KEEP RESERVES SECRET TO PROTECT SGD IS A FALLACY - SGD CANNOT BE ATTACKED

16 September 1992 was a day of infamy for Britain which came to be known as Black Wednesday. That was the day Bank of England threw in the towel on a battle against currency speculators and took UK out of the ERM (exchange rate mechanism of the European Union) and pound sterling crashed.

The 4 Truths about Reserves:

(1) What are reserves : (19 Aug 2023) To Find Out How Much Is The Reserves You First Must Know What It Is..

(2)What is the size of our national reserves: (22 Aug 2023) Singapore Reserves Revealed - Unlike CNA Videos This Is For Real. 

(3)The lie about need to keep reserves a secret: (28 Aug 2023) Keep reserves secret to protect SGD is a fallacy - SGD cannot be attacked. 

(4) An oxymoron reality :(1 Sep 2023) The real reason Singapore hides its reserves in plain sight.

Traditional description of a speculative currency attack is speculators keep selling the currency which pushes the rate down, forcing the central bank to keep buying to maintain the rate. The central bank uses its foreign reserves to buy back the domestic currency. When the foreign reserves run out, the central bank can no longer maintain the rate and the currency crashes. Speculators then buy back cheap and make a killing. It’s now folklore how George Soros made US$6b betting against GBP in 1992. The government has consistently explained the need to keep the size of Singapore's reserves a secret in order to protect the SGD. The rationale is when speculators do not know the size of MAS’ reserves, they are less inclined to launch an attack on the SGD.

The problem with Singaporeans is nobody questions an official narrative. Argumentum ab auctoritate, anything from the authorities must be true, don’t ask. If we do not question, how are we going to learn. I watched the Pavlovian explanation of Ng Kok Song recently when he recanted ad verbatim and forcefully the reason for keeping reserves a secret. On that performance alone, I rated him 100% PAP man.

Black Wednesday 16 Sep 1992

After struggling for decades and unable to find a monetary policy that can tame inflation and bring price stability, Britain finally joined the ERM in October of 1990. This meant anchoring Pound Sterling to German Deutschemark within a range of 6%. By pegging GBP to DEM, Britain was obligated to intervene in the FX market to keep within the range. The idea for pegging to DEM was the stability of the German currency will help Britain tame its own persistent inflation. Britain joined the ERM with GBP/DEM rate at 2.95 and interest rate at 12% compared to 9% in Germany. Market sentiment felt Britain joined at too high a rate as were other weaker EU countries like Italy. When the Danish electorate rejected the referendum on the Maastritch Treaty (for EU currency union) in June 1990, that was more or less when market downward pressure against GBP gained momentum. The Brits had no choice but keep buying as speculators shorted GBP. West-East German reunification caused massive fiscal expansion which forced Germany to increase interest rate. The consequence was all ERM currencies appreciated against USD causing balance of payment problems in EU counties as their exports weakened. Italy was forced to devalue the Lira. The only way out was for Germany to decrease its interest rate. On 14 Sep 1992, Germany shaved off a tiny and ineffective 25 basis point on interest rate as Bundesbank President, Helmut Schlesinger, indicated that in his view a wider realignment was still required. That was the death knell. The market knew the game was over and all hell broke loose as speculators poured everything they had to short GBP. In 2 days, Britain lost GBP16b to protect the pound sterling and almost emptied their Exchange Equalisation Account of foreign reserves. On 16 Sep morning Britain raised interest rate from 10% to 12% and later to 15%. They could not stop the dumping of GBP and by 7pm Norman Lamont (Chancellor of the Exchequer) announced Britain had quit the ERM. GBP went into free fall and found its new equilibrium at the 2.50s level.

Mexican Peso 22 Dec 1994

In Janary1994 Mexico signed the North American Free Trade Agreement (NAFTA). These gave it new found investor confidence. 1994 was an election year which traditionally sees an expansionary budget. To pay for fiscal spending, Treasury issued MXN denominated securities but guaranteed repayment in USD. Because peso interest rate was higher, these securities were popular with investors. However the assassination of a presidential candidate and some violent protests increased political instability and downward pressure on the peso. As MXN was pegged to USD, Banco de Mexico had to buy up pesos to maintain the fixed rate. It did so by way of issuing foreign currency denominated securities. As the peso was propped up, it became over-valued. Its strength caused trade deficits that further increased downward pressure on the peso. Capital flight follows and in an election year, it was political suicide to raise interest rates. To inject foreign currency liquidity to the market, the central bank used its foreign reserves to buy back its own securities which were either foreign currency denominated or peso securities but guaranteed payment in foreign currency. By December 1994 Banco de Mexico had depleted its foreign reserves. On Dec 20 Mexico devalued MXN and forced to increase interest rates. Still unable to stop capital exodus and faced with default, the USD peg was cut on Dec 22, peso became free float and suffered huge depreciation. This Mexican episode was not exactly speculative currency attack but capital flight. The effects are nevertheless similar.

Thai Baht 2 Jul 1997

In 1980s and early 90s, the glowing economy of Thailand attracted massive capital inflows. Private foreign debt rose to record levels with capital going into unproductive sector of real estate and stock market. The inflow of hot money caused huge increase in valuation. The massive foreign debt was a structural imbalance with extreme currency liquidity risks. Currency traders saw the opportunity and began shorting the Baht. Because the Baht was pegged to the USD, Bank of Thailand had to intervene in the forex market to buy up what the market was unloading. By 2 Jul the Central Bank had depleted its foreign reserves and the Baht went into free float. That triggered more panic and hot money headed for the exit exacerbating the downward pressure on the Baht. When the dust settled, the Baht had loss 53% of its value.

The attack on the Baht spreaded to other East and Southeast countries which raised fears of a contagion effect. These countries had more of less similar structural imbalances of massive hot money and private foreign debt. Indonesia and South Korea governments suffered huge losses in foreign reserves because like Thailand, they had fixed rate currencies. Riots in Indonesia forced strongman Suharto to step down after decades in office. Other countries like Malaysia, Singapore, Philippines. Vietnam and Taiwan did not suffer as much.

Hongkong $ 28 Aug 1998

On 1 Jul 1997, one day before the collapse of Thai Baht, Britain's lease on Hongkong expired and the island was returned to China. There was great political uncertainty over the future of HK. As the Asian Financial crisis spread east, speculators turned their attention on HK. Some felt the days of HK’s role as international financial hub was over. Therefore the HKD was primed for an inevitable plunge. Speculators made a 2-pronged attack by shorting both HKD and the Hang Seng Stock Exchange. HKD is pegged to USD. The HK Monetary Authority responded by raising interest rates. At one point the overnight rate hit 300% which failed to halt the attack. On 13 Aug the Hang Seng Index fell 60%. China responded by declaring it will not devalue Renmenbi which was pegged at 8.3 to USD and that it will let HK avail its USD130b foreign reserves if needed. With this assurance, Finance Secretary Donald Tsang went to war on Aug 14. HKMA spent USD10b of its USD90b foreign reserves buying up HK shares and pushed the Hang Seng Index up again. By Aug 28 it was over. Speculators ran, licking their wounds, including George Soros.

Anatomy of currency attack

If the secrecy narrative were true, then history would have been a graveyard of small economies who fail to hide their mediocre reserves. All these countries would have been attacked and destroyed by currency speculators. These has not happened. Where governments are managing well, nobody wants to attack and do them in.

A country with monetary mismanagement and structural weaknesses sends an open invitation to currency traders and speculators to exploit. In the case of HK, it was a perceived weakness.

Fixed rate regimes experience a partial loss of monetary sovereignty. They surrender the important monetary tool of exchange rate management and are obligated to use foreign reserves to maintain the anchor rate. Floating rate regimes let the rate find its new equilibrium, using interest adjustments to bear influence, thus avoiding a drain on foreign reserves.

Currency attacks mostly result from foreign currency liquidity crunch due to trade deficits or credit bubbles arising from endogenous factors of economic and monetary mismanagement.

Exogenous factor applies with fixed rate regimes when there is mis-aligned economies of the two currency countries such as Britain and Germany.

