employer's CPF contribution should stay at 17% while employees' contribution should be cut from 20% to 8%. This would mean that employees or Singaporeans will have additional 12% of their income in cash. If they need to buy property and use it to pay their mortgage, they can use this additional 12% cash to do so. However, they should not use any CPF money for mortgage payment.

For young people, they should start to learn how to do financial planning and I reiterate this point that basic financial planning concepts and knowledge should be taught in the common school curriculum! They should make it a habit to save for down payment for their first property purchase and plan for their mortgage payment as well. In general, for middle-lower income earners, they should not be using more than 35% or 40% of their income to pay for mortgage. This will prevent them from over-consuming housing and it will keep property prices in check.

If they intend to start their own little business, they could save up these extra 12% of their income for future business plan!

Our property prices have been artificially pushed up due to the excess liquidity which PAP allows Singaporeans to use CPF in doing so. This applies to prices of Medical care as well. It is precisely that Singaporeans do not "feel the direct pinch" from using their CPF money to pay for Medical care or housing, they tend to not mind spending excessively on these products and services. Of course, HDB and hospitals alike, are also happy to charge higher prices because "it is affordable" to Singaporeans due to the excess liquidity provided by CPF!

PAP has abused the system in skewing the "affordable" argument. It is not affordable when Singaporeans are paying more than 35% or 40% of their salary for a 30 year mortgage. That is totally rubbish argument of affordability because if you purchase your property at the age of 30, by 60 years old, you will have very little left in your CPF account for retirement!

The proper way of inducing better financial management by Singaporeans is to make them manage their finances according to the fixed CPF retirement saving rate (which could be adjusted according to income level) so that they would make better rational choice in their spending in housing, education as well as medical care.

This may sound "radical" to many unthinking Singaporeans and they may just jump up and down denouncing such plan but this is the only right thing to do in the face of ageing population.

Goh Meng Seng

Nonsensical Reply from Tharman I

The following is an extract of what was reported on CNA whereby Deputy Prime Minister and Minister of Finance has replied Roy:

Blogger Roy Ngerng, who attended the forum, asked DPM Tharman several questions, including whether Temasek Holdings had managed CPF monies prior to the establishment of GIC and why GIC did not know if it was investing CPF funds. A full of transcript of their exchange follows:

Mr Ngerng: Now that we know that the CPF is invested in the GIC, is it also possible to know what is the interest earned in SG terms since inception? Secondly, Temasek Holdings has said that they do not invest our CPF, is it possible to know if in the past Temasek Holdings had invested our CPF? Because the GIC was only set up in 1981, so prior to 1981, how was the CPF used and otherwise was it invested in Temasek Holdings? Thirdly, how much has the Government earned in absolute monetary terms from the excess returns of the CPF and will the Government consider returning some of them to Singaporeans? Finally, the GIC has said before June this year that they do not know if they invest our CPF because it is not made explicit to them – they said this on the GIC FAQ. But the Government made an about-turn in June this year and admitted that they do. So in the interest of public interest, is it possibly to know why the Government made an about-turn? It might also be intriguing because the Government is also on the board of the GIC, so it would be insightful to know why. Thank you.

DPM Tharman: I’ll start with Roy Ngerng’s points. First, a few factual matters; you asked some factual questions. Did Temasek manage the CPF funds in the past? No. It has never managed CPF funds. Temasek started off with a set of assets which were transferred by the Government at time of inception. I don’t have the exact figure in my head – but about $400 million dollars worth of assets in the form of a set of companies. It has never received CPF monies to invest.

What was the case in the early days, before we amended the constitution in 1992, is that CPF monies, which were invested in Special Singapore Government Securities (SSGS), could be used by the Government to finance infrastructure - such as road infrastructure, Singapore’s economic infrastructure and social infrastructure. Just like (other) Singapore Government Securities (SGS), the Government was allowed to use borrowings in addition to the revenues it got in its budget, to finance infrastructural investments. That was the old system.

That changed in 1992. Together with Constitutional amendments, we introduced the new Government Securities Act, which disallowed the Government from using borrowings for spending. From then onwards, all borrowings - the SGS, SSGS - have had to be invested.

How are they invested? Prior to the formation of the GIC, it was the MAS (Monetary Authority of Singapore). It was an old-fashioned, central bank investment system. Dr Goh (Keng Swee) changed that, explained why, explained that these are basically longer-term assets, and we should invest them for the longer term. And a significant chunk of reserves that were managed by the MAS were passed back to the Government, which then had the GIC manage them.

