Who holds the sovereign wealth of this nation and why?
Thursday, 30 July 2009,
Sydney Morning Herald:
SINGAPOREANS aren’t usually given to open criticism of the Lee family that has ruled them for half a century. Rightly or wrongly, some presume that in their tightly controlled island state, walls have ears, and one never knows who is listening. But this time it’s different. Singaporeans are deeply displeased with their Prime Minister’s wife, Ho Ching. – “Lumbered with the boss’s wife”.
Kenneth Jeyaretnam
Investment in our only natural resource, our people, could potentially have had a much higher internal rate of return, in the form of a more highly educated workforce, than that achieved by Temasek or GIC on their overseas investments.
Sovereign Wealth Funds (SWFs) are not a new idea. According to Wikipedia, the term Sovereign Wealth Fund was first used by Andrew Rozanov in an article entitled, ‘Who holds the wealth of nations?’ in the Central Banking Journal of May 2005. A SWF may be broadly defined as a state-owned investment fund composed of financial assets such as stocks, bonds, property, precious metals or other financial instruments.
Theoretically one can distinguish two types of SWFs. The first, and the oldest form of SWF, is one set up to manage revenues from an exhaustible resource such as oil, or one which derives its assets from government budget surpluses. An example of one based on resources, and arguably the first SWF was the Kuwait Investment Authority, a commodity SWF created in 1953 from oil revenues before Kuwait even gained independence from Great Britain. A more recent example is the Norwegian SWF which was set up primarily to ensure that the wealth represented by Norway’s oil reserves was not squandered on current consumption but turned into financial assets which would benefit future generations.
Temasek could be said to be an example of the first type of SWF. It was set up in 1974 to hold stakes in the various government-controlled companies, such as DBS, SIA and Singapore Technologies, that had previously been held by the Ministry of Finance. The Temasek Holdings website states that, “Our investments are funded through dividends we receive from our portfolio companies, our divestment proceeds, commercial borrowings, a maiden Yankee bond issue in 2005 and occasional asset injections from our shareholder, the Minister for Finance (Incorporated).”
The second type of SWF is one set up to manage a country’s excess foreign exchange reserves. GIC is probably an example of this type of SWF since it was set up in 1981 with the explicit objective of managing our foreign exchange reserves for long-term capital appreciation. I say probably, as there is very little transparency, so it is not clear whether it is also funded by capital injections from the Ministry of Finance in the same manner as Temasek. However a significant portion of its funding may come indirectly from the CPF which invests primarily in debt issued by MOF. No information is available on the current level of assets. The website states only that the investment portfolio is in excess of US$100 billion. However various estimates have put the level of assets at between US$250 and US$330 billion.
Singaporeans need to be asking, particularly in the light of the recent investment losses, why Singapore even has not one, but two, SWFs. Singapore does not meet the criteria for the first type of SWF since we do not need to manage a windfall from any natural resources. If Singapore had expanded its domestic investment and consumption over the last 30 years it would have had smaller current account surpluses and thus smaller foreign exchange reserves needing management. MAS already has sufficient foreign exchange reserves necessary to manage the Singapore dollar. No second SWF was needed to fulfil this function.
Again without transparency we have no breakdown of how much government saving in the form of surpluses has contributed to both Temasek and GIC’s growth over the years. But we do know that the cumulative budget surplus over the last thirty years has been considerable.
Where have these oft lauded budget surpluses come from in the first place. Well we all know how to save money. We cut back on expenditures. When a country cuts back on the absolute basics such as free education for its children then it creates a budget surplus. Let’s make no mistake here. No other First World Nation only has compulsory education up to the end of Primary school and even that only for a very short day and that minimal compulsory education not even free (although heavily subsidised). I am not advocating a welfare state but to put it bluntly, Singaporeans have helped to pay for our enormous overseas investments by forgoing free universal education to secondary level, a national health insurance system and other elements of a social safety net which are characteristic of most countries at Singapore’s level of development
The budget surplus, having been taken from the pockets of Singaporeans, then represents money that not only could have, but should have, been returned to the citizens of Singapore in the form of lower taxes, fees and charges. It could have also been used to finance much higher domestic investment in education or in health and welfare. Their website states that Temasek has achieved an annualized return of 18% since inception though that is based on the March 2008 asset figure of S$185 billion rather than on the current valuation of S$145 billion announced by CEO Ho Ching yesterday. Investment in our only natural resource, our people, could potentially have had a much higher internal rate of return, in the form of a more highly educated workforce, than that achieved by Temasek or GIC on their overseas investments.