Contrary to our Government’s narrative for secrecy, HK’s experience shows that if you have lots of it, flaunt it, foreign reserves that is. And Singapore has lots of it.

Poker game anecdote

The thinking is if speculators do not known how big a central bank’s war chest is, they are unlikely to attack the currency. The attack on HKD and the fact no country other than Singapore hides its reserves suggest a questionable validity of its premise.

Singaporeans like to repeat public officials use of the poker game for keeping the size of the reserves secret. I often wonder how many has actually played the game. There are many variations the way poker is played in casinos. But in local social settings there are basically two ways. One is open table where players have their capital on the table. You play with what’s on the table. The other is no limit. You do not show what capital you have with you. The setting is akin to the issue of reserves – you show it or you don’t.

The psychology of the game is debatable. It seems more to me that with open table, if you have lots of capital, players are less likely to challenge you. The analogy to reserves is if you have lots of it, flaunt it. It is a deterrence strategy that worked in the HKD incident.

Not showing your capital, or reserves, is an ambiguity strategy that at its core, seeks to punish. Come try me and you will get a bloody nose. It invites adventurism.

Singapore is a managed float regime

Singapore is a managed float, or lag rate regime. Spot rate volatility is a function of market liquidity. It swings up and down within the allowed band during the course of the day. MAS intervenes in the forex market only to prevent a breach of the upper or lower band. If upward or downward pressure persists due to new equilibrium, MAS will tighten or loosen the band and let the rate float accordingly.

Why SGD cannot be attacked

This is something government officials never tell you. Perhaps some officials do not even understand. It tears the secrecy narrative to shreds.

A reader of my blogs insulted my integrity to truth when he pronounced my work is based on references to some blogs instead of reputable financial institutional sources. I write with some research, and then interpret based on my own worldview and my own understanding of subject matter. What is the point of blogging if I have no personal opinions to share. That reader’s derogatory mention of other bloggers pay no respect to hundreds of thousands of bloggers out there sharing their professional views on various matter, some of them with huge paid subscriber base. Now yours truly, a nobody blogger, is going to share with you why effectively, and 100% definitely, the SGD will never be attacked. This is the first time anyone has spoken about it and you hear of it here.

Currency speculators attack in two ways. They short the currency in the FX market or the shares in equity market, or both. In above examples, the attacks were in the FX market except for Hongkong where speculators attacked the Hang Seng Stock Exchange.

To attack SGD, speculators first need lots and lots of SGD. And where do they go to get SGD? The debt market. And this is where they meet the first road block, a credit restriction.

Singapore is an important international financial centre. We are known to be an open market, but we are actually not quite as open as most folks think. As the size of the economy is small, Singapore needs to guard against the internationalization of the SGD. MAS Notice 757 sets out the restrictions on lending of SGD to non-resident financial institutions.

1. SGD lending to non-resident financial institutions is capped at SGD5m per borrower.
2. Where aggregate lending has exceeded SGD5m, lender bank must ensure that if the funds are to be used outside Singapore, it has to be swapped or converted into a foreign currency at drawdown.
3. Banks must ensure temporary overdrafts on SGD Vostro accounts are covered within 2 days.
4. Bank must not extend SGD credit facilities to non-resident financial institutions if there is reason to believe that the SGD proceeds may be used for SGD currency speculation.

So there you are. No money, no honey. No finance, no attack.

Now why didn’t anybody tell you this before?

Should the would-be speculator turn to the SGX, he will face roadblock number 2. He will need to contend with the Exchange’s regulations for delivery in 2 days. He may have facilities for borrowing scripts but he needs SGD financing.

FX Trading platforms

There is a way that speculators can play without access to SGD war chest. That is by using online FX trading platforms. Whether a currency attack on a scale in the above illustrations can be conducted in this manner has never been tried before. The best advantage is the huge leverage offered. But there are issues. Massive numbers are involved. Can the speculators take the credit risk on the platform. It is unlikely the speculators can be market makers using an online platform. High frequency trading involving small lots is inefficient and may not be good enough in a fast moving market. Platform trading is non-delivery and trades are closed out by evening. To carry the trade the rollover cost will pile up. Once the central bank retaliates and hike overnight interest rate, its game over. The carry cost will kill the speculators.

Conclusion

The truth of the matter is the narrative that keeping the size of our reserves serves to protect the value of SGD is a fallacy. Singaporeans have been hoodwinked for decades because nobody has the temerity to ask nor think for himself.



A parting shout out :

Plato said:
“The price good men pay for indifference to public affairs is to be ruled by evil men.”
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SINGAPORE PRESIDENTIAL ELECTION - EENY MEENY MINY MOE

Tharmand for me is suspect because of his affiliation to globalist elites. Has he been bought and paid for by the WEF? Is he one of those that Klaus Swab meant when he boasted WEF has infiltrated the cabinets of many countries in the world? All his brilliance and financial ingenuity count for nothing for me to take a chance on someone whose heart and soul is aligned to the interests and designs of an organisation so well beloved by 1% of the world’s billionaire inhabitants but feared and detested by the rest. Not to forget his nonchalance of state secrets led to his being charged under the Official Secrets Act. A forgiving system saw him let off the hook with a slap on the wrist and a too big to fail, or too important an official to loose mentality, saw no negative impact on his HR report card. Putting state secrets and WEF together is pretty worrisome for me.

As for Ng Kok Song, he may have no party allegiance, but he hails from the same incestuous closely-nitted network of the Singapore Inc crowd. He is a blackface trying hard to gain street cred with HDB hinterlanders. His sudden appearance is highly suspect. Has he ever uttered a word in support or in sympathy of lesser folks in the CECA debacle, in Hyflux or mini-bond investment fiascos when small fries got burnt? Or voiced the pain of the man in the street protesting the 2% GST hike and HDB prices? He strikes me as one who has been called upon to do national service for a system that he served well and in turn been treated extremely well. Kok Song worked for decades as CIO for GIC. He exited GIC in 2014 to set up his own Amanda Investment Fund. Which company lets an employee go set up operation and pumps billions of dollars for him to kick start his game unless blue tie network really means something. I am happy for his success, but I don’t like to be fooled. Kok Song, like Tharmand, has a Gordian knot of establishment bondage they cannot cut loose. Their claims to an independent presidency lacks credibility.

Now for Tan Kin Lian, he gives me headache. I see a lot of his FB posts and I want to be brutally frank here, no pussyfooting for me. In private I have often commented his posts on serious issues seem to display a lack of depth in his world views. Most of his posts have been kitchen variety inconsequential types. I tolerated his posts because there is a quality of cuteness and innocence to them. Overall, it reflects sincerity and a man connected to the ground he walks on. Who am I to say how he should connect with his Facebook followers. But for me, the problem is twofold which can come back to haunt him now that he is seeking higher office. One, sometimes he lets his guard down and careless in his comment that can be misframed in ways he never intended, such as that ‘pretty woman’ thingy currently going the rounds. Two, the pettiness of subject matter does not exactly speak well for one aspiring for high office.

Of the three candidates, Kin Lian has his heart in the right place. He has real concerns for the ordinary people on the wrong side of the economic miracle of Singapore. For this concern, he seems to see a larger role in the office of the presidency. There is no executive role for the president other than the narrow scope set out in the Constitution and other legislation as well as the protection of minority rights. I for one has consistently tried to deflate this well-intended but misguided expectation of Kin Lian whenever I see him stray into this topic and I think he does not take kindly to my comments. He has constantly made the point he will discuss with the Prime Minister and guide ministers in matters where public voices can then have a better influence on policies. In other words, he sees the president’s role as a back-up loop connecting public voices to the Executive. Kin Lian gave the assurance he is non confrontational and will approach this in the spirit of respect and team building and will work with the government of the day. Apparently he failed to understand 2 things here. Firstly, he is out of scope, and secondly, bringing a counter opinion to the Executive sets a potential collision course. This underlies a dangerous misunderstanding of the role of the Office of the President. The president’s role is not to act as a counter check on the government. The separation of duties is very clear, something Kin Lian does not seem to grasp.

