http://sonofadud.com/2012/06/21/the-tru ... -imf-loan/Singapore to lend IMF $5 billion
By Malminderjit Singh
Singapore on Friday (April 20) joined the ranks of the Group of 20 (G-20) countries by contributing a US$4 billion (S$5 billion) loan to the International Monetary Fund (IMF) to help troubled economies.
This is part of the broader international effort to boost the IMF's lending capacity, which managing director Christine Lagarde wants to increase by US$400 billion.
The Monetary Authority of Singapore (MAS) on Friday announced that Singapore will make a bilateral loan of US$4 billion to the IMF but stressed that this contribution will be by way of contingent loans to the Fund, and not directly to countries borrowing from it. "Hence, as with our permanent capital subscriptions to the IMF (or quota subscriptions), this bilateral loan will remain part of Singapore's Official Foreign Reserves," MAS said in a statement.
Singapore joined other countries at the G-20 spring meetings in Washington to make this commitment to the IMF.
In a separate joint statement issued, Singapore - along with Australia, the Republic of Korea and the United Kingdom - said these contributions were made "to increase the precautionary resources of the IMF" and would be done by way of contingent loans or note purchase agreements.
Besides the pledge by Singapore, Australia committed US$7 billion, Republic of Korea US$15 billion and the UK US$15 billion, bringing the total pledged yesterday to US$41 billion.
The four countries clarified that their contributions have been made to increase the capabilities of the IMF in playing its role effectively without any specific mention of whether this amount would be used for helping to bail out eurozone countries from their debt crisis.
"Should these additional resources be used, they would support well-designed IMF programmes with appropriate conditionality and risk-mitigating measures would apply."
The IMF announced on Thursday that it was confident of raising an additional US$400 billion of funds to assure markets that it was able to cope with any future needs of the eurozone crisis. It has already secured US$320 billion in commitments, buoyed by Japan's pledge of US$60 billion and a total contribution of US$34 billion by Poland and Switzerland.
At the meeting of G-20 finance ministers and central bankers in Washington, Ms Lagarde said she expected the IMF's "firepower to be significantly increased" and even mentioned a commitment from Singapore without specifying any amount.
While the IMF is closer to the US$400 billion target it has set for it to better cope with the crisis, the figure is down from the additional US$500 billion Ms Lagarde had initially requested in January.
The IMF is yet to receive a contribution from the US, the largest contributor to the Fund, although it is unlikely to make any additional funding commitment with presidential elections only a little more than six months away.
China, another notable absentee from the list of contributors thus far, has been silent on its likely commitment although it is expected to do so at the G-20 meetings alongside its fellow BRICS - Brazil, Russia, India and South Africa.
msingh@sph.com.sg
Ah, the joys of living in a democracy. Where we don't need to vote to participate in the war in Iraq and executive power sidestep every legislative constraint that exists.The article noted that Singapore had agreed to contribute to the fund and that China and the US had not. The manner in which this was announced in the foreign press as a done deal certainly made me feel that the loan had not gone through the necessary safeguards and that the manner in which it had been agreed could not have been constitutional.
A lot of people, including lawyers, straight away told me,” don’t be silly the PAP will have sought Presidential approval.” But rather than cast wild aspersions I decided to write to the Minister of Finance and ask him to explain. There followed a deafening silence. I wrote again. Silence. So I write to the President again twice and now of course it turns out that his approval was not sought and that he is leaving MAs to deal with it.
Let us visit the relevant Acts that could explain this starting with Article 144(1).
The giving of loans and guarantees is governed by Article 144(1) of the Constitution which states as follows:
144.
—(1) No guarantee or loan shall be given or raised by the Government —
(a) except under the authority of any resolution of Parliament with which the President concurs;
(b) under the authority of any law to which this paragraph applies unless the President concurs with the giving or raising of such guarantee or loan; or
(c) except under the authority of any other written law.
We know from the record that Parliamentary approval was not given and neither was the President’s so that rules out (a).
Article 144(3) of the Constitution provides a list of the laws to which (1) (b) applies. However the only one relevant in these circumstances is the Bretton Woods Agreements Act which governs Singapore’s relationship with and subscriptions to the IMF. This is the amount of gold and local currency that the country deposits with the IMF. This in turn governs its votes as a member of IMF and also the amount it can borrow in foreign currency should it need to.
