GOVERNMENT PLAYS SANTA CLAUS TO SINGAPORE BUSINESS CLASS

Singapore's open door immigration policy for foreign workers keeps a downward pressure on wages. The open arms policy for the rich and business class which generated massive wealth inflow, keeps an upward pressure on high end products and services, particularly housing, which has a multiplier effect on all general price levels. The middle class is crushed like an empty Coke can.

The government is loud in its financial packages to help the lower income group, but does not holler out publicly of its massive spending in grants to the rich business class. 

The business class is pampered to the brim by the government with grants like manna from the sky. This blog looks at some of the grants the government is dishing out to the business class. It looks like Ah Kong’s money supply is endless with no balance sheet to show. By the time you get to the 10th item in the list below, your patience is tested. And that’s exactly, the point. There are simply way too many grants being dished out.

The featured image above says it all. Government freebies have become products unto itself, to be purveyed in the market.

Of course there are lots of requirements to be satisfied – qualifying applicants, costs and projects. For individuals, a few grants are restricted to Singapore citizens (SC), majority are for SC & PR, and there are some that are for everyone including foreigners. For legal entities, majority are for ACRA-registered companies with 30% Singaporean shareholdings, some are for all entities resident in Singapore (local branches of foreign companies). Direct benefits appear to skew more to foreigners.

Some of the support schemes carry a notification - “Due to a large number of grant applications submitted, you may encounter a longer processing time than usual.” They are flowing like hot cakes, as most freebies do.

Make no mistake. The government is dead serious in the schemes they promote. Some of these schemes are very big ticket items running into millions per application. Example in 2020 EMA awarded Senoko Energy Pte Ltd, Tuas Power Generation Pte Ltd and YTL PowerSeraya Pte Ltd with a total of $23 million to embark on energy efficiency projects.

Bottom line is all these awards are geared towards the attainment of government social-economic policy goals, primarily in environmental sustainability and digitilisation. Sometimes I wonder, does it matter if the hawker vendors have an e-payment system or not. So when Singaporeans take in the accolades of being top in this and that, just be balanced and understand the costs of such accomplishments at taxpayers expense. Are  they jacking up GST to help pay for all these? 

With all these freebies in place, boy oh boy, wouldn't you want to be one of the accredited product and service vendors. And when Ah Kong is picking up a big chunk of the tab, who cares about the price. Wink-wink. I wonder what sort of pricing control is in place.

Below is a list of grants available. They are certainly not exclusive. Other freebies and partial freebies omitted here such as the vast array of educational scholarships and bursaries, and special loan packages. . .

AF (Accessibility Fund)
Agency : BCA
For building owners to upgrade their existing buildings with essential accessibility and Universal Design features. (a) For private buildings built before the implementation of Code on Barrier-free Accessibility in Buildings 1990 that do not have Basic Accessibility features (Ramps, accessible toilets; signage. lifts compliant with SS 550, accessible car park lots:):
* Gov co-pay up to 80% of the construction cost
* Up to S$200,000 each for lift
(b) For private buildings built before the implementation of Code on Accessibility in the Built Environment 2013 that have Accessibility features (Grab bars, Child-friendly WC/urinal/wash basin; Lactation room, Diaper-changing room, Hearing enhancement systems, Braille and tactile features; and Family car park lot)
* Up to 60% of construction costs.

Low-GWP Refrigerant Chillers
Agency : BCA
To encourage owners and operators of existing buildings to adopt water-cooled chillers using refrigerants with low GWP early, before the ban on sales of water-cooled chillers using high-GWP hydrofluorocarbons (HFC) refrigerants takes effect in 2022.
Scheme has expired.
Note - This is a big ticket item. Considering the number of buildings there are, the total sums expended could be billions?

PIP (Productivity Innovation Project)
Abency : BCA
For construction-related companies registered and located in Singapore to encourage technology adoption and innovations that improve productivity at construction sites.
Up to 70% of costs. These are big ticket projects that run into tens of millions.

ACT (Agri-Food Cluster Transformation Fund)
Agency : SFA
Supports the transformation of the agri-food sector into one that is (a) highly productive, (b) climate-resilient and (c) resource-efficient. The ACT Fund comprises three co-funding components for local farms to build and expand their production capacities and capabilities:
* Capability Upgrading
* Innovation and Test-bedding
* Technology Upscaling
The ACT Fund is available for applications until 31 December 2025.
N0t clear on funding sum. Some projects receive 30% cash advancement.

Citrep+
Agency : IMDA
Build ICT technical skills for employees in areas such as cyber security, data analytics, network and infrastructure and software development.
Funding support of up to 90%.

CLT (Company-Led Training Programme)
Agency : IMDA
To accelerate the professional development of tertiary graduates and mid-career professionals including mature PMETs, through an on-the-job training programme. 
To enable local professionals to stay employed while being reskilled or upskilled via the CLT.
Funding to support companies in hiring and training.

HGD (Hawkers Go Digital)
Agency : IMDA
For stallholders in hawker centres, wet markets, coffee shops and industrial canteen to encourage adoption of e-payments.
Bonus of $300 per month over 5 months

 
ISET (Innovative Smart Estate Trial Solutions)
Agency : IMDA
To encourage partnerships among Singapore-based technology companies, building developers and facility management companies to develop and trial innovative solutions in areas of enhancing smart environment, experiences and living.
Up to 50% of project costs

SDP (Start Digital Packs)
Agency : IMDA & ESG
Support more SMEs to go digital in building their foundational digital capabilities with easy-to-deploy solutions.
Receive minimum 6 months waiver of solution providers’ fees

DGI (Grow Digital Initiaive)
Agency : IMDA + ESG
Participate in Business-to-Business (B2B) and Business-to-Consumer (B2C) e-commerce platforms to sell overseas
Up to 70% funding to participate in the platforms

CRT (Power Systems Competitive Research and Test-bedding Funding)
Agency : EMA
EMA rolls out competitive grant calls to catalyse applied research and development (R&D) of innovative technologies and solutions.
Over the past few years, EMA has awarded over $100 million in grants, benefitting over 60 companies and 20 Institutes of Higher Learning/Research Institutes.
Latest – 2023 to develop and testbed innovative Energy Storage Systems (ESS) solutions. Another few millions up for grabs.

DII (Digital Integration Incentive)
Agency : IRAS
For software developer partners to integrate IRAS APIs in their solutions. Scheme ends 31 Dec 2024.
Up to $30,000

PWC (Progressive Wage Credit Scheme)
Agency : IRAS
Very complicated. Basically, under the Progressive Wage and Local Qualifying Salary requirements, companies need to make mandatory wage increases for lower-wage workers. Companies can also voluntarily increase other low wage workers.
Government will help pay for the salary increases for those in S$2,500 and S$3,000 group up to 2026.

SSGF (Startup SG Founder) programme:
Agency : ESG
Encourages and supports aspiring first-time entrepreneurs to start their own innovative businesses, by providing mentorship and financial support.
Capital put up by applicant must be at least S$20,000
Grant S$50,000

ESG (Enterprise Development Grant)

Agency : ESG
For all legal entities. Supports companies with projects that help upgrade, innovate, grow and transform their business.
Up to 50% of eligible costs for local SMEs (sustainability-related projects may be supported at up to 70% from 1 April 2023 to 31 March 2026).

Very broad based scheme.

LEAD (Local Enterprise and Association Development)
Agency : ESG
For trade associations and chambers that aim to drive capability development and internationalisation projects for SMEs. Means help these associations to help other companies.
Up to 70% of eligible costs

MRA ( Market Readiness Assistance)
Agency : ESG
Helps companies expand into new markets overseas by defraying the costs of overseas market promotion, business development and set-up.
Up to 50% of eligible costs , capped at S$100,000 per company per new market

3RF (3R Fund) NEA
To encourage organisations to reduce waste disposed of at NEA's incineration plants and disposal facilities through the implementation of waste minimisation and recycling projects.
Up to 80 per cent of qualifying costs, caped at $1 million per project or per applicant.