So that was the system in the old days; the MAS manages the CPF assets, but after the GIC was set up in the early 1980s, it was essentially the GIC that manages CPF assets - but not as CPF assets. It is managing Government assets: managing all Government assets put together.

Which brings me to the next question about whether GIC knows it is managing CPF assets. GIC knows it is managing Government assets. That is the Government’s mandate for the GIC. The mandate is irrespective of the sources of funds it manages, which comprise the SSGS, the SGS, Government surpluses, the proceeds from land sales - all Government funds.

And the GIC (hence) pays no regard to what the source of funds is. It just has to meet its mandate: to invest for the long term, take risks, in the hope of achieving good long-term returns, significantly about global inflation.

And that is a real strength of our system. The real strength of our system is that besides the CPF, we have unencumbered Government assets – Government assets that don’t have liabilities like the CPF. And the GIC is therefore able to invest, blind to where the funds come from. It’s able to invest the whole pool of funds for the long term. If the GIC was just managing CPF funds as a CPF fund manager, it would be managed quite differently. To provide a guaranteed interest rate of four to five per cent of the Special Account, or 2.5 to 3.5 per cent of the Ordinary Account, capital guaranteed and interest rate guaranteed, it would be a very different fund that it would be managing.

It would be invested largely in bond securities, and earning returns that are very different from what it is able to earn by investing for the long term in higher-risk assets. Plus, it would mean the interest rates that the Government has committed to would be unsustainable, because it is no longer possible to earn these interest rates on a guaranteed basis, using a bond portfolio. It’s very difficult.

So the GIC manages a pool of Government assets, irrespective of sources of the funds. It is the Government that then takes the risk. The Government takes the risk that the performance of the GIC from year to year, sometimes even over five-year periods, may not be adequate for it to meet commitments to the CPF. But the Government balance sheet takes the risk to ensure that we can meet those commitments.

And that’s the strength of the system. The strength of the system is we have assets that exceed our liabilities, that enable us to meet our commitments. And that’s why we’re not just triple-A-rated, but we’re able to provide CPF members with a very fair return on a guaranteed basis.

That’s the system. For the GIC as the manager, it is blind to the sources of funds, because of our strength of having assets significantly in excess of liabilities. GIC managers do not need to know exactly where the funds come from because that’s not part of their mandate. There’s no mystery to that.

Next question had to do with excess returns. The GIC publishes five-year, 10-year, 20-year returns. You can look at the returns, and they are easily computed into Singapore dollars. Over the last five years it earned 0.5 per cent in Singapore dollar terms, over the last 10 years it earned five per cent in Singapore dollar terms, over the last 20 years it earned five per cent in Singapore dollar terms. So those are the facts, but that’s not returns gained from investing CPF monies. That’s returns gained from investing all Government assets including the unencumbered assets; it’s returns gained from investing in higher-risk portfolios for the long term. If it was just CPF monies, it will be a different portfolio and a different set of returns. Every serious financial professional knows that.

- CNA/xy

I have to keep this long passage here before it gets amended or deleted. There are a few contradictory and nonsensical points here in Tharman's reply and I expect political parties to point them out in this important National debate over CPF issue.

Tharman has basically contradicted himself a couple of times in this reply as well as obfuscated the primary issue of how our CPF money is managed and who is supposed to be responsible for our CPF money.

He is basically saying, we have your money, put it somewhere call GIC but everybody should pretend it doesn't exist there!

I shall touched on his nonsensical remarks made above but for the mean time, you can try to spot his follies before I write about it in my next article.

Goh Meng Seng

CPF: Can I trust PAP government with my CPF money?

The answer is simply NO.

There are already quite a lot of articles written by bloggers, Facebook users and internet forummers on this CPF issue. We are beginning to converge to agree on a few fundamental points:

1) Nobody in his right mind would have put money into CPF for its promise of "guaranteed" return of a meager 2.5% to 4% when it could just change the rules on when and how much you could draw your own money anyhow they like without consulting us. If CPF is not compulsory, I don't think anyone with a right mind would want to RISK their money like that.