In this respect, I feel the Elections Board made the right decision in truncating that part of his speech where he had strayed outside the scope of presidential duties. The Board did well in releasing an explanation of their action in timely fashion.

So with Kin Lian I am conflicted. I see a well meaning good man. Stature wise he is nowhere near Tharmand, personality wise I am afraid he trails behind both Kok Song and Tharmand. As regards the overhyped custodial role of state reserves, all three candidates are equally up to the task from experience but will similarly work in the dark like all past presidents. There is something about someone growing into the office. Should I vote with my heart and trust Kin Lian to grow into the office, or vote from adulation of a highly esteemed senior politician who harbours ideological philosophy prepared to bequeath Singapore sovereignty to international cabal of global elitists, or better yet, for someone who benefited tremendously working his entire life for the system and now suddenly professes to have the independence to represent the other side.?



A parting shout out :

Plato said:
“The price good men pay for indifference to public affairs is to be ruled by evil men.”
If you like what you read here and feel it matters Singaporeans know stuff like this, please click and share with your social circle. This makes my effort worthwhile.

This platform has withdrawn it's subscriber widget. If you like blogs like this and wish to know whenever there is a new post, click the button to my FB and follow me there. I usually intro my new blogs there. Thanks.

SINGAPORE RESERVES REVEALED – UNLIKE CNA VIDEOS, THIS IS FOR REAL

As the presidential election heats up, the ruling party feels enough unease of an outsider Tan Kin Lian nipping 2 contenders backed by them. State media CNA released a series of videos called "Singapore Reserves Revealed". It's mere propaganda and politicking and reveals nothing. It's a clicktrap title, the same I employ here except I reveal the closest one can get to the real size of the reserves.

The 4 Truths about Reserves:

(1) What are reserves : (19 Aug 2023) To Find Out How Much Is The Reserves You First Must Know What It Is..

(2)What is the size of our national reserves: (22 Aug 2023) Singapore Reserves Revealed - Unlike CNA Videos This Is For Real. 

(3)The lie about need to keep reserves a secret: (28 Aug 2023) Keep reserves secret to protect SGD is a fallacy - SGD cannot be attacked. 

(4) An oxymoron reality :(1 Sep 2023) The real reason Singapore hides its reserves in plain sight.

What is the size of Singapore’s national reserves? Kenneth Jeyaretnam has consistently mentioned S$3 trillion, Munwai has his own figures. What is yours? Kenneth has double first class honours degree in economics from Cambridge. If you are a Singaporean economist and never pondered this question of national reserves, you should return your degree to your alma mater.

I asked the Drunken Leprechaun guarding our treasure trove and he doesn’ t know either. ( A trivial for those who don’t understand. Leprechauns are little creatures in Irish folklore that guard hidden treasures. Drunken Leprechaun is an Irish screwdriver or cocktail.)

Frankly, I can only see Kenneth worked at macro economics level but exactly how he arrived at the S$3T figure I do not really understand, so I had never accepted it. I never have then, and I still do not, share KJ’s, and as well Munwai’s, persistent calls for higher social spending on the back of a huge national reserve. I explain below.

I am as curious as all Singaporeans who still have a mind of their own. Curious doesn’ t quite describe it. Concerned it is. And so I took a deep dive to work out the size of our national reserves. Unlike KJ, I took the micro route, using information in the public domain, and a best efforts estimation on GIC numbers. My computation is strictly based on the Constitution’s definition of ‘Reserves’.

Singapore Constitution states reserves “means the excess of assets over liabilities of the Government, statutory board or Government company”.

If you have not yet done so, do watch my video first for a full understanding : "To find out how much is the reserves, you must first know what is is."

Before I get to the numbers, a few points to note :

(1)The figures for government, statutory boards, MAS, and Temasek are from public domain. They are on group consolidated basis, meaning, inclusive of subsidiary companies. Details are in the embedded spreadsheet below. Unfortunately they are not homogeneous in the financial report date. Most are as at 31 Mar 2022. Nevertheless they provide a factual basis.

(2) There is a total of 63 statutory boards. The financials for 3 of them are not available. Missing are Hotels Licensing Board, Intellectual Property Office, and Defense Science and Technology Agency. HLB and IPO are small and with insignificant numbers. DSTA is most likely to be significant. Unfortunately, its financials are obviously classified, and quite rightly so.

(3) GIC data is classified. We have no choice but to make educated guesses. Its numbers are of course massive and thus affect the accuracy of the size of the reserves I am making here. The basis of my estimation is shown below.

(4) Missing completely from my computation is EDBI (S) Pte Ltd. This is the investment arm of Economics Development Board. It is obviously not included in EDB’s financial statement. I do not know why it is excluded and I was also unable to obtain its financials. EDBI has a massive investment portfolio of about S$80B but I have no idea what its net asset, or reserves is. EDBI is an oddity. The Economic Development Board Act certainly does not mandate EDB to operate an investment wing. More importantly, is any other statutory board also running any unknown investment companies kept away from public view? For side gossip, EDBI has in its portfolio the unlisted Livspace, the company where Minister Shan's son is the CEO.

(5) A persistent reader kept insisting reserves figures are readily available at various websites such as IMF and World Bank, and financial news media. What he really meant was foreign news folks are better than us locals because they are able to obtain GIC figures from the government that which PM Lee reiterated again a few days ago, is classified. If you have skin in the game you know the figures we see from those said foreign sources are predicated on 2 things – (a) Singapore's budget report to IMF does not follow their standards, (b) the GIC info from these financial media, including a dedicated site on sovereign wealth funds, are based on info extracted from investment tracking sites, such as Crunchbase, in other words, not a complete picture at best, and at worse, it is about portfolio size, not about reserves. There is a world of difference.

(6) The figures shown here are book figures. Accounting standards require certain assets to be marked-to-market which we simply rely on auditors’ certification of compliance. There are, however, massive portfolios in GIC, Temasek and EDBI which are unquoted stocks. These values are simply management valuations. I am not suggesting fraud or misrepresentations, but when these unquoted assets are massive and form a huge proportion in the portfolio, such as 53% in Temasek, it is concerning. For example, would the S$375m investment in FTX still be in Temasek’s books had CoinDesk not made the shocking revelation that led to the crypto exchange’s downfall?  The point is, valuation has a way of turning up nasty surprises.  

(7) On the other hand, in contrast to (6), state land remains at book value in accordance with government cash accounting. This means a significant undervaluation of reserves in view of real estate appreciation in land scarce Singapore. A caveat here. I have no understanding of how and where state land and reclaimed land is accounted for and where are the assets booked. We have been told, in sort of by-the-way moments, that land acquisition and reclamation are funded by past reserves. What are the implications on the accounting and reserves figure is unclear.

With that out of the way, here are the numbers:

The good news is, our reserves are indeed massive. Reserves, ie Net Assets, or Equity, is estimated at S$1.9T. I have only 2/3 of KJ's estimate of S$3T. How good are my figures? The "Total from published financials" line, or S$1.6T of the Reserves, we can have 100% confidence level, bearing in mind this is a book figure. The GIC estimates have been skewed more to the conservative side. So overall, the total reserves of S$1.9T I would venture a 80% confidence level

The bad news is, the amount available for discretionary spending is not what you think. S$1.9T is a heck of a lot, but before you bring out the champagne, understand that 65% of the Reserves are tied up in capital and committed uses. Only S$649B are in surplus funds. These surpluses are predominantly with GIC and Temasek. A substantial 53% of Temasek assets are in illiquid unlisted shares, and we can probably expect same with GIC. How much is actually left for discretionary spending?  Not enough for the social spendings loud voices are calling out for. 

After massive transfers to Reserves Management Government Securities recently, the Official Foreign Reserves of MAS is currently (July 31) S$452.5B. Those who still harbour the belief (Critical Spectator and his FB followers) that OFR is part of Reserves need only to look at MAS' Equity which is just S$34.3B. What this shows is OFR is not accumulated with Reserves (savings) but debt.

Details of published financials are in the embedded spreadsheet here.



Here are details of my estimation of GIC numbers.