E2F (Energy Efficiency Grant)
Agency: NEA
To help manufacturing SMEs to adopt pre-approved energy efficient equipment in the following categories: LED lighting, air-conditioners, cooking hobs, refrigerators, water heaters and clothes dryers.
Up to 70%

HDG (Healthier Dining Grant)
Agency : HPB
Help Healthier Dining Programme Partners to publicise their healthier menu options either online or offline.
NETS gives $3 cash bonus for every 10 NETS transactions to all hawkers as well as canteens, coffee shops, food courts, and eating houses when they accept NETS payments until 31 July 2021

HDI (Healthier Dining Innovation Grant)
Agency : HPB
HDI is a funding scheme of up to $5,000 for F&B operators to take their first step towards capability upgrading in 4 areas: R&D, Purchase of Healthier Ingredients, Culinary Training, and Recipe Reformulation.
Up to S$5,000

HIPS (Healthier Ingredient Promotion Scheme)
Agency : HPB
A Go-To-Market grant that incentivises food ingredient manufacturers/suppliers to promote the adoption of healthier ingredients, among F&B businesses and consumers.
Up to 80% qualifying project costs, cap at $300,000.

BES (Business Events in Singapore)
Agency : TPB
For MICE  businesses. To encourage the business events industry to anchor and grow quality events as well as catalyse the innovation of new content.
Grant amount unknown

BIF (Business Improvement Fund)
Agency : TPB
To encourage technology innovation and adoption, redesign of business model and processes in the tourism sector to improve productivity, sustainability initiatives, and competitiveness.
Grant amount unknown

CDF (Cruise Development Fund)
Agency : TPB
Supports cruise industry players in activities that will build strong consumer demand for cruises from Singapore.
Grant amount unknown

ESF (Experience Step-Up Fund)
Agency : TPB
For all legal entities. Supports development and enhancement of Singapore’s tourism experiences that increase the attractiveness of Singapore to visitors.
Grant amount unknown

KF (Kickstart Fund)
Agency : TPB
For all legal entities. Supports the creation and test-bedding of innovative consumer-focused concepts and events with strong tourism potential and scalability. This is with the aim of adding to the existing quality tourism software and enhancing the vibrancy of Singapore as a tourist destination.
Grant amount unknown

TPD (Tourism Product Development Fund)
Agency : TPB
For all legal entities. Supports the creation, development of new tourism products and/or major rejuvenation of existing tourism products to increase Singapore destination attractiveness to visitors.
Grant amount unknown

TIPT (Training Industry Professionals in Tourism)
Agency : TPB
For all legal entities. Supports tourism companies in employee upgrading and leadership development, including training in sustainability-related areas.
Grant amount unknown

LEF (Leisure Events Fund)
Agency : TPB
For all businesses. Supports the launch and development of world-class, differentiated, and celebrated leisure event experiences in Singapore so as to deliver key tourism outcomes and to contribute towards the agenda of establishing Singapore into one of the world’s most vibrant cities.

OMNI (Operations Management Innovation Programme)
Agency : SIMTech)
The programme aims to train key personnel such as engineers, managers and senior staff of companies to be technology innovators to achieve manufacturing excellence.
Up to 90% course fee

OTR (Operation & Technology Roadmap)
Agency : Astar
Development of technology roadmaps to map out priorities that are aligned to businesses’ strategies and developmental plans.
May receive up to 80% funding support.

T-Up (Technology for Enterprise Capability Upgrading)
Agency : Astar & ESG
A*STAR seconds scientists and research engineers to aid local SMEs in Research and Development projects for up to two years.
Up to 70% grant to offset qualifying cost.

PSG (Productivity Solutions Grant)
Agency : MTI
The Productivity Solutions Grant supports businesses in the adoption of pre-scoped IT Solutions and/or Equipment that improve productivity.
Up to 50% funding support for eligible costs

SSG (SkillsFuture) for employers
Agency : MTI & ESG
To support the skills development of the workforce to keep up and advance with the business as it transforms and grows
Up to 70% - 90% of course fees.
Absentee payroll claims (for employees attending courses)

CTE (Career Trial for Employers)
Agency : WSG
Employers that want to be certain of engaging a right employee can put candidates on a Career Trial. Government will pay the worker:
• Training Allowance from $7.50/hour to $15/hour.
• Retention Incentive of $500 at the 3-month retention mark;
• Additional Retention Incentive of $1,000 at the 6-month retention mark for unemployed jobseekers who have been actively looking for jobs for at least 6 months; or for jobseekers who are Persons with Disabilities regardless of unemployment duration.

PTR (New Part-time Re-employment Grant)
Agency : WSG
For employers who offer part-time re-employment, other flexible work arrangements (FWAs) and structured career planning (SCP) to senior workers.
Up to S$125,000 per company.

PSG-JR (Productivity Solutions Grant)
Agency : WSG & SNEF
Support for Job Redesign under Productivity Solutions Grant
Up to 70% funding for consultancy services, capped at $30,000 per enterprise.

WEF (Water Efficiency Fund)
Agency : PUB
Provides funding and technical support to facilitate the execution of approved projects in collaboration with industrial water users. Proects need to reduc consumption by 5-1o%.
Funding – not disclosed.

AFL (Asian Financial Leaders Scheme)
Agency : IBF
The AFLS initiative helps financial institutions defray part of the costs incurred in sending promising C-1/C-2 Singaporean finance professionals on eligible leadership programmes.
Up to 75% of programme fees (exclude airfare, accommodation, absentee payroll and allowances) Capped at S$50,000 per paruicipant.

FAM (Finance Associate Management Scheme)
Agency : IBF
The FAMS helps FIs defray part of the costs incurred in the hiring of Singapore citizen staff who would be trained under their structured management/functional programmes.
* S$1,000 per eligible SC hire per month of programme (capped at 24 months)
* $2,000 per eligible SC hire per month of programme (capped at 24 months) for programmes in some priority areas.
* $5,000 per month for overseas exposure (capped at 6 months).

IPP (International Postings Programme)
Agency : IBF
The iPOST initiative helps FIs defray part of the costs incurred in sending Singapore citizen staff on global and regional attachments or postings.
50% of qualifying costs, cap per SC per year up to 2 years S$80,000 in Asia, S$50,000 in other countries.

FINANCIAL SECTOR TECHNOLOGY & INNOVATION SCHEME
Agency : MAS
The Financial Sector Technology and Innovation scheme provides support for the creation of a vibrant ecosystem for innovation. The FSTI scheme is valid until March 2023
These were very big ticket expenditures.

1. Innovation Centre
The Innovation Centre track seeks to attract financial institutions to set up innovation centres of excellence or labs in Singapore to test-bed innovative ideas and roll out market solutions.
Up to 50% co-funding.

2. Institution-level Projects
The Institution-level Projects track encourages Singapore-based financial institutions to catalyse innovative ideas and market solutions to advance the competitiveness of the financial institution and the sector.
Up to 50% of level of funding support, capped at S$1 million

3. Industry-wide Technological Infrastructure or Utility
The Industry-wide Projects track seeks to build industry-wide technological/ utility infrastructure and/or improve efficiency and boost productivity in the financial services sector.
Up to 70% of level of funding

4. Cybersecurity Capability Grant
The Cybersecurity Capability Grant (CCG) is launched as part of the Financial Sector Technology and Innovation (FSTI) scheme under the Financial Sector Development Fund (FSDF) to deepen cybersecurity capabilities and develop local cybersecurity talent in Singapore’s Financial Services sector.
Up to 50% co-funding of qualifying expenses, cap of $3 million.

5. AIDA (Artificial Intelligence and Data Analytics)
For projects that are focused on AIDA adoption, that is, using AI & DA techniques that achieve business objectives of strategy & decision making with consideration of workforce impact.
Up to 50% co-funding.