2) Government guarantee doesn't mean RISK FREE. Yes, please get this right. The only reason why government can give guarantee to CPF is because if everything fails, it can just print money to repay us. However, that will create hyper inflation that will practically devalue our CPF money altogether. So it is NEVER risk free even when it is guaranteed.

3) Returns to our CPF are really understated. We could have invested DIRECTLY into GIC or Temasek Holdings to earn higher returns, instead of going through the government which practically end up making use of our CPF as "National Reserves", invest in GIC and make profits out of these investment. In essence, we have been shortchanged in our CPF returns no matter how we look at it. GIC gave much higher annualized returns of  6.5% to 8.8% for their 20 year and 10 year span. Why are we paid only 2.5% and 4% only? This is in fact a very heavy implicit tax applied on our CPF money's potential returns. i.e. more than 50% implicit tax!

All in all, I find PAP government is just paying lip service when they tried to show "how concerned" they are with our ability of financing our retirement. If they really care about our retirement financing, they won't:

1) Increase the HDB prices so recklessly so much so that most of us will not have very much cash left in our CPF account for our retirement. In the end, they just give us a false option of "monetizing HDB for retirement"!

2) Increase our medical cost so much so that we need to put aside a hefty amount aside in Medisave.

3) Giving a flat LOW return on our CPF for decades under the guise of "risk free guarantee return" rhetoric which basically put the growth of our CPF very much at the lowest pace in the developed world, barely above inflation rate or sometimes, even LOWER than inflation rates.

4) When they finally realize that some people will be really short of funds for retirement, they came up with Life Annuity which is basically totally opposite of the CPF's self financing system! Life Annuity is in essence, similar to the "Social Security System" where retirement financing is basically share pooling of risks. Life Annuity is just pushing off risks and responsibility from PAP government's failed management of the CPF system, by shifting the inadequacy of retirement financing to some other "shorter life" Singaporeans. If you look at it from another perspective, it is shifting the risk to the descendants of those "shorter life" Singaporeans, depriving them their rightful inheritance.

Such glaring insincerity on PAP's part in taking care of our retirement financing really makes me think that PAP is only interested in milking our CPF as CHEAP funds for them to invest and earn profits/taxes. In places like Hong Kong, MPF contributors will invest DIRECTLY their retirement funds into different trust funds with indications of their various risk portfolios. They can choose to invest in different percentages of different risk portfolios. Although their system is not perfect but the fact is, the government cannot mess around with their retirement funds directly! But it seems that CPF has become a piggy bank that gives PAP very cheap funds to play around with!

My distrust of PAP government further enhanced when they started to play the game of Taichi. They started to claim GIC and Temasek Holdings don't manage our CPF funds, throw smoke bombs about GIC etc.

In GIC's website, it tries to throw smoke bomb and demonstrate IGNORANCE that it is managing our CPF money. GIC is basically trying to obfuscate the fact that it is managing our CPF money by saying:

Does GIC invest CPF monies?

The short answer is that GIC manages the Government’s reserves, but as to how the funds from CPF monies flow into reserves which could then be managed by either MAS, GIC or Temasek, this is not made explicit to us. What we do know from public sources: Singaporeans’ CPF funds are invested in bonds called Special Singapore Government Securities (SSGS) which are fully guaranteed by the Government. These are non-marketable floating rate bonds issued specifically to the CPF Board. These bonds earn for the CPF Board a coupon rate that is pegged to CPF interest rates that members receive. Under the Protection of Reserves Framework in the Singapore Constitution of the Republic of Singapore, the Singapore Government cannot spend any monies raised from Government borrowings. All the proceeds from the Government’s borrowing are therefore invested.

But on the other hand, Ministry of Finance made a reply to ST's enquiry by stating that our CPF money is basically put into GIC and it manages our CPF! Now trust can only be earned by being open, accountable, transparent and most importantly, forthright with simple answers to simple questions. But GIC is basically not telling the truth! And it is totally IMPOSSIBLE for GIC NOT to know the truth because it has BOTH the Prime Minister and Finance Minister on its Board of Directors! How could GIC ever claim IGNORANCE of such arrangement? You mean the Prime Minister and Finance Minister are totally in the dark of such things? That will really worry me! The Finance Minister runs the Ministry of Finance and technically speaking, he is the sole shareholder of GIC!