(a) GIC started operations in 1981 with a capital of S$100M. I assume this has not changed. GIC was initially tasked to manage the investment of MAS's excess foreign reserves.
(b) Budget surplus of S$3B/year.
(c) NII is Net Interest Income which is dividends received + interest revenue less expenses in portfolio management. 50% goes to budget spending, 50% re-invested.
(d) NIRC is Net Investment Returns Contribution. This is NII + NIR. NIR is net interest returns on portfolio at 20 year rolling real interest rate. 50% goes to budget spending, 50% re-invested.
(e) Net proceeds of lands sales.
(f)(g) Funds from proceeds of government securities and deposits of other entities held by government. These are actual numbers.

(b)(c)(d)(e) are just estimates which are skewed to more conservative side to absorbs the chance certain amount is occasionally transferred to Temasek.

A higher level of confidence is possible if someone can invest time and effort to do some research at archives kept at Lee Kong Chian Library. I am not up to that. However, the format I set out here can be used by anyone with a different opinion of what each line item ought to be. Simply replace my estimates with yours and you can have your own idea of what the size of our national reserves is.


Plato said:
“The price good men pay for indifference to public affairs is to be ruled by evil men.”
If you like what you read here and feel it matters Singaporeans know stuff like this, please click and share with your social circle. This makes my effort worthwhile.

This platform has withdrawn it's subscriber widget. If you like blogs like this and wish to know whenever there is a new post, click the button to my FB and follow me there. I usually intro my new blogs there. Thanks.

TO FIND OUT HOW MUCH IS THE RESERVES YOU MUST FIRST KNOW WHAT IT IS

I got blasted again, by the Oracle of Singapore, Critical Spectator, that I know nothing about Reserves. I am putting this video out not because I'm miffed by CS, my ego is manageable, but to share with those who really try to undersand it.

The government media has also released a series of videos on Reserves in Youtube. I actually planned my video a little earlier. The timing is just coincidental. My effort is more academic, and a primer to my actual objective of showing what the government does not wish to tell Singaporeas - how much is our national reserves. I will do that in the next blog, on a best efforts basis.

A parting shout out :

Plato said:
“The price good men pay for indifference to public affairs is to be ruled by evil men.”
If you like what you read here and feel it matters Singaporeans know stuff like this, please click and share with your social circle. This makes my effort worthwhile.

This platform has withdrawn it's subscriber widget. If you like blogs like this and wish to know whenever there is a new post, click the button to my FB and follow me there. I usually intro my new blogs there. Thanks.

I SLEEP, THEREFORE I DREAM

“Who looks outside, dreams; who looks inside, awakes.” (Carl Jung)

The Holy Grail of my journey as a blogger is pursuit of the size of our national reserves, which is as mystical as the misty lake in which lay the Excalibur, the stuff of Arthurian tales forever etched in the recesses of memories of schoolboys of my generation. I am taking a breather from some research work to pen this blog on an inconsequential dream, actually banging away on a laptop with a faulty keypad. I spilt some water on it and a few of the buttons aren’t functioning anymore. Necessity is the mother of invention and so I resort to a methodology of copy and paste the dead characters. A poor workman has to learn to live with his tools. Darn it, I now realise my dead button “T” is the most used letter in English alphabet.

In younger days on my first visit to London, I purchased a collection of hardcover books, classics that I had intended to read in my golden years. Well, I do admit in part I thought they will look impressive on display bookshelves behind my desk in the study room. There were Romance Of The Three Kingdoms, Water Margin (Chinese classics in English translations as I cannot read original scripts), Readings of Edgar Cayce, and others. Much to my regret, I lost the copy of Cayce’s book on ‘Dreams’ before I had a chance to read it. It would be great to see if this celebrated clairvoyant can make sense of what dreams are all about.

Personally, I think dreams come about when our brain does spring cleaning work when we sleep. Our brain has the memory the capacity of a mainframe computer, if not bigger. It is astoundingly huge. To maintain efficiency, it performs the equivalent functions of repartitioning, defragmentation, registry optimisation, etc whilst we sleep. As these bits and bytes of our memories are moved around, we get juxtapositions of broken pieces of visuals which we string into short stories of a dream. We inherit the chromosomes of our parents, which contain traces of their forebears or lineage. Similarly, I posit, we also inherit some memory cells of our lineage. This I think, explains why some people believe they are reincarnations of someone else, and which forms the library from which our dreams are drawn from.

I had a vivid dream of an old school chum whom I shall call Seng. This dream was downright mundane if not for the fact the protagonist was someone whom I have never heard from nor heard of for 5 decades since leaving school. I wonder why he should appear in my dream in such a vivid manner. I saw him as in our teenage years, his mannerism, his voice, the way he talked, his gait, his dressing, and his smile, just as if it was yesterday.

I thought I blog it for posterity, something to reminisce about and share with my scout brothers.

Seng was one of our scout leaders, well-liked and respected. As a senior scout, he was one of the good leaders for the troop. Polite, obliging, responsible and to use a word from today’s vocabulary, inclusive in nature. He was way smarter than I was academically, what with him in the ‘A’ class and me in ‘B’. I was not really close to him to get a sense of his inner feelings. But I had always thought of Seng as one of those likely to reach some level of prominence in life. Much later after school did I learn that English Language was his Waterloo. English was a compulsory subject and his weakness of it averaged his scores down badly in the GCE examination. I also learnt decades later that he had some disagreements with our scout master, the matter of which no one really was privy to. Whatever it was, it seemed so damaging that Seng severed all relationship with the entire scout troop. He simply vanished from our orbit to this day.

I wonder how Seng could possibly have an altercation with our scout master who we call Skip, short for skipper. Our beloved Skip was a gentle soul, a teacher with most empathy. He did not run a nanny scout troop. Instead he let the patrol leaders play leadership roles. He kept a watchful eye, helped to liaise with sponsors when needed, and kept out of the way, joining us occasionally to impart some moral wisdom here and there, or introduce some new games..Other school scouts often wonder how we managed to have military tents for camping events, complete with three tonners for transport, courtesy of the British Army. Skip was never interested in his charges acquiring all those scout badges to pin on the chest, like our generals. Whenever we attend campfires, our boys were the most under-decorated scouts present. All we had was just the minimum mandatory ‘tenderfoot’ badge. Instead Skip focused on leadership and basic fun survival skills, taught us to love and respect nature. We learnt how to keep the environment we occupied in much better condition when we leave, long before PAP started those anti-littering and keep the country clean campaigns. Unfortunately, Skip never had the blessings to enjoy his retirement. He was involved in a tragic fatal accident while holidaying in Australia shortly after his retirement.

In my dream a few days ago, Seng was sitting on a bench looking for something in his wallet. As I approached him, his mobile rang. Anachronism is something we do not question in dreams. My dream had the feel of late1960s, and Seng had a mobile. He passed his wallet to me to hang on to while he managed the mobile with one hand and rummaged his knapsack for something with the other, then he said "Let’s go", all seemed to be in one single motion. As I too had some stuff to carry and my jean pockets were all full, I placed his mobile in my shirt pocket.

Off we went to another place where the dreamscape looked like a park. There we were met by a group of our scout mates. As we engaged in animated chatter, a couple of policemen came up to us to conduct a random check. Except for Seng, all of us showed IDs and satisfied the lawmen. Both Seng and I had forgotten his wallet was with me. With no ID on him, Seng was led away to the police station. Several minutes after the trio departed, I realised the error of my ways. In haste to bring the wallet to Seng, I jostled myself out of dreamland.

In the darkness of the night I pondered over a meaningless encounter in a dream which is our personalised matrix. We pursue dreams in our waking hours with busy schedules, building networks, meeting datelines. In sleep, dreams pursue us for purposes we understand not.

Carl Jung said: “Who looks outside, dreams; who looks inside, awakes.”

For all his prowess at psychoanalysis, I think Jung plays with our mind. Seng, the policemen, whatever, the dream is only actionable for me if I was able to see the 4 digits of the patrol car registration plate that I can bring to the sweepstakes. Baring none, I am just grateful for a metaphysical and ephemeral experience to remember friends whose paths we never have the chance to cross.