6. Proof-of-Concept Grant
The MAS Financial Sector Technology and Innovation (FSTI) Proof of Concept (POC) scheme provides funding support for experimentation, development and dissemination of nascent innovative technologies in the financial services sector.
Up to 70% of qualifying costs and up to a cap of S$400,000

GEMS (GRANT FOR EQUITY MARKET SCHEME)
Agency : MAS
MAS introduced the Grant for Equity Market Singapore (GEMS) scheme to support listings and expand the equity research ecosystem in our public equity market:

1. Listing Grant
Supports potential issuers to list in Singapore by funding part of their listing-related expenses.
For IPO:
* Capitalization above S$1b -- 70% co-funding of eligible expenses, cap of S$2m
* Capitalization below S$1b -- 70% co-funding of eligible expenses, cap of S$1m
Subsequent fund raising:
* Within 6 months -- 70% co-funding of expenses, cap of S$1.5m
* 6 - 2 months -- 70% co-funding of expenses, cap of S$1m
* After12 months -- 70% co-funding of expenses, cap of S$500,000.

2. Research Talent Development Grant
Supports efforts to expand Singapore’s resea
rch coverage of listed companies and develop equity research talent. (SG citizen and PR)
* Fresh grads --70% co-funding of salaries over 2 years, capped at S$4,200 per month.
* Experienced professionals -- 50% co-funding of salaries over, capped at S$6,000 per month (for SG up to 2 years, for PR up to 1 year.
3. The Research Initiatives Grant
Supports initiatives that will catalyse public market activities in Singapore and boost the development of Singapore’s equity research ecosystem.
Grant quantum unknown

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THE PROPENSITY TO CUT DOWN TREES IN THE GARDEN CITY

If the woodchuck could chuck wood, how much wood would the woodchuck chuck?

The hooha over Ministers Shanmugam and Balakrishnam renting palatial government-owned bungalows at 26 and 31 Ridout Road forced the government to conduct a parliamentary session to clarify the matter. One of the many revelation is the ministers do not like trees. How else a conclusion can one make from ‘before and after’ Google map photos. What is one to make of this after all the environmental sustainability and climate change talks? Just another NIMBY (not in my backyard) incident. Vast amount of greenery disappeared just to accommodate 2 ministers. This included, according to ‘ownself-checked-ownself’ report, 21 huge hundred year old heritage trees. Quick to the defence, Minister Edwin Tong explained 19 of trees were dying and diseased and had to be cut down in any case. Coincidence or what? Members of the house had no follow up question why the trees were left to rot for 42 years after British withdrawal in 1971 and gifted all ‘black and white’ bungalows to the government. The competence of Singapore Land Authority to manage heritage sites needs scrutiny, and hello, who’s the boss of the agency, Mr Shan of 26 Ridout Road.

In Feb 2021, online voices were loud about a huge plot of land at Kranji forest being cleared. Unable to sweep the story under the carpet, JTC was forced to respond to the public. Well, what do you know, another coincidence or what? JTC had actually discovered earlier on Jan 13 that contractors had “erroneously” cut the trees down. Had there been no public outcry would JTC have discovered the contractors’ error? Last I heard, contractor Huationg was given a slap on the wrist stern warning.

In early 2021, netizens created an uproar to news of government’s plan to destroy the mature and wild Clementi forest to make way for development of another HDB estate.

Why all this propensity to cut down trees?

Singaporeans are by far unable to exercise critical thinking and connect dots. Perhaps decades of an educational system skewed towards rot text book learning instead of mind development, the culture of a nanny state, and ingrained Confucianist ideals, have something to do with it. That’s a discussion for another day.

I was overseas for many years and returned end 2017. There was one new thing I noticed. On the street where I lived, there was an NEA (National Environment Agency) signboard that exhorted residents to leave tree trimmings outside the house for collection every Wednesday. I was piqued because it is very extremely rare of government to undertake such services free. Then one day I had to do something about a small wild plant outside of the back fence. It had grown entwined into the wire mesh fencing, damaging both the fence and back communal drain. Nearby workers could not be enticed to do some moonlighting. I had to do some exercise myself and cut down the plant with a rudimentary kitchen chopper. Always considerate of others, I had twigs and leaves stashed into 5 garbage bags and branches neatly secured in 5 bundles. These I left at the front of the house. True enough they were gone the next morning.

Over teh tarek one evening with my brother, I brought this up. He told me I had been away too long to notice there has been heightened zealousness of NEA and NPB (National Park Board) to trim trees on public areas. And the reason? They needed fuel for the power plant that cools the man-made inhouse garden of ‘Gardens By The Bay’.

Singapore's Gardens By The Bay

Incredulous. That cannot be true. At least if it’s coal, I can understand. But firewood? I googled and indeed it is true. The power plant uses a Combined Heat Power (CHP) steam turbine, which is fueled by wood and horticultural waste from across Singapore. There is some innovative and complicated engineering system there, designed to attain carbon-neutral electricity at the site. The same system is used for the indoor garden Jewel at Changi Airport. It seems the system has been lauded internationally and several countries have visited to learn if they can adopt the same technique to meet their own needs.

Accolades for Gardens By The Bay for ideas, innovation, and daring to venture. Cost justification wise, I have no comments. I am here just connecting the dots for why the propensity to cut down trees and where all those wood went – to a furnace that requires wood and more wood, in a tiny island which simply has not much supply to satisfy its ferocious appetite. The anomaly of a penchant to cut down trees even as Singapore is an aggressive promoter of environmental sustainability is not lost to the observant.The insatiable need for fuel has made government trigger-happy to cut down trees.

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PAP LEADERSHIP TRANSITION MODEL AND WHY INDRANEE IS FUTURE PRIME MINISTER

The graveyard of corporations that collapsed due to unethical behavior is populated by many whose demise bear two commonalities - (a) there was creative accounting involved, (b) only a handful of insiders knew what was happening. The lesson being exclusive corporate governance and opaqueness has existential risks.

In the case of Barings Plc (1995) only Singapore branch general manager Nick Leeson knew about the unauthorised speculative trades he was conducting. As for Enron (2001) only a few directors and executives knew about the large losses concealed. Recall the Carrian Group (1983) which took the live of Bank Negara Malaysia’s internal auditor in Hongkong, no one knew the small group involved, although Najib was a suspect. As for Bernard L. Madoff Investment Securities (2008) good old Bernie seemed to be the only person in the driver’s seat. The list goes on.

Coming to Singapore Inc, how many people know the state of the national reserves? I think you can count with your fingers. Segregated responsibilities mean almost all functionaries have no idea of the big picture. Only a cloistered few are privy to state financial secrets. The stage is set for financial disaster when mistakes or losses are covered up, creating further mistakes and losses in a plunge down the rabbit hole, or when rogue elements control this inner circle. The men in whites believe in PAP moral determinism. As long as they are in government, there will be no financial indiscretion. But a fluke election might see an opposition in power. It is for this reason that first generation leaders revised the Constitution for an elected president to hold the second key to past reserves.

With election round the corner, many good folks have expressed opinions of how an upright and independent president can better protect national reserves and help set the moral compass for the government. To them, I have two words -’dream on’. The scope of the function of president is restricted to a ceremonial role. The president has absolutely no business with the acts of the Executive except for passing Spending Bills. That is the only time when the president can ensure expenditure does not dip into past reserves. Even then, it is one thing to look at budgets, and another thing when it comes to actual cashflows which has nothing to do with the president. Does President Halimah know where the S$25b to recapitalise MAS came from? It's not a spending, so Halimah heard about this only from the news like everyone else.  And should a president go kamikaze against government policies, Devan Nair and Ong Teng Cheong may have advice for him/her in their dreams.

It was no surprise Heng Swee Kiat was earmarked to take over the reigns from PM Lee Hsien Loong. When Heng’s ‘East Coast Plan’ evaporated and he had to recuse himself for health reasons, the selection process ensued. In many online discussions on leadership transition, in the guessing game, my money had always been on the one who end up as Finance Minister. Again it was no surprise LHL, de facto the party, will pass the baton to Lawrence Wong who landed the finance job.

My brother and I have been PAP watchers for decades and we have been right on the mark many times. We have been acutely aware of a certain predictability to LKY and PAP. On leadership transition the path is through famiLee (Singa-lingo for Lee family lineage), PMO (Prime Minister’s Office), MAS and MOF (Ministry of Finance). Goh Chok Tong, Lee Hsien Loong, Heng Swee Kiat, and Lawrence Wong, all flowed through one or more of these three agencies. The reason is obvious. They are all privy to state financial secrets. Keep top secrets exclusively to a tightly knitted few. In the case of PMO, lower level staffers must also have access to restricted state secrets. These personnel must by necessity be managed with kids’ gloves as reciprocal to sealed lips. See the rise of Grace Fu, Iswaran, Indranee, and Lucien Wong who never got charged for theft of documents and retains the AG post long past statutory retirement age?