Instead of the Government investing our money to pick winners through an industrial strategy there could have been greater incentives for investment and R&D in the private sector which might have led to faster productivity growth and higher levels of real incomes. And even if GIC has not been funded directly by the MOF, the growth of our foreign exchange reserves has come about through chronic external surpluses which represent domestic under-consumption and under-investment.
As a final ignominy, CEO Ho Ching announced on July 29th at the Institute of Policy Studies that Temasek was thinking of allowing Singaporeans to co-invest alongside Temasek sometime in the next ten years. How kind of her. I thought we had already invested as outlined above. The only positive side of this news is that it would presumably force Temasek to be much more transparent about its investment process and corporate governance. In any case any personal financial adviser (and I am not one) would not advise an investment in a company without sufficient transparency that required due diligence.
As we all know, calls on the government for accountability and transparency in its sovereign wealth funds is not new. However; I would go one step further! Many of you know that I gave a speech at the Foreign Correspondents Association lunch on the 2 July 2009. In answer to a question put to me after the lunch I went on record as saying that Singaporeans should be given a direct stake in our SWFs, either through their privatization and the issuance of shares to Singapore citizens or through the explicit linkage of part of the value of these assets to the welfare of Singaporeans, as is done in Norway through the Pension Fund.
To counter one possible objection that our national “crown jewels” could end up being bought by foreigners the government could retain a golden share which would prevent this happening to Temasek’s portfolio of domestic GLCs. Longer term there is no reason for Singapore to continue to run large budget surpluses over the course of an economic cycle.
In conclusion whilst I will not let up on calling on our government for greater transparency and accountability into how it manages our money, I would urge it also to look at credible new proposals such as mine, rather than confining itself to the limited steps outlined by CEO Ho Ching in her speech.
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Friday, July 31, 2009
State coroner records a verdict of suicide in David Widjaja's case
State coroner records a verdict of suicide in David Widjaja's case
By S Ramesh, Channel NewsAsia | Posted: 29 July 2009 1703 hrs
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SINGAPORE: Singapore's state coroner on Wednesday recorded a verdict of suicide in the case of David Widjaja, who was found dead on the grounds of Nanyang Technological University (NTU) on March 2 after stabbing his professor with a knife.
Widjaja, an Indonesian national, was a student in NTU's faculty of Electrical and Electronic Engineering, while Professor Chan Kap Luk was the one supervising Widjaja in his final year project.
State coroner Victor Yeoh took nearly one and a half hours to deliver his 73-page verdict. He concluded that at about 10.25am that day, Widjaja had voluntarily stabbed Chan with a knife in the professor's office.
The coroner added that a struggle followed, and it was possible that Widjaja could have sustained some injuries during the struggle.
Yeoh also concluded that after the incident, Widjaja had walked towards the parapet wall near a link bridge, sat at the edge and then fell to his death on his own.
The coroner also concluded that there was no foul play involved in the incident.
The inquiry into Widjaja's death was held over 10 days with 27 witnesses testifying, including pathologists who carried out the autopsy, police officers at the scene of the incident and NTU students and staff who had witnessed the event.
Much of Wednesday morning's proceedings involved the state counsel rebutting many of the submissions made by the family and its lawyers.
The family had made some final submissions to the court, claiming that the evidence given by some of the witnesses during the 10-day inquiry was untruthful.
Yeoh noted that it is the family's contention that Widjaja was murdered by Chan. However, he explained that the autopsy findings were consistent with the accounts given by several witnesses who saw Widjaja fall on his own.
Dr Marian Wang and Professor Gilbert Lau, who performed the autopsy report on Widjaja, had certified that he had died of multiple injuries.
The coroner noted the family's contention that they would have brought Widjaja's body back to Indonesia for another autopsy if the cause of death was multiple injuries.
However, he stressed that there was no basis for the family to question the integrity of the pathologists in the discharge of their professional duties. He also said he did not find anything suspicious in the way the autopsy was performed.
Yeoh also concluded that Chan was a credible witness, and he had not deliberately concealed anything during the inquiry. The coroner also stated that the relationship between Chan and Widjaja was professional, and that Widjaja was not being singled out by the professor.
Yeoh also noted that it was Widjaja who had stabbed the professor, as only Widjaja's DNA was found on the handle of the knife.
Meanwhile, the family's lawyer Shashi Nathan said the Widjaja family intends to pursue the findings of the coroner back in Indonesia.
- CNA/yb
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