About Time To Come Clean

It was Workers' Party's Low Thia Khiang who first pointed out that profits from land sales for construction of HDB flats end up at the Singapore Land Authority. The money from land sales on long lease is not included as part of the budget for current government spending, but goes into the mysterious reserves of the balance sheet, Low cited a previous official reply in Parliament, the black box that President Ong Teng Cheong was not allowed to query.

On Saturday, Mah Bow Tan explained the mechanism in play, “This is because all land is sold at prices set by the Chief Valuer, and the land sale proceeds go into the reserves. When he says that I’m going to finance this by lowering the value of land, basically what he’s doing is taking money from the reserves. It is not a matter of left pocket to right pocket, it’s a matter of taking, dipping into the reserves.” The administration of these national reserves remain opaque except to some undisclosed individuals.

The prices set by the Chief Valuer are presumably at or close to market rates. This was a precedent set by Dhanabalan when he was Minister of National Development, using his perverse logic that land allocated for public housing could have been easily sold to the private sector for pure profit, the difference representing a market opportunity cost. This is a far departure from Lim Kim San's original noble mission of providing affordable housing for the masses, with land acquired at zero or nominal cost.

The question that arises from Mah's revelation is where the profit for the land sales is posted. As it appears, HDB is made to look like paying a high cost for land, with the huge profits shelved to SLA, the large sums of which must be mighty tempting for its officers, especially those with a predilection for fast cars. Either way, if the effect is to boost the GDP statistic, we can see where the slippery road leads. As Ministers are paid a bonus pegged to the GDP number (8 months if the GDP grows by 10% or more), they have a vested interest to make this figure look good.

While the analogy may not be perfect, the games accountants play have a horrific parallel in corporate history.

The collapse of Enron was due to the finagling of Chief Financial Officer Andrew Fastow who used mark-to-market accounting whereby anticipated future profits were tabulated as if real today. An accounting entry referred to as Special Purpose Entity (the black box, a term CEO Jeffrey Skilling himself admitted) was devised to misrepresent earnings and modify the balance sheet to portray a favorable depiction of its performance. The artificial earnings boosted share prices, translated into bonus payouts for its directors and executives. Enron's shareholders lost $74 billion in the 4 years before the company's ultimate bankruptcy.

When Wall Street Analyst Richard Grubman complained that Enron was the only company that could not release a balance sheet along with its earnings statements, Skilling had replied "Well, thank you very much, we appreciate that . . . asshole." ("Conspiracy Of Fools: A True Story", Kurt Eichenwald). It is imperative, for the sake of the people and the nation, that HDB's books be opened for public scrutiny. The alternative is just too ugly to contemplate. The only upside is that a Minister could move to Changi Prison.