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A TERRIBLE DARK WINTER IS COMING. IS SINGAPORE PREPARED?

While Singaporeans are caught up in bedroom escapades of amorous members of parliament, several international events have taken place recently, each on it’s own, portends bad tidings, taken together, is a terrible perfect storm brewing, whose impact will be felt in every country in the world.

Jul 7 - Black Sea Grain Agreement terminated

Ukraine is the granary to the world and ships its grains out at its port at Odessa. This port is crucial because it is Ukraine’s largest port with silo facilities for grain and is capable of handling Panama class vessels. When the war with Russia broke out, Ukraine’s access to the world by sea was effectively cut as Moscow controls the Black Sea. This triggered severe global food security and exacerbated an already ugly inflation brought about by Covid pandemic and the Russo-Ukraine war.

The agreement, brokered by EU, was signed in Jul 2022 by Ukraine, Russia and Turkey which kept Odessa port open and the grains flowing again even as the warring states were bombing each other. Turkey was involved because maritime route goes through Boshorous Straits where Istanbul is. Turkey is responsible for inspecting the vessels to prevent arms shipment going through.

On Jul 7 this one year agreement expired. Ukraine asked for 120 days extension which Russia rejected. Russia has also rejected Turkey and EU’s request for 60 days extension. Of course the West go ballistic on evil Russians. Putin adamantly rejected continuance of the agreement can only mean the other side has not kept their part of the bargain, whatever that was. Who knows, perhaps Turkey was letting arms shipment through.

We are back to square one. Ukraine’s major grain export is corn and wheat. So be prepared for surge in prices again. Wheat is not a staple food for Singapore, but as global consumers seek alternatives, inflation will kick in again.

Jul 20 India bans export of non-Basmati rice

I covered this in my previous blog. Straits Times regurgitated Western media that suggests India’s ban was an effort to bring prices down ahead of the coming 2024 election. I reasoned it was due to a conflict with World Trade Organisation that forced India’s hand to ban the export of rice.

India is the world’s largest exporter of rice, accounting for 40% of the market or 22m metric tons. Who in the world can replace that extra 22m m/tons at short notice? To add to the woes, India’s rice is the cheapest in the world. The more expensive rice will simply become even more expensive.

The biggest rice producer in the world, just slightly ahead of India, is China. The Chinese are self-sufficient in rice, but continues to be a net importer, buying about 4m m/tons annually. The speculation is China is building up a huge rice stockpile to beef up food security in an uncertain future. For the first time in 2019, China began buying Indian rice.

Singapore's import from India forms only 17% of total rice imports. The authorities allayed fears, confident that Singapore's diversity of rice sources will see us through. Our rice comes mainly from Thailand, Vietnam, India and Cambodia. We also buy from Pakistan, Japan and Australia. Importers also lock in with forward purchases. Another short term measure is our rice stockpile which is adequate for 3 months. Singapore’s rice stockpile is unique amongst nations. There is no official stockpile. The government is smart to pass the burden to licenced importers. We trust there is reliable monitoring and stockpiles are in fact in place. However, forward purchases and stockpiles are good only for the short term. With a permanent Indian export ban, every importer in the world is going to be chasing the same diverse suppliers that Singapore has.

India has said that they may still sell to some countries if they asked for it. In other words, a government-to-government arrangement. Has the Singapore government taken the early initiative to approach Indian authorities?

El Nino

El Nino is a climatic condition that brings warmer and drier weather to the Pacific part of the globe. It delays the monsoon rains and reduces precipitation to Asia and SE Asia which has a devastating impact on water hungry rice plants. Some years, El Nino brought much feared drought. This is terrible because 90% of the world’s rice is grown in these regions.

This year, El Nino seems to come one or two months earlier. Scientists say early arrival is bad because this gives it time to grow in severity. This is extremely bad news for rice production this year.

Fertilizers santion

Agriculture needs fertilisers which could be nitrogen, potassium or ammonia based. The biggest potash producing country is Canada, second is Belarus. Western countries punish Russia with crippling sanctions. Sanctions extend to Russia's ally Belarus. The West has not been sympathetic to Belarussian appeal that a sanction on potash is going to hit global food production. We know Vivian Balakrishnan poked the Russian bear with sanctions. We don’t know if he is also aligned with the Western sanctions on Belarus.

Jul 27 Fed raised interest rate

Fed increased interest rates by 25 basis points. USD interest rate is now at its highest in 22 years at about 5.5%. This tightening has come even though inflation is slowing down. And worse still is the Fed has said another increase is likely in September. The increase in USD interest rate will see US exports its inflation all over the world and cost of finance cascades down to all goods and services. Imagine what 25 basis points can do to the cost of oil and you can understand its eventual impact.

Aug 1 China impose export restrictions on Gallium and Germanium

These are rare Earth materials. Gallim is used in electronic products and China produces 80% of world supply. Germanium is used in the making of chips. And China produces 60% of world supply. China claimed the export restriction is for national security reasons. China’s rare Earth export restriction is going to hit every electronic product you can name.

Conclusion

The cancellation of the Black Sea Grain Agreement and the Indian ban on non-basmati rice will push prices of 2 staple food produce of grains and rice to record highs. El Nino and Belarus fertiliser ban will cause further severe shrinkage of world agricultural produce. The increase in USD interest rate will raise cost of capital adding more pressure on businesses. China’s rare Earth export restriction is going to strangle the electronics industries and the digital world. Coming together at the same time, we are going to be hit with a sledgehammer of price increases in every product and services we use and consume. Inflation is going to shoot to heights never seen before. Will food and electronics production security drive nations into new conflicts?

How prepared is Singapore? Like have we asked India for exemption from the rice ban?

And while we are being hit by an onslaught of another round of price increases due to exogenous causes, the coup de grace for many Singaporeans will be the 1% hike in GST next year.

A terrible dark winter is coming. Be afraid. Be very afraid.



A parting shout out :

Plato said:
“The price good men pay for indifference to public affairs is to be ruled by evil men.”
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AN EXAMPLE OF QUALITY NEWS FROM GOVERNMENT MEDIA

Straits Times Jul 21 said “India, the world’s biggest rice exporter, banned shipments of non-basmati white rice to maintain domestic prices at comfortable levels ahead of the general election due in early 2024.” This is typical msm of to reprint in toto from news aggregators sans research, internal analysis and input.

The economic background – yes, India has been hit hard by high inflation, as high as 15%, much higher than most countries reeling from consequences of pandemic lock down and the Russo-Ukraine war. A contributing factor is the weakening of the Indian Rupee..

This event requires examining the reasons for the ban..

The lazy explanation is the political one which ST accepted lock stock and barrel. Everybody who knows India knows the bugbear of their election is vote buying. An “India-First” government ban on rice export now hardly matters 8 months later in the heat of election..

India is the largest rice exporter in the world. It has 40% of the rice export market which works out to 22m metric tons. Indian rice is the cheapest in the world due to its lower cost of production. With the ban, 22m m/t of rice will be dumped into the domestic market and prices will be forced down. And then what? Unless Indians take to 7 meals a day, huge though their population is, they can’t consume all those extra rice. The huge glut of rice will not just bring down the price of rice, it will collapse the industry. Farmers go bust and eventually much of the land under rice production will be diverted to other crops. Its a natural consequence. Eventually, after years, equilibrium returns with optimum production levels and fair market price..

In the meantime, India commits seppuku as it kills a major export earner. Lesser foreign currency inflow means weaker rupee leading to upward pressure on inflation. In the longer term the export ban is suicidal. It begets the question – why do it? What is the real reason?.

Could it be the weather? The monsoon season started very late this year. This means lesser and late sowing in the traditional July/August months leading to lesser harvest in October/November. A ban on exports in expectation of prices rising due to poor harvest makes a lot of sense. However, this can be ruled out. Firstly, India did not explain the ban is a temporary move. It would have done so to minimise goodwill damage. Secondly, India has a huge rice stockpile that can ride over this hit from nature. Lastly, the vagaries of nature is nothing new to India. This one is no different..