Could that privileged position of untouchability have emboldened Iswaran to whatever acts that led to CPIB investigation? Iswaran’s case may end in one of 3 ways - (a) The law will take its natural course; (b) A negotiated way out with a light sentence; (c) Iswaran will go the way of Phey Yew Kok who promised to “tell all”, whatever that meant, and then disappear from the face of the Earth.

Indranee Rajah has been a Minister in PMO, currently is Second Minister for Finance, and Second Minister for National Development. She is also Leader of the House, in a position where she tries hard to emulate the no nonsense toughness of LKY. There is no doubt she is being groomed for higher office. Much will be clearer when LHL steps down and Wong takes over the premiership. Would Indranee take over Wong’s role as Minister of Finance, or will the coveted job fall to rumoured famiLEE Chan Chun Sing? Whoever takes the coveted MOF job is destined for top honcho crown.

My money is on Indranee, notwithstanding her biggest setback is she is not Chinese (actually Indian father, Chinese mother). Indranee has the honour of being the MP to represent LKY’s old constituency of Tanjong Pagar.

The leadership issue boils down to state financial secrets - “He who knows most, wins”. As it stands for now, none has a better claim to the seat than Indranee. All financial state secrets there are, whether good or bad, remain under tight control. That is the be-all and end-all.

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HIT BY S$7.3B LOSS, TEMASEK TURNS OUT THE LIGHT ON ITS FINANCIAL STATEMENTS

Santiago Principles is the generally accepted principles and practices (GAPP) that relate to the operation of sovereign wealth funds. Temasek has always boasted it maintains standards higher than Santiago. Well, it cannot say that anymore as far as financial statements are concerned. There is no audited statutory financial statements for y/e 31 Mar 2023, or at least we don’t get to see one. It is very telling this change happens in the year when it made its first loss in decades.

For y/e 31 Mar 2023, what is published and what we get to see is just the Group Summary Statement. This is an aggregated information with limited disclosure prepared by management. The auditor simply provides an opinion that the data is correctly aggregated from audited financial statements. Make no mistake, the accounts have been audited as usual since Temasek has to report to the shareholder, ie the government. Under Singapore Standard on Auditing SSA 810, a company that publishes a Group Summary Statement has to state clearly where audited statutory financial statements may be freely available. Temasek hides behind its private exempt status which does not require it to publish audited financial statements. The light just went out.

For decades, executive compensation of Temasek has been a state secret despite requirements of the Companies Act for full disclosure. Now it looks like audited statutory financial statements will also go the way of the dodo birds. It begs the question what is being concealed.

We have no idea of the performance of Temasek at company level for 2023. At group level, which includes operating subsidiaries such as Singtel, Singapore Airlines, PSA, ST Engineering, Mapletree, Singapore Power, etc, it lost S$7.3b after tax.

From group summary, the loss is just a hiccup.

The gross margin remained at 2022 level of 22%, suggesting there was no massive portfolio write down for the year as most would have worried given the tumultuous year in equities.

The P&L only shows a write down of S$22b on its Liquid & Sub-20% portfolio. This segment forms 27% of of the whole investment portfolio of S$382b. The segment is valued S$125b pre-write down and S$103b post write down. Cash, near-cash items, and listed equities comprise this segment. The S$22b loss is diminution in value from mark-to-market. The loss is 18% of this portfolio segment which is twice the loss in 2022.

20% or S$76b of Temasek’s portfolio is in listed equities where it owns more than 25% of the stock. We have no idea of any losses on mark-to-market.

53%.or S$202b of investment is in unlisted stocks. These are accounted for at cost less impairment. Valuation gains are only accounted for after IPO or on sales. Ordinarily this is the most non-transparent part of the portfolio. Even auditors would need to place a lot of faith on figures provided by management. This is where investments like FTX would be booked. So how do we know if the S$275m investment in FTX has been written off? How do we know the US$10m given to Mark Zuckerberg for the doomed (which I predicted from day1 that it will fail) fintech Libra project has also been written off? How do we know valuations are ‘on-the-ball’? We don’t.

MAS lost S$21.4b on forex losses due to appreciation of SGD. Temasek makes no mention of the impact of changing values on its book. Perhaps they did great hedging currency risks. We learn nothing from the Group Summary Statements.

Interest expenses increased by 29% to S$6.2b despite debt decreasing from S$90b to S$78.5b. Temasek is not spared from impact of rising interest rates. The rising cost of funds may perhaps put a dampener on leverage as a growth driver.

Total portfolio was S$382b, down slightly by 5%. Pretty resilient, considering the challenging global conditions.

Here’s food for thought.

A digression here on a personal experience to introduce my point. Some 25 years ago I had some relatives who started out manufacturing some products for the retail market. Wet behind the ears in business, they started a sales incentive scheme which I thought was way too generous and came with the risk of not having a cap. Sales hit the roof and soon sales girls were drawing crazy pay checques. Of course the scheme needed watering down, not without some HR discontent.

In my May 2019 blog "Temasek - The Shocking S$3.61b (est'd) Executive Bonus" I described the company’s executive scheme and tried to re-engineer what the bonus for y/e 31 Mar 2018 based on parameters described in Annual Reports. I found it was a shocking unbelievable S$.3.6b. .

For y/e 31 Mar 2019 I worked on determining what was the provision for executive bonus carried in the books. The figures were mind-boggling. If my computation is correct, it is tantamount to bank robbery. I blogged about this in Sep 2019 “Is Temasek operating a slush fund?”. I explained what a slush fund is. The figures for provision for executive bonus is so humongous that movements in this account can impact P&L seriously. It can be used to manipulate the accounts. I am not saying it has been done, but if my computation is correct, it represents a critical financial risk.

Singaporeans never picked up on such important revelations (most prefer gossipy stuff like current illicit love affairs of members of parliament) and also my blog outreach is small, my stories had no traction. The red flags I raised ought to set alarm bells ringing in every accountant’s brain to get up on their butts to prove me wrong. And I sincerely hope I am wrong.

What Temasek has is an incentive scheme without a cap. For a company that can hit double digit billions in a good year, imagine what the payout can be. Such a scheme makes it the employer to die for.

To bring this story back to the blog focus on Temasek turning the lights off financial information, the audited accounts for years 2020, 2021, and 2022 no longer carry the information that made it possible to compute the executive bonus and the provision figures the way I did for 2018 and 2019. Is that just coincidence or tightening up loopholes? Perchance someone saw the red flags I raised?

So here we are 2023, Temasek has not only done away with publishing audited statutory accounts, it has retroactively replaced past years audited financials in their website with group summary statements. There’s some revisionism going on. History has taught us it is always worrisome when a regime practices revisionism. 

The devil is in the details. With Temasek now shy on publishing audited statutory accounts, are there any devils that are concealed? One can only wonder, especially in a climate where trust has run low, very low.

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IS ONG BENG SENG A SERIAL CORRUPTER?

The way the news of Transport Minister Iswaran being a subject of CPIB investigation announced separately by Prime Minister and Deputy PM was sloppy and terribly mismanaged. If fact, it was disinformation. Both referred to the minister as helping out with investigations by anti-graft busters when in fact he had been arrested and out on bail. Both also failed to mention businessman Ong Beng Seng had also been arrested and out on bail in the related investigation. PM and DPM seemed more focused on defending the PAP brand rather than keeping citizens informed of developments.

Singaporeans got wind of the story from a report by Asia Sentinel whose website has been blocked by the government. AS reported the ongoing trial in London where Ex-F1 boss Bernie Ecclestone was charged with fraud. A revelation from the trial was OBS had arranged VIP room ($22,000/day) for Iswaran and guests to watch the last Grand Prix.

If that is the case, it is not a criminal act. Certainly, Iswaran broke some code of conduct, but no laws were breached, least of all, an arrestable offence. The fact he was arrested point to something more serious.