This is what is written in MOF website:

When government securities are issued, the proceeds are first deposited with MAS as government deposits. MAS converts these funds into foreign assets through the foreign exchange market. However, as a major portion of these assets are of a long-term nature, such as those that provide backing for long-term Government liabilities like SSGS, such assets are transferred to GIC to be managed over a long investment horizon.

Why would GIC want to hide such simple fact? There is only one conclusion I have after looking at the whole thing. PAP doesn't want us to make any direct comparisons to the meager CPF returns they are giving us (2.5% & 4%) with the very much higher annualized returns of 6.5% and 8.8% for 20 years and 10 years respectively!

So, you tell me, how can I place any trust on PAP to take good care of my CPF money? They have used all sorts of method to hide the fact that our CPF money could well get much higher returns than what they are offering!

Why can't we invest our CPF money DIRECTLY into GIC or Temasek Holdings by choosing the risk portfolio according to what we desire? They have even claimed that Temasek Holdings have an impressive 16% annualized return, for goodness sake!

I have totally lost trust in PAP government in the way they manipulated us and our CPF money. High HDB prices basically transferred our CPF money through HDB to SLA so that it is kept away in the already bloated National Reserves (my conservative estimate is over S$1 Trillion).

And they are not interested to help us grow our retirement fund but only interested to make us left with little for our next generation to inherit. i.e.they have coined the idea of "monetizing HDB for retirement" and Compulsory Life Annuity! They are only interested to drag on the withdrawal time and amount of your CPF money and they could continue to enjoy the cheap funds they can take from your CPF! Never mind if you are dead sick when you reach 55 years old or if your health can't last much longer after that.

Can I trust PAP government with my CPF money? You bet, NO!

Goh Meng Seng

After note: It is totally absurd for PAP to show no trust in our ability to take care of our own CPF money after 55 years old, bring up some minority issue of people squandering off their CPF money. But how could that be? We are the owner of our CPF money and IT IS UP TO US to show TRUST or DISTRUST of who handles our money, not the other way round!

Proposed Structure for GIC and Temasek - Eric Tan

In opposition field,  there are not many people who are well verse in economics as well as banking and finance theories. Even fewer are well verse in the issue of good practices in corporate governance.

Former WP CEC member, Mr Eric Tan, who stood in East Coast GRC in GE2011 is one of the rare gem. Although I have known Eric for almost a decade, but I have never really seen his real strength until I read his following article. I only knew Eric as a banker, a well respected banker in his field. He was not exactly a ground person when I first know him but he has put in his very best effort in the run up to GE2006 in doing his ground work in East Coast GRC. 

He has evolved since then and he led his East Coast Team to achieve a respectable result in GE2011. It is really unfortunate that Eric was not granted by his party to take on the NCMP position. Although Gerald Giam is younger than Eric but age also comes with more experiences. This is especially so when it is apparent that Eric has the important knowledge of economics and finance which will fill the important gap which other opposition members could not cope with. With all due respect, Gerald Giam lacks the depth in both economics and finance. Even though Chen Show Mao is reportedly an Economics graduate but so far, we have not heard anything substantial from him on economic issues. 

I met Eric recently to chat about current affairs and politics. We happened to touch on the topic of good governance and management of our country's reserves. He told me that he has written an article way back in 2008/9 on how our country's reserves should be managed, right after the Minibond saga and the financial turmoil in which, GIC and Temasek Holdings have suffered hefty losses back then.  Unfortunately, Workers Party CEC didn't approve his article for publishing in their newspaper, Hammer. He told me the gist of his article and I got more interested in his perspective. I have asked him to send me the whole article and after reading it, I find it worthwhile to seek his permission to publish his article on my blog. 

I may not agree 100% of his view here (eg. I advocate Temasek Holdings to diminish its dominance in Singapore economy by retreating from domestic investments because this constitutes a serious conflict of interests between Government and itself) but I feel that it would be a good start for public discourse on how our country's reserves should be managed in a more accountable and transparent way. 

Here is his whole article:

EXECUTIVE SUMMARY

Temasek has disclosed S$58 billion losses in their portfolio and GIC is rumoured to have lost US$ 50 billion. How can we improve the system to manage the funds better?

This paper discusses the events which have led us to the current situation and proposes changes to the system for the better.