Is there any other possible reason? Is there any boss bigger than the Prime Minister of a land of 1.3b people that Modi has to bow to? Yes. It is the World Trade Organisation..

WTO has a thick book of rules and regulation that all member countries abide by. By and large, countries surrender a chunk of their sovereignty in joining such international organisation. In agriculture, WTO mission is to maintain price stability and food security. There are certain rulings with regards to public subsidies to farmers. Governments are constrained by the extent of support they can provide to the agriculture sector. In this regards, India had been at conflict with WTO for many years..

India has a huge stock-holding scheme for rice. The government buys up massive amount of rice for 2 purposes. (a) it has a distribution scheme where the underclass buys from government outlets at below market prices. (b) due to massive production capacity, domestic prices are suppressed. When government purchase for their stockpile, they subsidise farmers by paying a higher price than the market..

This has brought India into conflict with WTO for many years. WTO holds the view India is manipulating price of rice with high subsidies. A WTO “peace clause” bought India some time to sort out the problem. India had proposed its rice be moved to a category that indicate subsidies do not distort trade, or cause only minor disruption. This was rejected by controlling member countries. And who are these? Western grain-producing countries..

This conflict came to a head because the “peace clause” expired in 2023. India has no choice but to withdraw its rice from the international market. This is the only logical reason for India’s drastic move. .

Straits Times reporting reminds me of a comic incident. In younger days when I was a junior in a foreign bank in Singapore, we had an economist. In those days banks used their foreign branches to collect economic and political intel of respective regions which are submitted to Head Office for compilation into some review book. Our economist’s time was spent scouring newspapers, cutting extracts, photo stating them, and then binding into booklets for weekly submission to HO. No analysis, no reviews or opinions from him. One day, my colleague, an office boy, cheekily asked him, “My X, is your job just to cut and paste only? If like that, I can also do what.”.



A parting shout out :

Plato said:
“The price good men pay for indifference to public affairs is to be ruled by evil men.”
If you like what you read here and feel it matters Singaporeans know stuff like this, please click and share with your social circle. This makes my effort worthwhile.

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HO CHING AND INDRANEE MISINFORMATION ON LAND RESERVES

This is the 3rd and final installment of Eh, Goondu series.

Watching Indranee, 2nd Minister of Finance, explain land reserves back in Nov 2022 parliamentary debate, and reading Ho Ching’s Jun 24 post in Facebook on same matter, is an exercise in incredulity. Indranee expounded “ownself declare ownself” accounting principles and Ho Ching basically regurgitated same same.

What I find exasperating is when word salads from the two luminaries threw Singaporeans into confusion, no one from academia or The Society of Accountants take it upon themselves to come forward to present their views. A community depends on the collective wisdom of our professionals to participate in intellectual discourse that helps shine light for everyone. Without doubt Indranee and Ho Ching are highly respected and brilliant individuals, but having a lawyer and engineer expound accounting matters is as good as an economist performing a surgery. Singaporeans must learn the danger of argumentum ab auctoritate, or argument from authority fallacy. Basically, this is a tendency for people to think that well the explanation came from such a high official, or expert, it must be true and correct.

Where is state land booked?

It is not accounted for by SLA which is merely the agency that handles the buying and selling of land on behalf of the government. State land is either acquired or reclaimed, so there is a cost which is the book value. In which agency of the government is this asset accounted for, we don’t know.

Operating lease or financial lease model

Accountants would talk in terms of these models regarding sale of land on 99 year leases. Indranee merely said “There is no net increase in the reserves when land returns to the State after the lease expires, as the value of the lease did not include the value of the reversionary interest.” From this we know the sales are all operating leases. That means the land reverts to government at zero cost after 99 years.

Reserves Fig (a):

As explained in 2nd installment of Eh, Goondu, our national reserves is the net assets of government + statutory boards + (GIC,Temasek). Net assets = Equity which is made up of Capital,P&L, General/Specific Reserves.

Why is Equity shown on the right side with Liabilities? Because Equity is what the entity owes to shareholders. It’s what’s due to shareholders, thus it is a liability from the entity's point of view.

In fig (a) our national reserves is $200m. So where are the assets that make up this $200m? Well, we don’t know specifically. We know $200m of the total assets of $600m are our national reserves. So the point is, if you want to know how much our national reserves are, don’t look at the assets side, look at the liabilities side.

Valuation Fig (b):

Now that you know what our reserves are, you want to know are the asset values realistic. Accounting standards require certain assets to be marked-to-market, eg listed equities and securities. Other assets are carried at historical cost less impairments, such as investment in unlisted companies.

Mark-to-market gains/losses and impairment are unrealised. We are just writing the assets up or down to recognise changing values. To recognise means to take into P&L. The change in values affects both assets and our reserves, ie Equity (P&L) as shown in fig (b).

Eg a plot of land cost $20m. It is now worth $22m. Asset and Equity are adjusted by $2m accordingly.

For assets that cannot be marked-to-market, valuation is left to management. It’s basically "ownself declare ownself". In the case of Temasek for example, 53% of it’s $382b total assets are shares in private unlisted companies. You can appreciate the implications, especially now that they have stopped publishing statutory audited accounts.

Disposal Fig (c):

On disposal such as in sales, 3 things happen.
(a) Asset type changes.
(b) Value change (whether gains or losses) are now realised.
(c) If the value change is higher than what has been recognised so far, the additional change affects reserves. Eg if that plot of land is now sold for $26m, the realised gain is $6m. Earlier, $2m of the gain had already been recognised. So $22m asset (land) has now been changed to asset (cash) $26m, and reserves (P&L) increases by another $4m.

Indranee : “There is no net increase in the reserves when state land is first sold and the sales proceeds are transferred to the financial assets. It is just a conversion of one asset form to another.”

The minister looked only on the Assets. What happened to Liabilities side of the Balance Sheet? If the cost of the land is $20m and realised for $26m, the Minister was writing new accounting principles to not recognising a $6m profit. I wonder if her colleague the Commissioner of IRAS will agree.

State land

Per CNA : “She explained that under Singapore land laws, which can be traced back to English land laws, all title to land in Singapore is derived from the State and the state leases the land to others.” Indranee : “Land that was not leased out by the state remains state land, and under Singapore’s Constitution, all state land forms part of the country’s reserves”

Actually Singapore adopts the Torrent land registration system which is an Australian system. Is the minister saying there is no land in fee simple (freehold)?.

When she said “all state land forms part of the country’s reserves”, we need to unpack this properly. Is she referring to “reserves” as defined under the Constitution (which means “net assets”)? If sold under 99 year leases, the asset has gone out of the Balance Sheet. From the legal perspective, ownership of the leased land remains with the government in the case of operating leases. The government owns reversionary rights to lands leased out, ie the land reverts back to government at the end of lease term. But from accounting perspective, the land is gone. It is no longer an asset in the books.

Now if we were to compute the country’s wealth, then it is a completely different perspective altogether. We can include all those land sold off under operating leases because governmen retains ownership. This is taking the view that latent assets are wealth in the same way like untapped oil and gas reserves under the land or sea, or minerals, or forests, are wealth to some countries.

So we need to be clear that here we are talking about the Constitution which uses the accounting concept of reserves. So those leased out land no longer forms part of the reserves. And to be absolutely clear, nowhere in the Constitution does it mention “all state land forms part of the country’s reserves”. There was misinformation or disinformation on the part of the minister and 90 odd members of parliament took it all in.

Land as past reserves

Indranee : “….. the reversionary interest in that parcel of land had all along formed part of our past reserves.”
Ho Ching: “So land is part of our past reserves, and an inheritance to conserve and protect for our future generations. Hence, whenever we sell land, we must lock up the net proceeds as part of our past reserves.“

Here we have once again misinformation or disinformation by Indranee and Ho Ching.

Singaporeans need to be crystal clear here. Nowhere in the Constitution does it define past reserves. The number of times the term “past reserves“ mentioned in the Constitution is ZERO. Yap, this is fact.