Then followed online gossip of a fact finding visit to London by an MTA team led by Iswaran to view F1 facilities. It seemed Iswaran abandoned planned agenda to take in all the generous side entertainment OBS can offer, including a treat to a performance by Adele. This rattled the team, and all but one team member refused to accept the largesse dished out by OBS. Again this isn’t criminal but malfeasance and dereliction of duty.

It never rains, it pours, as government was assailed by a spat of negative publicity recently. Market talk is PM Lee needed to be seen to take a tough stand against moral decline. If Iswaran’s case is non-criminal in nature, then it looks like the PM weighed the ministers of Ridoutgae infamy, Shanmugam and Balakrishnan, together with Iswaran, and decided the Transport Minister be the sacrificial pawn. The arrest is only a publicity show of resolve.

My regular bookie says the bets are on Iswaran’s case being graft related to either the F1 second contract extension itself, or to some auxiliary commercial contracts in the last Grand Prix. Should that be the case, are we looking at OBS a serial corruptor?

Billionaire remiser Peter Lim once said if you make a million dollars, you may be a smart one. If you make a hundred million, somebody up there likes you.

But what if you make hundreds and hundreds of millions? Let’s not be naive about the real business world. The US industrial complex lobbies for war all the time. The Rothchilds funded both sides in WWII. It matters not to them that millions die. Of course the majority of businessmen, though corrupt, do not go that extreme.

OBS is well-known as the man behind SGX-listed Hotel Proprieties Limited. He and wife Christina, separately own a big chunk of real estate, hospitality and high end entertainment businesses in Singapore. Intelligent, shrewd, brilliant strategist, high risk taker, generous and loyal to those that assisted him, are adjectives piled on OBS.

Nassimgate saga:
Pamela Lee, wife of Lee Kuan Yew’s younger brother Lee Suan Yew, was a director of Heritage Board and Singapore Tourism Board 1988 to 2000. Sometime in 1990s, Jade House was degazetted as a heritage building. Why? And who pushed for this?. OBS acquired the plot of land at 3 Nassim Road using his vehicle HPL. Denis Lee Kim Yew, brother of LKY, sat on the board of HPL. OBS built the luxurious condominium Nassim Mansion on the plot. In the soft launch in 1996, OBS offered preferential discounts to LKY and son PM Lee Hsien Loong. Soon the uniquely Singapore ethos ‘everything cheap I also want’ griped many who’s who in the Lee family circle. Many bought units with good discounts. Shareholders of HPL were unhappy and Nassimgate hit the news stand.

Singapore Grand prix:
For decades, OBS had worked hard to bring Formula 1 racing to Singapore. Finally, in 2008 OBS’ Singapore GP Pte Ltd inked a deal with Bernie Ecclestone, owner of Formula 1, and Singapore Tourism Board, to host the Grand Prix for the next 5 years. The cost of setting up was estimated at S$150m per year with STB footing 60% and OBS 40%. Direct revenue from race-related transactions split 70% to OBS, remaining 30% I am not sure to who. Singapore GP is owned by OBS and wife.

STB conducted a post mortem, spending another few hundred thousand dollars, for Mckinsey to produce a report that said Singapore benefited by billions of dollars over the years that racing brings in for the economy. Of course, apart from direct revenue, Mckinsey’s data set can’t say how much OBS and Christina's multi hospitality and high end entertainment businesses pulled in, nor losses of those whose business operations suffered by the road closures.

The Formula 1 agreement had been extended once (2015?) and again 2022.

Iswaran came from PMO (prime minister’s office). He was Minister for Trade and Industry (2015 - 2018), Minister for Communications and Information (2018 – 2021) and now Transport Minister. He is widely acknowledged to have played a significant role in the Formula 1 contracts.

No doubt a job well done by OBS. He and wife deserve laughing all the way to the bank. He had the idea, the contacts, took the risks, put up money. That’s how capitalism works. However, as usual, big ticket ideas of government means big bills are borne by tax payers.

OBS on Ho Ching:
In 2004 Ho Ching joined Temasek and had planned to exit in 2009. After an international search, Chip Goodyear was brought in as her replacement. But a strange thing happened. For reasons untold to this day, Goodyear contract was terminated before he even sat foot in the office. Temasek had to pony up for the massive compensation to make Goodyear walk away. The affable ex-foreign minister Dhabalan, chairman at the time, said Temasek and Goodyear parted ways because they felt the latter was not a good fit. To believe in Dhabalan is to believe that Temasek spent millions of dollars on international search to snatch Goodyear from mining giant BHP Billiton because he was a good fit, and then spent hundreds of millions of dollars to break contract because he was not a good fit. Once again tax payers had to suck it up.

In this episode, LKY had something to say. OBS had advised him that Ho Ching has the right acumen to steer Temasek. The rest is history. As far as you-scratch-my-back-I-scratch-yours goes, this one wins the Emmy Award.

Singapore Press Holdings:
With media industry in doldrums and management unable to lead anywhere, the government decided to let SPH fold. But the crown jewel in the company was its tremendous real estate holdings. The government decided to take over the media segment and house it under a new state-owned entity SP Media, to be kept on life-support with S$180m of public money annually for 5 years. SPH was left with no business but holding on to its prized properties and put up for sale. 

Along came OBS who clobbered a partnership with 2 Temasek entities. (OBS 40%, Temasek units 30% each). OBS’ S$3.9b bid cliched the deal last year.

Once again OBS walks away laughing, judging by the huge potentials of the property market. And tax payers foot the ICU bill for SP Media at S$180m per year for next 5 years.

Dempsey Park:
In 2016 Christina Ong won the bidding for the Dempsey Park food and entertainment area. She did not put up the highest bid but was selected for ‘best concept’.

Conclusion:

Two things tell me it is possible the CPIB had been investigating Iswaran much earlier. (a) Bernie Ecclestone was charged for fraud much earlier in August 2021. British investigators would have had sought Singapore's assistance back then. (b) The MTA team that made the study trip to London would unlikely to have reported on their boss’ dereliction of duty. But knowing how the government works, there is very likely a spy within the team who dutifully reported back. If so, why was nothing made of it for so long? Perhaps the precedent case of KOM (Keppel Offshore Marine) and that befuddled principle of not charging for overseas crime and difficulty of obtaining evidence had something to do with it.

I think all of us have a sense of our position in life to be able to tell what is an honest gift of memorabilia and what is influence buying. Once I was put up in a presidential suite in a 5 star hotel. It was beyond ostentatious for me that I would have moved out had it been on a client's account. My head office arranged my stay, so it was alright.

This article nowhere suggests OBS has corruptly gratified anyone to benefit himself in any specific situation. Nevertheless, if you have the gift of pareidolia, you may be excused for seeing a pattern emerging. South Sudan lies at the bottom of the Corruption Perception Index and under the circumstances South Sudanese may scratch their chins and say hmmmm

“Timeo Danaans et dona ferentes”. Civil servants should do well to remember Virgil the Roman poet for his famous quote. Loosely translated it says “Beware of Greeks bearing gifts.”

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HOW MAS SAVED S$ BILLIONS IN FOREX REVALUATION LOSSES IN 22/23 - HUH??

I am sure there is only a handful of Singaporeans who like me, can see the bigger picture and understand that in 22/23, MAS actually saved billions of dollars from foreign exchange revaluation losses. I am prone to holding contrarian and unique views and I assure you I am no Critical Spectator to push a fawning piece out. If you have 10 minutes, hear me out. 

RMGS (reserves management government securities) is a mechanism that facilitates the central bank MAS, to transfer excess OFR (official foreign reserves) to the sovereign wealth fund GIC to better manage its investment. Some time back, I had a lengthy discussion with Jamus Lim from Workers' Party on RMGS. Our bantering centred on the issues of ‘realised’ and ‘unrealised’ exchange losses relating to the securities. That discussion was ‘open-ended’ due to certain matters we were uncertain of. He had his ideas and I had mine. But I respect that Jamus felt it an important topic to engage with me, a nobody to him, over the course of a couple of weeks.

After having possession of some missing pieces of information since, I am now in a better position to explain the full picture. The 22/23 massive loss of MAS provides an excellent backdrop for his explanation.

