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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