The Constitution makes constant reference to what is not permitted to be “drawing on the reserves of the Government which were not accumulated by the Government during its current term of office”. There are 2 clear inferences here. (a) reserves are “accumulated” or built up, or gains made, by a government. (b) accumulation by present government can be considered “current reserves” and accumulation as at commencement of current government are “past reserves”.

And in case you are wondering, the Constitution most definitely never mentions that proceeds from land sales cannot be spent. 100% fact. Because like I said, Constitution, like accountants, think of reserves on the Liabilities side of the Balance Sheet, not on the Assets side.

Reserves accumulation on state land

I explained in the 2nd installment, assets are not fungible so we cannot itemise specific assets to represent “reserves”. Suppose just for the sake of illustrating a point, we look at a plot of land 100,000 sq ft acquired in 1970 at $10 psf. Cost is thus $1,000,000. Suppose it was sold in 2022 for $8m, thus making a gain of $7m. The proceeds is $8m.

According to both Indranee and Ho Ching, the entire $8m are past reserves which cannot be spent. Well actually Ho Ching said net proceeds of $7m ($8m- $1m) must be invested as past reserves.

Under the Constitution we need to see reserves are accumulated by which government. And this depends on government accounting policy. The present government term started in July 2019.

If policy requires valuation gains/losses to be recognised yearly, then $4m of increase in reserves is due to past government, and $3m is accumulated by present government. So of the proceeds of $8m, past reserves is $5m (valuation gains + cost) and current reserves is $3m.

But if policy is to carry land at cost, then there is no valuation. This is the case with government accounting, In this case, $1m is past reserves and gains on sales of $7m occuring in 2022 is entirely current reserves.

Remember, the distinction of past or current reserves is important to the issue of whether the government can or cannot spend it as dictated by the Constitution. Past reserves NO, current reserves, YES, government can spend. 

Government policy on land sales

It is government policy not to spend the net proceeds on land sales but to transfer the cash to the sovereign wealth funds to invest. There is nothing wrong for the government to make policy it deems fit so long as it does not conflict with any legislation. In this case, there is no conflict with the Constitution as regards restriction on spending past reserves.

Seen in this light, the issue is crystal clear.

Since it is government policy, it is open to challenge by opposition. There is nothing wrong with Leong Munwai asking all those questions and making suggestions.

Indranee and Ho Ching’s bla bla bla on land reserves are confusing and tantamount to misinformation and disinformation.



A parting shout out :

Plato said:
“The price good men pay for indifference to public affairs is to be ruled by evil men.”
If you like what you read here and feel it matters Singaporeans know stuff like this, please click and share with your social circle. This makes my effort worthwhile.

This platform has withdrawn it's subscriber widget. If you like blogs like this and wish to know whenever there is a new post, click the button to my FB and follow me there. I usually intro my new blogs there. Thanks.

DID I INFRINGE 'EH, GOONDU' COPYRIGHT?

In my last 2 blogs I used Sylvia Toh's book cover as an insertion in my feature image. She has very politely asked me to take it down and I have obliged with apologies. I usually ask permission or give credit to images I use. I did not ask Sylvia’s permission as to my best knowledge, there was nothing improper.

We all make mistakes. When we do, own up and make good what we can. Life is not that complicated. However, did I infringe Sylvia’s copyright, that’s what I want to get into here.

In any case, I like to say that my "Eh, Goondu" is not name calling Ho Ching. You will note in all my many blogs, whilst I have been critical of Ho Ching's decisions or speech, I only attacked the issues. Check out my 2 Eh, Goondu blogs (3rd one coming soon), there are no ad hominems, but facts and my opinions on issues.

Eh, Goondu is not specifically referring to madam, rather a poor attempt to use a comical icon of the past to humour all those who I believe, hold an incorrect interpretation of national reserves. I certainly hope Singaporeans are not so uptight as to agitate at such triffles. Afterall, those who recall Eh, Goondu understand Sylvia was not disparaging anyone. It was a tongue-in-cheek name calling. Although goondu is local slang for idiot, it is used in a sort of endearing way.

To the younger generation who don't know what it's all about, "Eh, Goondu" is a creation of Sylvia long ago. It was her classic comic sketches with classy Singlish and was the spice of my generation’s earlier days when Singapore was not such a money-faced metropolis and ministers earned depressed wages.

I'm sure my reference to Eh, Goondu refreshed in many feebled old minds, the fun of yesteryear. Too bad Sylvia does not wish to join in rekindling her old fame and rejuvenating an iconic trope.

I have always said, in all honesty and humility, that when stuff happens and one is blessed with certain knowledge, it presents a teaching moment not to be wasted. However, let’s not be presumptuous to call it teaching, let’s just call it sharing.

I want to share some pointers on COPYRIGHT, specifically relating to my Eh, Goondu blogs. This has great relevance to most folks who write, copy, cut and paste, and post or comment regularly online. Copyright protection law is wide-ranging, and still evolving as the digital era brings with it new legal challenges. I don’t lay claim to any professional expertise. What I do know and want to share, relates only to my Eh, Goondu situation.

In Singapore, copyright protection used to be under Copyright Act 1987, now superseded by Copyright Act 2021.

So actually, Sylvia has no copyright over her Eh, Goondu bookcover and book since it was published in 1982. It’s the doctrine of Lex prospicit, non respicit. It means laws have prospective effect, never retroactive.

Another thing to know is something called ‘public domain’. Anything in public domain has no copyright protection. So when does a piece of work enter public domain? (a) You’ll be surprised the statute of limitation for copyright is much more longer than other serious illegal acts. For authorial works such as books, the protection lasts up to 70 years after the death of author. Thereafafter it is public domain property. (b) When the owner allows it to be used publicly. (c) In most countries, like US, copyright may or may not be registered. Those works not registered generally enter the public domain. In Singapore there is no registration of copyright. By default, the owner of the work has the copyright. Sylvia’s Eh, Goondu is obviously in the public domain since it is pre-1987.

Although you can freely use what’s in public domain, it does not mean you can pass it off as your own work. That's illegal. You cannot make profit out of it, and you still need to give attribution. In my Eh, Goondu blogs, Sylvia’s name was prominently displayed. In fact, her book was promoted.

One cannot claim copyright over phrases and common words. There is no infringement of any kind in my continuing to use “Eh, Goondu”.

Holy Blood Holy Grail was a best selling non-fiction book in 1982 whose idea originated from Henry Lincoln, who later co-authored with Michael Baigent and Richard Leigh. Some time after it’s publication, Dan Brown came out with his fiction Da Vinci Code. The novel and movie had huge financial success. If you had read both books, like I did, you will be one million percent convinced Dan Brown copied the ideas from HBHG. Baigent and Leigh sued and lost. Back then, I never understood why Dan Brown won the suit. It seemed totally unfair. Years later I learnt what it was all about. It is not specifically mentioned in the Copyright Act, but it is an established principle that expressions of ideas cannot be copyrighted. This has nothing to do with the Eh, Goondu issue. It’s an interesting concept in copyright I thought I throw it in here.

Finally, a fairly new legal concept you need to know is “fair use”. Very basically, this allows one to use someone’s work in furtherance of some good work you are doing which benefits the community, such as research work, education related, etc.

Now, the question is, if I am certain there was no infringement of copyright, why did I take down the Eh, Goondu bookcover image. The answer is very simple. Beyond legal boundaries of right and wrong, there is an ethical issue. It's the same way I view the Da Vinci Code suit. Although I was very certain there was no copyright infringement, I still accept Sylvia as the rightful owner. So if the rightful owner respectfully asked to take it down, I obliged. But had she approached me like the mafia DOJ in US pursuing American conservatives, the outcome could have been different.

With all due respects to Sylvia, I don't think she really cares about the copyright thingy. She's not selfish. I think she fears being associated with a seemingly anti-establishment post. I have some requests from a few folks not to share such posts with them. In fact, a handful 'unfriended' me on account of this. Whatever, everyone is entitled to what they want, which I respect. Just for the record that I am saddened folks live under such psychological duress in Singapore.