Core function of MAS

MAS’ responsibility is the execution of monetary policies to maintain a stable price level. It does not try to control prices of every goods and services but instead focusing on only one consolidated price indicator – inflation. To do this, MAS manages the exchange rate of SGD (some countries control interest rates). Singapore has what is known as a managed float. The rate is allowed to float within a band. In daily market volatility due to dynamics of supply and demand, MAS intervenes in the forex market to stabilise the rate. When the rate is hitting the upper band, MAS sells SGD and buys foreign currencies, forcing the rate down. On the other hand, when the rate is hitting the lower band, MAS buys SGD, forcing the rate up.

Singapore’s persistent trade surplus position puts an upward pressure on SGD rate over the years. MAS has to occasionally adjust the upper band higher, or tighten it. In 22/23 MAS carried out 5 tightening exercise. Not to do so makes SGD under-valued and the currency can come under attack.

As rate rises, MAS is forced to buy increasingly more foreign currencies. Doing so puts MAS to 2 risks. (a) A revaluation risk as foreign currency holdings depreciate in value in SGD terms when rate rises. (b) MAS intervention in forex market is always sterilised. This means the foreign currencies are purchased with borrowed SGD. So there is an interest cost to those foreign currency holdings. Thus MAS is exposed to interest rate risks.

A quick summary of the OFR (official foreign reserves)

The foreign currencies purchased are held as OFR. This serves 2 purposes. (a) It is used to protect the SGD. When rate goes down, MAS uses the foreign currencies to buy back SGD. (b) To provide liquidity to the market in times of global financial crisis when a foreign currency may dry up. Eg in 2008 crisis, Thailand, Malaysia and Indonesia were hit hard when USD dried up.

Because SGD had a long run of appreciation, MAS had been continuously buying foreign currencies till the OFR becomes too massive and far in excess of its needs. MAS has to balance needs vs risks. In this respect MAS holds the view an opitmum level of OFR is between 65% - 70% of GDP. Excess OFR is transferred to GIC to invest. The way it is normally explained, MAS investment is in short term liquid assets, it transfers OFR that is in excess of its needs to GIC to invest in longer term assets for better yields. That is technically not correct. There is nothing that prevents MAS itself to invest excess OFR in longer term riskier assets to seek better yields. But that would be an unhealthy distraction from its core mission of managing price stability. A central bank must never be profit driven. It makes more sense for the excess OFR to be managed by the sovereign wealth fund that is staffed and equipped to manage long term investments.

How excess OFR was transferred to GIC in the past

The transfer of excess OFR to GIC has been in practice for years. As a matter of fact, GIC was initially set up specifically to manage the foreign currencies of MAS. The mechanics was simple. When government has built funds in their SGD account in excess of their operating requirements, a transfer is made. This is completed by an internal FX transaction. MAS debits government SGD deposit a/c and credit foreign currency a/c. In effect, MAS sold foreign currencies to MOF for SGD. As years progressed the growth of OFR far outpaced government deposit accumulation. The consequence is huge OFR balances in MAS’ books as they could not be moved out quick enough.

How excess OFR is transferred to GIC using RMGS

The government issues RMGS and MAS subscribes. RMGS is a special non-tradeable, interest-bearing, SGD denominated security settled in specific foreign currency and open to subscription by MAS only. Exchange rate is fixed at spot rate on the ‘rate-fixing’ date. On settlement date MAS transfers foreign currency to government agency bank and receives RMGS. In MAS book, simply debit RMGS (SGD) and credit foreign currencies, ie a change from a foreign currency asset to a SGD asset.

On redemption, a ‘rate-fixing’ date is agreed. The spot rate of the day is fixed. On settlement MAS returns RMGS to government and receives foreign currencies back. In MAS books, debit foreign currencies and credit RMGS. Again, its a simple change of one asset to another.

The discerned reader will notice the spot rates on subscription and redemption will almost certainly be different, calling into question the issue of foreign exchange gains and losses. This is the major part that I wrestled with Jamus Lim. This I can now fully explain.

The conundrum of foreign exchange gains or losses

The huge foreign exchange loss of SGD21.4b was explained away as loss on translation of foreign currency holdings into functional currency SGD. It's the way the layman can understand.

Technically, this is how it works. When MAS buys foreign currency and sells SGD, it creates a spot position in the currency pair which is subject to mark-to-market giving rise to unrealised FX P&L. On settlement 2 days later, there is a realised FX gain or loss. This is the difference between the contracted spot rate and the book rate (which is normally the market spot rate on settlement date).It also creates currency mismatch in the 2 currencies. MAS is long in foreign currency and short in SGD. The open short position of SGD has no FX exposure since it is the functional currency. The open long position of the foreign currency has FX exposure and for as long as it remains open, it is revalued daily, resulting in daily FX revaluation gains and losses. In 22/23 the sum of unrealised, realised, and revaluation FX P&L totalled S$21.4b. Notice there is no reference to OFR. The focs is on FX transactions and open currency positions.

With the RMGS, this is what happens. On rate-fixing date, a rate is fixed based on market spot rate. In effect, MAS does an internal FX deal with MOF. MAS sells foreign currency and buys SGD. Settlement by MAS paying foreign currency and receiving SGD RMGS. This internal FX transaction creates an open spot position in the currency pair subject to daily unrealised FX P&L. On settlement, there is a realised FX P&L (difference between transaction rate and book rate), and a mismatch in the 2 currencies which cause a reduction in both the open short SGD and the open long foreign currency positions which are subject to daily revaluation.

In the future, when RMGS is redeemed, the exact reverse action will take place. A rate will be fixed based on market spot rate. The internal FX transaction is MAS buys foreign currency and sells SGD, settlement by MOF pays foreign currency and MAS pays SGD in the form of RMGS. This internal FX transaction creates an open spot position in the currency pair subject to daily unrealised FX P&L. On settlement day there is a realised FX P&L (difference between transaction rate and book rate) and a mismatch in the 2 currencies which cause an increase in both the open short SGD and the open long foreign currency position.

The difficult part of my online exchange with Jamus centred on grappling with trying to understand when MAS will be hit with realised loss on the foreign currency transferred via RMGS. Conceptually I think that is what most people tend to think. In practice, no one works on the basis of this batch of USD valued so much and that batch so much, so when this batch is sold the realised gain or loss is so much. Currency is fungible. That means one USD, for example, is always the same as another USD. They are all mixed up and used as one. The changes in their values as exchange rates change is captured by valuation of FX transactions for unrealised and realised FX P&L and revaluation of open foreign currency positions explained above.

In summary, we do not bother with the currency holdings. We track the FX transactions and open currency positions to determine FX P&L.

Why RMGS is a brilliant idea

Whoever conceptualised RMGS as a way for MAS to move out excess OFR, buy him/her a beer. It solved 3 big headaches for MAS:

a). The mechanism facilitated the transfer of huge sums of excess OFR to GIC to invest for better returns without the need to wait for MOF's SGD deposit a/c with MAS to build up.

b.) Huge balances in OFR attract criticisms of currency manipulation and unfair trade practices from the international community which may lead to tariffs against Singapore. The US has singled out Singapore for comments in the past. RMGS allows MAS to quickly tuck huge OFR excesses out of its book.

c). RMGS allows MAS a way to drastically reduce the open long foreign currency positions thereby minimising exposures to revaluation loses from SGD appreciation. 22/23 is an extremely good illustration. During 2022 a total of S$237.6b were transferred out via RMGS. This resulted in substantial reduction of open long foreign currency positions. Had it not been for RMGS, the forex losses could have been much higher than S$21.4b.

Looking at the level of appreciation of SGD against currencies of Singapore's top trading partners during the year, and the massive OFR of S$237.6b transferred out, I am guessing the device of RMGS probably saved MAS forex losses somewhere between S$5b to S$10b.

On second thought, buy that fella two beers!  