I propose major changes to improve the system by making it more transparent and there must be public disclosures on the size and performance of the funds. Firstly the government must be transparent about governance structure and reporting lines for accountability. They must disclose clearly about who proposes the investments, who makes the investment decisions, which government entities are the ultimate owners of the funds and what the organisational structure is. Secondly there must be transparency on the investment objectives such as the purpose of the investment, the time horizon, what are the rules governing allocations or withdrawals from the funds. Thirdly there must be transparency on the investment strategy including how the investments are split between asset classes, the size of the funds and returns. I believe that transparency is a very forceful disciplining mechanism to ensure accountability. The loss and returns of this fund should be public knowledge. Since, if the managers of the funds do a bad job then the public can relate to it. It is good for any business to be transparent and this principle should extend to the managers of our reserves.

Finally, I propose that how we use the returns from the funds must be debated in Parliament during the budget debates. This is a major departure from the current situation where the public is kept in the dark about the size of the reserves and the returns generated from it. If the public is no longer in the dark, there will be more scrutiny on the amount and the uses of public funds. No one actually knows how much we have in our reserves, but some analyst estimate it at $ 500 billion. If this is the case, than our reserves should generate returns which will cover most of the country’s budget expenses. For example, following the average historical return of 11.9% per annum, as disclosed by Temasek and GIC we would have S$59 billion worth of returns. Such an amount can cover most of the 2009 estimated budget. Imagine no GST, free medical and school fees, cheaper utilities and lower public transportation fares.            

DISCUSSION

The headlines reported that Temasek lost S$58 billion and GIC is rumoured to have lost US$50 billion. The government for the first time draws S$4.9 billion from the reserves. We are currently in an awkward situation where we need to draw from the reserves at a time when our reserves are down in value. Such a measure alone is cause of serious debate and questioning about how Singapore handles our reserves.

The first question is how we ended up in this predicament. We do not actually know how we did, due to the general lack of accountability and transparency in our government when it comes to our reserves

.

At the end of the day, the government is accountable to us and Temasek to them, which makes Temasek indirectly accountable to us. Yet, we do not know who in the government Temasek is accountable to?  Are they accountable to the Civil Service or to a political appointee such as the Minister of Finance?

In GIC‘s case there is transparency on their reporting lines to the government. However it does not clearly define who in the Cabinet is responsible for GIC. They mentioned in their website that the Ministry of Finance represents the government in dealing with GIC and it sets out the investment parameters. It goes further to say the government neither directs nor interferes in the company’s investment decision. Where is the ownership?

GIC disclose the long term return achieved by the fund but does not disclose the size of their funds even though it is owned by the people. The reasons given were to prevent speculators from attacking the Sing Dollar in case they know the size of the fund. The Chairman mentioned in an interview with the Asian Wall Street Journal that if the people knew how much money they have then they will apply pressure on the government to spend it.

The closest we came to some accountability from an elected leader was the disclosure of the Temasek loss from a Senior Minister of State. However there was no apology or recognition of a mistake. There was no discussion of any corrective action or an action plan going forward. We often hear from the government that Temasek is a private company and they are not involved in the investment decisions. Is this acceptable?

The government’s defence is that while Temasek’s portfolio was down 31%, it does not compare badly with MSCI World Index which was down 40%. Is that explanation good enough for us? Is that index a fair or accurate comparison?

What does a loss of S$58 billion means to Singaporeans? It means no GST for 9 years, no need to collect personal income tax for 10 years, no need for students to pay school or university or poly fees for 1,300 years.

 

I do not propose a witch hunt looking for who is responsible for the losses. But can we learn from this experience to prevent it from happening again?

The first task in our quest for a better system is to clearly define who in the government is in charge and accountable for the performance of the reserves.

The next thing to do is to define the risk profile of the investments. Should the Ministry of Finance propose to Parliament and debate the proposal?  In this way it is transparent to the public and the public can give their comments.

I believe the best solution to prevent this situation from happening again is more openness and transparency. Lack of transparency was the root cause of our problem.

PROPOSAL

Temasek and GIC roles

In the past the roles of GIC and Temasek were clear. GIC invested our reserves outside Singapore for financial returns and perform a quasi central bank function in aiding MAS to defend the Sing Dollar when necessary.  Temasek was a holding company for share ownership in GLCs. They are not involved in the running of the companies and they also do not actively trade in the shares of these companies.GIC only invest in assets or companies outside of Singapore.Temasek invest mostly in Singapore with the rare exception of investing abroad only in support of the local companies or GLCs in their overseas ventures.