This Act itself has an inbuilt lack of accountability since it says that the MAS can accept a subscription increase at the IMF on behalf of the Government with the approval of the Minister of Finance. No resolution of Parliament is required though Presidential approval is still required.
However the IMF itself has stated that this new round of commitments is over and above countries’ current subscriptions to the IMF. Therefore Singapore’s loan commitment does not fall within 144 (1) (b). I put this in an open letter to the Minister of Finance dated 29th May 2012 ( http://thereformparty.net/about/press-r ... r-finance/):
As the IMF communiqué and your own answer make clear, the contingent loan is not part of an increase in Singapore’s quota at the IMF and therefore is not exempted from the necessity for Parliamentary approval under the Bretton Woods Agreements Act.
This leaves 144 (1) (c) “except under the authority of any other written law” as the only way in which the government can sidestep the need for Parliamentary and Presidential approval of the IMF loan commitment.
By stating that the President has referred my letter to the MAS for an answer we can see the way this is going.
MAS may now attempt to argue that this is within their powers because the IMF loan commitment falls with Article 24 of the MAS Act. I reproduce this below:
24. The funds of the Authority may be invested in all or any of the following:
a) gold coin or bullion;
b) notes, coin, money at call and deposits in such country or countries as may be approved by the board;
c) Treasury bills of such government or governments as may be approved by the board;
d) securities of, or guaranteed by, such government or governments or international financial institutions as may be approved by the board;
e) such other securities, financial instruments and investments as may be approved by the board.
It is quite clear from this that it is intended that MAS can only invest in tradeable securities and liquid instruments such as Treasury bills commensurate with its role as the central bank. Loan commitments are not securities.
Only (e) seems to provide a loophole.
Financial instruments are defined under the Securities and Futures Act (Cap. 189) as:
“financial instrument” includes any currency, currency index, interest rate instrument, interest rate index, share, share index, stock, stock index, debenture, bond index, a group or groups of such financial instruments, and such other financial instruments as the Authority may by order prescribe;
Again this pretty clearly does not include loans.
That leaves investments.
The OECD discusses various definitions of investment (http://www.oecd.org/dataoecd/3/7/40471468.pdf). Most would seem to include loans but this is qualified normally by the inclusion of the qualification that there has to be some degree of control exercised over the institution to which the money is lent. The Canadian model does not include loans unless they count towards regulatory capital (quasi-equity) at the financial institution to which the money is lent. This is not the case here where the IMF has requested over and above Singapore’s quota at the IMF, which determines our shareholding at that institution.
However, rather than engage in a semantic debate with the government over whether this loan commitment is covered by the definition of investment, there is a more fundamental objection to the use of the MAS to evade Parliamentary and Presidential scrutiny.
Article 24 states the “funds of the Authority.” MAS acts as the manager of the official foreign reserves of Singapore but this does not mean they are the Authority’s funds just as when I managed a hedge fund the investors’ money did not belong to me. The actual funds of the MAS are the General Reserve Fund ($41 million as of 31st March 2011) and the Currency Fund Reserves ($7,340 million as of the same date).
This makes it obvious that the loan will not be coming from the MAS’s own funds but from the official foreign reserves which MAS manages on behalf of the government when it is drawn upon. The Finance Minister has admitted as much when he said in his stage-managed Parliamentary answer designed to give the illusion of accountability to the IMF:
“However, there will be no change in OFR if the loan is drawn on by the IMF; what would happen is a conversion from a foreign investment asset to a loan to the IMF, which will still count towards OFR.”
Clearly then this loan commitment falls under Article 144 (1) (a) which states that “(No guarantee or loan shall be given or raised by the government) except under the authority of any resolution of Parliament with which the President concurs .
The Finance Minister should definitely have sought both Parliamentary and Presidential approval before he made this loan commitment particularly given his conflict of interest as head of the International Monetary and Financial Committee of the IMF. In democratic countries Ministers have been summoned before Parliament and forced to resign if they were found to have misled Parliament or broken the Constitution.
Oh. Not to worry, the nanny state knows best, and they know when and where to enact neccessary policies that sidestep popular sentiment.
Oh, except when the government can't remove anti-buggery laws because you know, the public won't like that.