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MAS S$30.8B LOSS – WHERE DID RECAPITALISATION FUNDS COME FROM, WERE PAST RESERVES RAIDED

MAS made a staggering loss of S$30.8b in 22/23 due mainly to (a) S$21.4b translation loss of foreign assets which are primarily the foreign reserves, and (b) S$9b which is the carrying cost of the foreign reserves. There are those who understand it is the price MAS has to pay to stay the course to minimise the import of foreign inflation by pursing a monetary policy of non-inflationary growth. Those who do not appreciate this will never understand unless they invest a couple of hours learning monetary economics and MAS’s role in maintaining a stable price level.

The purpose here is not to dwell on how the losses came about but rather on the bigger picture of where the S$25b to beef up MAS’s capital came from and whether past reserves were raided.

The government injected additional capital of S$25b into MAS in March 2023. MAS is the government’s banker, so in the central bank’s book the transaction is straight forward – debit Government A/c, credit Share Capital A/c. As for the government, it has to make sure there are funds in their account.

The Constitution defines ‘national reserves’ as the excess of assets over liabilities (ie equity) of the Government, statutory boards and 5th Schedule companies, of which MAS is one such. It defines ‘past reserves’ as reserves accumulated by the previous government. Current admin started in July 2020.

The excess of assets over liabilities of MAS is represented by ‘Paid Up Capital’ and ‘General Reserves’. Thus for the current administration, the past reserves of MAS is basically S$44.88b. Apparently the losses of 21/22 (S$8.7b) and 22/23 (S$30.8b) caused past reserves to be raided as far as MAS is concerned.

The President is the custodian of our past reserves. He/She exercises the power by withholding consent to any Supply Bill, Supplementary Supply Bill or Final Supply Bill – thereby blocking the Budget for the financial year, if past reserves are used. In other words, there is advance knowledge that the expenditure will cause a dip into past reserves.

So it would seem MAS dipping into its past reserves in this manner (by simply clicking a keyboard to debit and credit the accounts) bypassed the mechanism of the second safety key of the President.

Then again, the government’s defence will be that past reserves are not viewed at individual institution basis, but at national level. Singaporeans will again be locked out of any discussion by non-transparency.

Where did the funds come from? Certainly not from operating revenue. Fiscal 2021/22 was overshot by S$4.2b after NIRC (net investment return contribution) from GIC and Temasek, and 2022/23 budget projected a deficit of S$3.6b after NIRC.

There are 3 possibilities :

a). Raise funds via issue of SG Treasury Bills. These are like bridge financing. Government uses this to raise funds when there is a time gap between receipt of operating revenue and expenditure. T Bills are very short term instruments. However, there is no evidence of such activity in March 2023. S$25b is a colossal sum and there would have been market talk at the time.

b). Liquidate some of the securities MOF holds. These are liquid assets. But there are problems. S$25b is a massive sum. It is not easy to move them within a small window time frame without the market catching wind of it. These securities assets are also funds set aside for other intended purposes.

c). Round robin trip part of the proceeds of the RGMS (reserves management government securities). These are foreign currencies so the funds are not at government's account with MAS but at various foreign agency banks. MOF sells foreign currency back to MAS for SGD which is credited to government’s SGD account with the central bank. MAS creates SGD25b to pay into the government's account. This is inflationary, but not if the funds are immediately used to credit Capital Account. But there are problems. First, the round robin tripping of RMGS proceeds is likely in contravention of the RMGS Act. Second, the RMGS were issued in 2022 Q1 – USD75b, Q2 – USD97.6b, Q3 – USD62.9b and Q4 – USD2.9b. All of these USD237.6b would have already been transferred to GIC. There was no RMGS issuance in 2023 Q1.

However way the funds were put into the government's SGD account with MAS, it would not have appeared in any of the Spending Bills. That being so, the President has no way of knowing if past reserves have been utilised. Other than from past reserves, it's a head scratcher where the SGD25b could have come from.

Singaporeans are better served if issues such as this are raised and clarified in Parliament, rather than on soap operas like Ridoutgate, unless of course one is meant to serve as distraction for the other.

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CRITICAL SPECTATOR, HO CHING SILENT ON MAS $30.8B LOSS GOES UN-NOTICED BY IB FOLLOWERS

To za tobą, Michael (it’s behind you). MAS' losS of $30.8b is an internationally explosive news item but it does not catch Critical Spectator’s attention. Or is it because it has no propaganda value for PAP?

Is there a reason to wait till Jul 3 to discuss Ridoutgate in Parliament at about same time 2 days later that MAS released its 22/23 annual report? Just a coincidence? Singaporeans are consumed by distraction of soap operas to bother about serious economics stuff. CS wrote several articles that hit hard at opposition figures and anyone who raised questions against the conduct of the two ministers who took up residence at the government-owned bungalows.

Our resident Polish blogger Critical Spectator never misses each and every opportunity of positive news to churn out a fawning blog that pleases officialdom. The cheer leader feeds his adoring unquestioning Facebook followers as Ho Ching shares his post. Don’t get me wrong. Of course I am glad when the government does the right things. What I would like to see is balanced commentary, including times when mistakes were made, or policies that achieved negative results.

I am not on a Schadenfreude trip to gloat over this colossal loss. As a matter of fact, I fully recognise the loss is an unavoidable cost of pursuing a monetary policy to manage non-inflationary growth. It is not mismanagement and does not reflect on MAS’ performance.

Hey CS, did Singapore grew richer by S$42.1b?

Perhaps CS failed to observe this in MAS 22/23 financial statements. During the year, MAS made additional purchases of S$42.1b of foreign currencies which lifted OFR level to a high S$597.8b. Why didn’ CS boast again how Singapore has grown richer by S$42.1b. Remember his headline on 14 Jul 2021:

“S’pore is richer by over S$200B thanks to COVID-19, as Temasek announces record returns”

CS was referring to increases in Temasek’s investment portfolio and MAS’ OFR (official foreign reserves) which grew by S$160b in 20/21. Retired investment banker Chris Kuan was first to point out an increase in the asset side has a corresponding increase in liability side. For that, Chris was lambasted by CS. I ventured into the lion’s den and engaged CS in his FB page. Basically I expended Chris’ point, that OFR is funded by debt therefore there is a cost, that increase in OFR does not reflect increase in wealth, We all understand wealth increases if there is undistributed net profits and shareholder value has improved, not simply by looking at an increase in any specific asset item. I was lambasted by a colony of IBs who refused to hear contrarian views nor a willingness to learn.

In response, I blogged to explain in “Again, did Singapore grow richer by S$235b during the pandemic? - (26 Jul 2021).

Will CS post GIC increase wealth by more than S$162.7b?

This is jumping the gun since GIC annual report is not out yet, but let me explain. I prophesied somewhere (FB?) sometime back that, bearing disastrous asset depreciation, GIC is on it’s way to climb several rungs up the list of world’s top sovereign wealth funds after MAS makes its forecasted transfer of S$185b Official Foreign Reserves to the government. In 22/23 MAS transferred out S$162.7b.

CS in the past had been chest-thumping on behalf of Singapore government on how GIC and Temasek have been super fund managers increasing wealth by referencing only portfolio size increases. I had mentioned an increase in portfolio size from valuation and internal funds are great. But if its from capital injection, something he failed to take into consideration, then any idiot can increase portfolio size.

So I’m wondering, with this transfer of S$162.7b OFR, will CS go ra-ra again and say look, a massive portfolio growth, see how GIC increased wealth.

Couple of points affirmed by MAS Managing Director:

There were several points which I had tried unsuccessfully to share in the lion’s den and which have now been affirmed by Ravi Menon in his presser. I hope CS had paid attention and recall how we crossed swords.

1. Both Chris and I had explained there is a liability side to the huge OFR since all forex intervention to purchase foreign currencies are sterilised. That means debts are created in the form of MAS bills and reverse repos. There is a carry cost for these foreign asset.

And here we are, in 22/23, due to increased transactions and SORA (interest rate) MAS was hit with an interest expense of S$9b. Menon affirmed this is attributed to borrowings to absorb the liquidity caused by selling SGD to purchase foreign currencies.

2. CS repeatedly explained Singapore is the glittering city on the hill that all foreign elites are so enamoured they funneled their money here. All these money flow chasing SGD is causing the upward pressure on the exchange rate. I had countered wealth may seem to have flowed in like crazy but they are not necessarily onshore. It does not mean elites bring in their wealth and convert to SGD. Say a PRC Chinese, fearful of CCP capital controls, moves his huge USD deposits to Singapore. It does not mean he is converting to SGD. He merely deposits USD with a local bank. The funds remain offshore.