Seven years ago Temasek made a structural change in their corporate mission. In addition to their holding company function, they set up a fund management arm to actively manage the portfolio. In short they have transformed themselves into an asset management company like a hedge or mutual fund. They employed investment bankers and raised funds in the market through a bond issue. They also issued an annual report. They invested in several high profile deals and is perceived in the market as a significant participant in the global capital markets.

The difference between GIC and Temasek became less apparent after Temasek’s transformation. One view is that GIC takes long term structural positions while Temasek capitalise on shorter term opportunities and will trade the portfolio for financial gains whenever the opportunity arises.

Break up the funds into three tranches

I propose to break up the Temasek funds into holding company type ownership and mutual fund type investments. The holding company ownership type is defined as shares held in companies for historical or strategic reasons where Temasek does not actively trade the shares for investment gains. These include our ownership in all the GLCs in Singapore such as the likes of SIA, DBS, Singtel, SP Power, Capital Land, Keppel Corporation etc. The other tranche covers all the recent investments which are non strategic to Singapore. In this manner we separate the companies which Temasek had started years ago for strategic or national purposes from those which were invested for financial gains. We can assess the performance of Temasek as a fund manager more clearly as they would not enjoy the benefit of investment decisions made long before the transformation of Temasek. Also for the holding company function, divestment or investment decisions should be made by the respective Ministries they fall under. This can be done in consultation with the Cabinet. For example decisions to divest or invest in more shares in Keppel Corp should be initiated by MTI and likewise for ST Engineering it should be initiated by Mindef. We can then have clear goals and measures for the mutual fund or fund management performance of Temasek.

For GIC we should separate the Central Bank function of defending the Sing Dollar from their fund management function of generating long returns for the country. Since they are performing a Central Bank function the size of the fund they have should be secret. In fact they have mentioned several times that due to their Central Bank function they cannot be transparent.

I propose we decide how much of the GIC funds are needed to defend the Sing Dollar currency and roll it into the MAS. This tranche should be invested in AAA securities with the objective of preserving capital to be deployed to defend our currency. They therefore need not be transparent as the asset class which they are invested in is low risk.

We then separate the remainder of GIC funds for investment purposes with the objective to maximise returns. This tranche can be transparent as it is not used for Central Bank purposes. In fact they should be transparent as they will be assuming more risks to maximise returns.

I propose combine the two tranches of Temasek and GIC funds which are meant for investing for financial gains into one major fund with a clear objective of maximising profits. This fund must be transparent as they are set up purely for financial gains. The transparency will act as a check to the fund managers in the risks they undertake for the fund. Transparency also implies accountability as the public has taken ownership in defining the parameters.

Let us call this fund The WP Fund.

The WP Fund

The Fund must only invest outside Singapore for diversification purposes and also we separated the ownership of the GLCs into a separate fund which has different investment objectives where financial returns are secondary.

The Fund reports to the Ministry of Finance and the Minister of Finance must be the Chairman of the Board for direct accountability purposes. The Minister must decide and disclose the governance structure such as who is making investment decisions and what the Board must do. The Minister is responsible to ensure that the fund operates within the investment parameters approved by Parliament and for its performance. For major issues or investment decisions we leave it to his judgement whether he should discuss with the Cabinet only or consult Parliament. The Minister of Finance is directly accountable to the Prime Minister. 

The Ministry of Finance proposes the investment guidelines, risk parameters and strategy annually to Parliament. The risk parameters can be for example the composition between equities and bonds. These guidelines must be tabled and debated in Parliament and approved by Parliament. This can be part of the Budget Debate or tabled separately.

For example, in the case of the Norwegian Government Pension Fund, it began with the investment guideline of 40% equities and 60 % bonds but later they went to their Parliament to amend it to 60 % equities and 40 % bonds. The decision was fully debated in public.

The Ministry of Finance within the investment guidelines sets the benchmarks used to assess the performance of the Fund. Actual performance is measured against these benchmarks and performance differences are explained in the Fund’s reports. The frequency of such reports to the MoF can be determined by the Minister of Finance. However the Fund must issue quarterly reports to the public.