The purpose for this blog is, as I have stated, it is a ‘teaching moment’. More importantly it is also to cover my integrity that I strive to write with no fear or favour, but within legal, moral and ethical confines.



A parting shout out :

Plato said:
“The price good men pay for indifference to public affairs is to be ruled by evil men.”
If you like what you read here and feel it matters Singaporeans know stuff like this, please click and share with your social circle. This makes my effort worthwhile.

This platform has withdrawn it's subscriber widget. If you like blogs like this and wish to know whenever there is a new post, click the button to my FB and follow me there. I usually intro my new blogs there. Thanks.

WHY HO CHING AND EVERYBODY GOT IT WRONG ABOUT RESERVES

This is the 2nd installment of my Eh, Goondu series.

In her 24 Jun Facebook post, Ho Ching also touched on national reserves and past reserves. Just about everybody who has written or commented on national reserves, got it all wrong. President Ong Teng Cheong got it wrong. Ho Ching got it wrong. So did Kenneth Jeyaratnam, Leong Mun Wai, Prof Christoher Balding, one Michael Petreaus, and many other luminaries. A bold statement, but let me explain.

Reserves

It is not a matter of who said what reserves are. It is not subject to interpretation. The Constitution of Singapore defines reserves as “the excess of assets over liabilities of the Government, statutory boards or Government companies”, the last of which refers to GIC and Temasek. The Constitution does not mention whether the entities are to be taken on a group consolidated basis, ie, inclusive of hundreds of companies fully and more than 50% owned. It is assumed to be group consolidated.

What an entity owes to shareholders is Equity, which is represented by assets less liabilities. Hence the Constitution takes the accounting term of Equity as “reserves”. To drill down a bit, Equity comprises of Paid-up-capital, Undistributed Profit & Loss and General or Specific Reserves which are funds set aside for some purposes.

If there are “reserves” it means there are net assets to back it. But except for cash, the assets are not fungible. Cash is mutually interchangeable, one can easily replace another. What this means is that you cannot identify which are the assets that represent the “reserves”. A simple example makes this clear.

Suppose an entity has Capital of $200m which is deposited with a bank. It borrows $400m, again deposited with a bank. It now has total assets of $600m cash. So now the “reserves” comprise of only Capital of $200m, represented by Assets $600m less liability $400m, ie net assets of $200m. So if you want to identify the assets that make up the “reserves”, you go down to the bank and count $200m cash, put them aside and say these are “reserves”.

Suppose the $600m was spent to buy a piece of property. So now the “reserves” is still $200m and total assets remain $600m. It is now impossible to identify the assets to represent the “reserves”. You can’t cut up the land and say this part is worth $200m and is the “reserves”. The “reserves” is simply backed by a portion of the total assets. And this is the real case in almost all situations.

Anyone who talks of a compilation of assets to present as our “reserves” have fundamentally misunderstood the whole thing. OTC chased after a list of government assets which is technically near impossible. How do you quantify the cost of Nichol Highway, Ridout Road, Anderson Bridge, etc. Even if that is possible, all the assets aggregated do not represent “reserves”. They are total assets. How do you split the assets, which to represent reserves and which to liabilities? To add to the complexities, which part of the assets of subsidiary companies which are not 100% owned, belong to our national reserves?

Ho Ching went down the same rabbit hole as OTC when she wrote “Of course, at the margin, we can count other assets like computers, buildings, tables and chairs, as well as flower pots and curtains as part of our reserves.“ She spent several paragraphs of her post discussing these physical assets.

On the other end of the spectrum, folks like KJ, LMW, Balding, Critical Spectator, and almost everyone who has commented online, refer to the investment portfolios of GIC and Temasek, as well as the foreign reserves of MAS, as national reserves. Going by the definition of “reserves” above, these investments and foreign reserves are not totally our national reserves. That is because on the other side of their balance sheet, they have massive liabilities. Only a portion of the investment portfolios form our national reserves. It is impossible, and neither is it necessary, to identify them.

But this does not mean it is not possible to determine how much the “national reserves” are. To do this, simply follow the Constitution. Add up the net assets of the government, statutory boards, the 2 sovereign wealth funds. Takes only a few man-days to do that.

Past reserves

The present administration is the 15th Goverment and was formed in July 2020. Thus any reserves accumulated before 2020 are considered past reserves. The President has the authority to veto any spending by the government if in his opinion, past reserves are being, or will be, used. This is crystal clear to everybody.

Job of the President as regards government spending

Online comments indicate a general public very concerned about government spending excesses and wrong priorities. There is heightened demand for an independent President with a more socialist soul. Many want to see a President who can play a more active role in influencing policy making and help steer the moral compass of a government that seems to be hitting new lows again and again. I believe presidential hopefuls like Tan Kin Lian and George Go have also made expressions in that direction.

Sorry to disappoint. The President’s role is strictly ceremonial. There is no way the President can interfere with the Executive on any policy matters except in 3 areas – (a)the appointment or removal of certain key personnel specified, (b)over-rule the Prime Minister and green-light a graft investigation by CPIB, and (b)spending on past reserves.

The budgets of government and statutory boards are discussed in parliament and then presented to President to rubber stamp his approval. Approve he must. He has no option. Unless the Government and statutory boards inform him the spending is dipping into past reserves, which by law they have to pre-advise him, or in his opinion, he thinks the budget will cause past reserves to be utilised, then he MAY exercise his right not to approve the budget and send it back for revision. Other spending bills are processed similarly. In this way, the President holds the 2nd key to past reserves.

Ho Ching wrote : “Hence, the function of a 2nd key is not to peer into the safe, but to judge if there is a real emergency, and if the amounts being asked for is reasonable as a rainy day need or even as a contingent need.“

Madam is right that it is a situation the President has to make a judqement call whether a dip into past reserves is justified. That is the crux of his responsibility.

However she is wrong about “not to peer into the safe”. By that I take it to mean to check the asset inventory. This, as explained above, is impossible. The assets are not fungible therefore it is physically impossible to identify what represents the past reserves. But it is relatively easy to obtain the combined net assets of the government, statutory boards and sovereign wealth funds. In other words, the book values of our national reserves.

Just like the guards in the first Eh, Goondu blog, it is incumbent on the President to know what is the book value of past reserves he is taking over. In addition, he has to know the book value of reserves accumulated in the current administration. Without this information, there is absolutely no way he can diligently discharge his duties as required by the Constitution independently.

The Constitution specifically provides the President access to any information he asks. OTC could have the information to determine the size of our national reserves, at least the book value. He just didn't know what to ask.

Intricacies

Under the Constitution, the entity presenting the budget or spending bill must advise the President when they are accessing past reserves. It’s a sort of “ownself declare ownself” (thanks to Low Thia Keng for giving us this sort of easily understood term). In order not to be blind-sided by a rogue government, the argument for the President to have his own database of past and current reserves of all relevant entities is self-evident.

Under the Constitution, when there is a transfer of reserves by one entity to another, the transferee entity must also record it as reserves, and not liabilities. Furthermore, it has to be recorded as past or current reserves accordingly. The Constitution is silent on the role of President in this and we can only assume he is not in the loop. The President needs to be in on this or how else is he going to be up-to-date in his information.

What happens when an entity makes a huge loss that wipes out general reserves and capital, just like MAS this year. Crafters of the legislation obviously missed this sort of intricacies. The Constitution does not address this, but I read somewhere the government does not consider it a raid on past reserves. I suppose they simply assume it as a negative current reserve. This avoids the need to go back and revise past reserves figures reactively which in time will become one big mess.

Conclusion

It is apparent to me the President must maintain his own database on past and current reserves. The data is dynamic due to intricacies above. This information must be readily handed over to an incoming new President. I wonder if this is actually being done and whether the Office of the President is adequately staffed to manage this. I doubt this is being done, why else would OTC felt like he was operating in the dark. If this is not done, then the President is just a lame duck rubber stamp and all talk about the 2nd key to the reserves is only for show.

In my concluding installment on the Eh, Goondu series, I will dwell on the issue of SLA land as past reserves.

A parting shout out :

Plato said “The price good men pay for indifference to public affairs is to be ruled by evil men.”
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