Sunday, 7 August 2011

Debt ceiling for GIC and Temasek before the Perfect Storm

Yes. Why not, the Americans do it, why can’t we follow them by limiting the borrowings of GIC and Temasek from Singaporeans via the government?  The continued unsatisfactory explanation of the investments by GIC and Temasek worries CPF members and it is always an unsolved problem.

Like the case of Dr Tony Tan, the more he and his son do not explain the NS issue satisfactorily, the more Singaporeans will get confuse and doubt about his integrity. The main stream media has now shifted the focus to economics in the name of Perfect Storm.

Supposing Tony is elected as the new President by 27 August 2011, and he has the knowledge of the problems or troubles (Perfect Storm) in the GIC and Temasek, will he stop the automatic fund transfer from the government to these two companies?

GIC and Temasek are in debts to Singaporeans

The Singapore Government Borrowings prepared by the Accountant-General’s Department in July 2011 reported:

Domestic debts from CPF members
[The Singapore Government does not have any external debt.  Two types of domestic debt securities are issued for reasons unrelated to the Government’s fiscal  needs: (1)  Singapore  Government  Securities are issued to develop the domestic debt market;  (2) Special Singapore  Government  Securities are nontradable  bonds issued specifically  to meet the  investment  needs  of the Central
Provident Fund (CPF), Singapore’s national pension fund. ]

And invested in GIC and Temasek
[Proceeds from the Singapore Government’s borrowing are invested.  The Government’s assets include investments in the Government of Singapore Investment Corporation and the Temasek Holdings.]

We do not have external debts but domestic debts in the form of government borrowings from CPF Board. And the money borrowed is invested in GIC and Temasek.

Simple and straight forward supply chain of money

Whenever CPF Board has extra funding, the government will issue SSGS and ‘takes” away the money. This new fund will then invest in GIC and Temasek. The simple relationship is that the government owes CPF Board money (in the form of SSGS), GIC and Temasek (in the form of shareholder equity) owe the government directly and owe CPF Board indirectly.  

I am not expertise in accounting, but the following is taken from Temasek Review 2011:

Temasek shareholder equity as at 31 Mar (in S$ million)

(Temasek Review 2011)

From S$64.55 billion in 2004, the shareholder equity of Temasek increased to S$ 155.48 billion in 2011, nearly S$90 billion in less than 8 years.

According to the report on Singapore Government Borrowings, I suppose this increase is supported by the issuance of SSGS.  The government’s investment in Temasek is in the name of shareholder equity.

Positive returns from GIC and Temasek

We always have doubts about the transparency of GIC and Temasek.  However, both always report profit and positive returns, for example, 

<The Government of Singapore Investment Corporation Pte Ltd (GIC) has released its annual report on its management of the Singapore government's portfolio for the financial year ended 31 March 2011.
The report presents the performance of the funds under GICs management. At year end March 2011, the 20-year annualised real rate of return, in excess of global inflation, was 3.9%. > (GIC)

<For the financial year ended 31 March 2011, our one-year Total Shareholder Return was 4.60%.
Total Shareholder Return (TSR) is the compounded annual return by market value over a specified number of years.
Our five-year and 10-year TSRs were 7% and 9% respectively, while our 20-year and 30-year TSRs were stable at 15% and 14% respectively. TSR since inception remained a healthy 17%.> (Temasek Review 2011)

Ponzi scheme and the nedd of Debt ceiling

However, one can also suspect that it may be a Ponzi scheme that GIC and Temesak need to top up for repayment of previous debts to Singapore government.  Of course, as shareholder equity, there is no need to pay back the money but the government will need money to service the interest payment and the maturity of SSGS.

If GIC and Temsaek can’t pay, never mind, the government can issue more SGS and SSGS to continue to draw money from CPF Board or even the reserve (?). This will work out something like the USA, increased the debt ceiling to borrow more money to service the existing debts.

But we do not have debt ceiling here. Rather, there is an automatic transfer of fund from CPF Board to the government and then to GIC and Temasek.  If President Obama has our system, he will not have to give face to the Republicans and needs to negotiate for a higher debt ceiling.

If the USA is a company, President Obama may have to go to jail for committing a Ponzi scheme. He is borrowing future money to pay current debts.   
Domestic debts 100% financed by Singaporeans

We are not that lucky like the Americans.  They have external debts that the risk of the debts is shared by China, Japan and international banks etc.  Since Singapore has only domestic debts and so the risk and burden is on Singaporeans, CPF Board and our reserve.   

But the President is powerless. Before bringing up such a funny or revolution idea, we better seek the clarification of the Law Minister K Shanmugam.

No authority and unconstitutional

“He said on Friday that the process of direct elections does not change the scope of the Elected President's powers as set out in the Constitution.

And the Constitution states that the President can speak on issues only as authorised by the Cabinet, he said at a Institute of Policy Studies forum.

"If a head of state challenges the Government, he will be acting unconstitutionally," Mr Shanmugam added.” (ST, 6 Aug)

So, according to the government, whoever is the new President, the new President will have no power and no authority to set a debt ceiling for GIC and Temasek.

So sad, further discussion on this matter is a waster of time even we know there may be a Perfect Storm ahead. 


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