The CEO of the Fund must be a Singaporean but the other senior members of the management can be foreigners. The CEO must reflect the values and aspirations of our country and hence he or she must be a Singaporean. A Singaporean must take ownership of the funds but we can draw expertise from the world

The Auditor General must audit the accounts of the Fund to determine the performance as a check and balance .The AG can work with independent international institutions such as global custodian banks to assess the performance of the Fund. The Auditor General with respect to this function must report to the President and CPA for accountability purposes.

Finally Parliament will debate and decide on the use of the annual returns from the Fund as proposed by the Minister of Finance as part of the Budget. The MoF can determine how much of the returns they intend to use for the budget while the rest can be reinvested in the Fund. The PM in consultation with the Minister of Finance need to seek the President’s approval if the government intends to draw from the principal amount of the Fund. The Fund will continue to receive capital injections from our current account and budget surpluses and national savings as they do today. 

Suggested Investment Guidelines

We should study the Norwegian Government Pension Fund model for investment guidelines and operational functions. Some suggested guidelines based on this model are as follows:

Equity portion: 40 %

Bonds portion: 45%

Direct Real Estate portion: 10%

Private Equity portion: 5%

Maximum ownership in any one company: 3%

The Norwegian Government Pension Fund does not take strategic stakes or large direct equity stakes in foreign companies as if these companies are confronted with financial difficulties the Norwegian government may come under pressure to find solutions to their problems.

No leveraging through borrowings

No derivatives.

CONLUSION

We are aware that with more transparency there will be less flexibility for the fund to invest in close end deals but the benefits in terms of public scrutiny out weights this disadvantage.

I took in most of the existing GIC governance model which had worked well in the past. However I added the crucial elements of personal accountability from the Minister of Finance and public disclosures of the performance of the fund.

I may not have all the answers to the problem but I hope this proposal will give us the framework for a solution. I am open to any suggested changes which make sense.   

 

FREQUENTLY RAISED ISSUES AND RESPONSES

I: If we have a foreigner as the CEO then governments of countries which we wish to invest in will be more open to our investments as they may not view us as a sovereign fund.

R: This is not quite correct as the governments can see through that the foreign CEO will not totally be in charge as he is an outsider. In fact they take a negative view as they may perceive Temasek’s foreigner CEO as window dressing.

I: If we only kept our reserves in safe asset classes like cash and bonds then we cannot generate the returns which our reserves had enjoyed to date.

R: That remark is not quite correct as it assumes that the riskier assets certainly always generate better returns than cash or bonds all the time. It also gives the impression that you are not aware of the risk you are undertaking. The market conditions today reflect the high risks one undertakes when one invests in equities.

I: On many occasions, people who have been entrusted with funds belonging to other people, delegate their responsibility to fund managers with the misguided impression that they can rely on the expertise of fund managers.

R: The buck stops with the person whom the owners of funds have entrusted. When she decides not to invest the funds in bank deposits she becomes a fund manager. Fund managers are like tools she can use to achieve his investment objectives. They provide advice and offer their skills but the person entrusted has to decide on the investment strategy and asset classes. The fund managers often times look after their own interests first and their agenda is not aligned with the owners of the funds as evidenced so clearly in the financial markets today.

I: Some citizens have the mistaken notion that these funds are not theirs but belong to the government. Their view is that though the people provided the seed capital many years ago the government grew the funds and therefore the profits are theirs not the people. .

R: This is wrong as the government is the people and the money belongs to us the citizens. Some citizens feel this way because they do not see any direct benefits from these funds. Let me correct that misguided thinking to show how we can directly benefit from these funds. The total size of both funds is not known as GIC does not disclose the size of their fund. However international analyst estimated the combined funds to be around S$450 billion. GIC disclosed that they achieved 5.8% over a twenty year period and Temasek disclosed that their total shareholder return is 18% over a thirty year period. If we take the average return on both funds as 11.9% then the dollar value return on our funds is estimated to be S$53.6 billion which is close to the total government revenues in the 2009 Budget. This means we can have cheaper public transport, no need for GST, free medical care and educational fees etc…

I: When faced with losses in GIC and Temasek, we are told that they take a long term time horizon in their investments and eventually the funds will show profits.

R: “In the long run we are all dead” says Keynes the great economist. If that was the case then we do not need to employ highly paid talent to manage the funds. In the long run any one can make money. It requires great skills to determine the timing of the markets, you need to have the instincts as well intellectual capacity to digest all the information and make the investment decision. You need to know when to convert all into cash or to cut loss.

Eric Tan Heng Chong