Menon has affirmed the wealth flows do not mean money came into Singapore. Their wealth remains offshore. According to Menon, of property transactions, only 4% were from foreign funds.

(Just so you know, the bearded guy in the featured image is not CS)

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RAVI MENON SAID MAS LOST OF S$30.8B NO WORRY IS PAP-SPEAK

In 21/22 MAS lost S$7.4b due mainly to negative S$8.7b foreign exchange translation. I blogged on this and concluded “If the SGD8.7b revaluation loss of MAS, is a shocker, you ain't seen nothing yet." So here we are, the numbers for 22/23 are out and it is scary. In his press conference MAS Managing Director Ravi Menon assuaged fears in his calm demeanour and crystal clear explanation.

MAS Financial Statement shows (a) “net loss from foreign operations’ at S$20.8b (of which S$21.4b was due to foreign exchange translation losses and (b) ‘Investment, Interest and Other Expenses’ at S$13.2b (of which S$9b was due to interest expenses).

Forex Translation Losses of S$21.4b:

SGD tightening to reduce the impact of imported inflation caused appreciation of the local currency. SGD strengthened against the trade-weighed basket of currencies by 6.5%. When converting foreign assets back to SGD, they are now valued less, thus incurring losses.

MAS foreign assets are primarily its OFR (official foreign reserves) which is accumulated as a result of SGD tightening when MAS sells SGD to force rates down. The OFR is used in times when MAS needs to protect SGD by buying back thus propping the rates up.

As I pointed out in my previous blogs, there is nowhere to run for central banks. They have to take the market risks. Hedging their forex exposures would have unwound the objective of inflation control in their forex market intervention. This was exactly how Menon explained it.

Thus the higher amount of OFR, the higher the exchange risk. Singapore has one of the highest OFR to GDP ratio of 70%+. A high OFR attests to the strength of a currency.

Translation losses is not a measure of MAS management performance since it is unavoidable. 

Interest expenses of S$9b:

Menon revealed the S$9b is attributable to the funding cost of the OFR purchases. MAS forex market intervention to purchase foreign currencies create SGD which flows into the economy, increasing liquidity which is inflationary. Forex market intervention by MAS is sterilised by their open market operation with money market instruments like MAS bills and reverse repos. These are MAS borrowings which sucks back the liquidity from the market. Thus MAS purchase of foreign currencies are effectively funded by borrowings and there is a cost.

For 22/23 the interest expense hit the roof due to high volume of transactions and rising interest rates. A net additional purchase of S$42.1b of foreign currencies lifted OFR level to a high S$597.8b before a transfer of S$162.7b to GIC by issuance of RMGS (reserves management government securities). SORA (Singapore Overnight Rate Average) increased by 2% during the year.

Just as for translation losses, interest expense is not a measure of MAS management performance because it relates to management of the OFR to control inflation.

Investment income S$0.6b

As Menon explained, it is only this income segment that one can measure MAS management performance. Menon framed this as reasonably good performance when compared to a negative S$0.9m the prior year, a long term return of 11% over ten years, and in a year of extreme pressures on bonds and equities. Sounds very much Temasak-esques, but I think the facts are on Menon’s side. I would also add MAS is constrained to invest only in very liquid assets thus with lower yields.

Impact on Capital:and why I disagree with Menon:

Menon is right to stress that the huge translation loss of S$21.4b has no bearing on OFR and MAS ability to protect SGD. This is because the holdings of foreign currencies remain unchanged, it is only its value in SGD terms have gone down.

However, this is where I disagree as Menon employed PAP.-speak. Menon explained the translation loss and high interest expense are not causes for concern. This is well understood and accepted cost of central banks in a regime using foreign exchange rate to control inflation. He added what is important is capital adequacy and for this reason the MOF has injected S$25b to raise MAS paid-up capital of S$50b. Thus MAS is still in a very strong position to execute is mission of monetary policy of non-inflationary growth. 

I see here Menon in PAP.-speak. Of cause massive losses are a concern because it diminishes capital. In 2021/2022, the huge S$8.7b loss was not an issue because MAS had massive general reserves to absorb it. This year, MAS has brought forward general reserves of S$15.1b. The S$30.8b has wiped out this general reserve and reduced equity to S$9.3b which would have shaken the international financial market. By injecting S$25b capital, MAS now has net equity of S$34.3b, still in a very strong position.

To those who agree S$30.8b loss is not a concern:

There are many who accept Menon’s narrative the loss is not a concern, notably from pro-establishment side. My good FB friend non-partisan Tan Kim Lian seems also inclined toward this view. 

To these good folks I ask, where did the S$25b to top up MAS capital come from? The capital injection was transacted in March 2023 so it is off budget. Has any member of parliament asked about this?

The translation loss did not suddenly occur at year end when they prepare the financial statements in SGD. Recall last year I said about the S$8.b FX losses that you ain’t seen nothing yet? If I could see it last year, of course MAS is well aware of what is to unravel. It goes without saying the government had to prepare for recapitalising MAS well in advance. Do you think this has anything to do with die die must increase GST and other fees/rates?

To those who think translation losses is a paper loss:

There are many who think this way. For example, Leong Munwai once said "An exchange translation loss is a paper loss ........... The paper loss may disappear in future if the foreign currency appreciates against the Singapore dollar."  In my long discourse some time back with Jamus Lim, I believe he also shares this sentiment.

This is not exactly wrong. In the short term when rates are volatile but within a band, translation differences even itself out. But over a long term pronounced trend, the translation differences are unlikely to unwind. Do you expect GBP/SGD back to 8.000 and SGD/MYR to1.1000?

Money has been expended to acquire the foreign currencies. The losses are real and wealth is lost as capital is reduced. This MAS event serves to illustrate the point.

Past reserves utilised:

When the S$30.8b losses are charged off against general reserves, MAS dug into past reserves. I wonder if President Halimah is aware of this. MAS now has a negative general reserves of S$15.7b.

Menon pointed out MAS has to make good the general reserves before it can then return to contributing future net profits to budget.

Chances of recovering the translation losses:

For MAS to make translation gains again would depend on the depreciation of SGD. Endogenous factor is the weakening of our trade numbers, ie lesser exports than imports, or trade deficits. Exogenous factor would be interest rate policies of our trade partners. Our major trade partners are China, Hongkong, Malaysia, US, Indonesia, Taiwan. S Korea, Japan, in that order.

Where do you see are the currencies to strengthen against SGD? The dedollarisation of USD will see it weakened, and with it the CNY peg will also see a weaker Chinese currency. A Trump 2024 win may see USD weakening pace a bit slower, a Biden win, or other nut progressive Democrat like Gavin Newsom, will see a quicker pace of USD depreciation.

There is not much signs the SGD will weaken in the short term.

Asset translation vs currency revaluation:

Finally, a few words on a pet topic of mine. How do banks actually account for changing values due to exchange rate volatility. There is a mis-understanding that visits even the top peer levels of the profession. This is the problem that motivated me to write the book advertised below.

Almost everyone, including accounting professionals, tend to think the translation loss occurred on 31 Mar 2023 when MAS reported its foreign currency holdings into its functional currency SGD. In practice, this is not how it works.

All foreign exchange transactions create open currency positions and upon settlement cause currency mismatches which are reflected in currency position accounts. These currency position accounts are revalued everyday. This has the same effect as a daily valuation of the entire assets and liabilities of the bank’s books. That's why I mentioned MAS knew about the exchange loss situation well in advance.

Menon’s presser:

You can watch Menon’s full press briefing here.

Menon’s explanation fully affirmed a lot of points I brought up in previous posts listed here.

In Defence of MAS S$7.4b Losses -- Central Banks Have Nowhere To Run (22 July 2022)
Again, did Singapore grow richer by S$235b during the pandemic? - (26 Jul 2021)
Tiktok video brags Singapore grew richer by more than S$200B during pandemic. It's hogwash and here's why. - (17 Jul 2021)

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