Tuesday, April 9, 2013

It's Still A Debt

Someone tried to explain why Singapore has a public debt equivalent to 105 percent of its GDP, the 14th highest in the world.(2012 estimates: 111.40 percent, 13th highest, CIA World Factbook)

The illustration used was, two guys borrowing $1 million each. One has zero bank balance, the second has another $1 million to his name. First guy has net debt of $1 million, second guy has net debt of $0, even though he has a gross debt of $1 million. Both guys are betting they can secure higher returns from the open market than their borrowing cost. And both guys are exposed to the same financial risks.

The second fella is similar to the investment entities of Singapore, namely Government of Singapore Investment Corporation (GIC), Temasek Holdings, and the like (there must be more than one $2 company out there somewhere). The sleight of hand here is the Special Singapore Government Securities (SSGS), a special bond unique to this country. A bond is a promissory note that an issuer undertakes to repay at a due date with a stipulated interest rate. Simply stated, money is taken from the hard earned savings of Singaporeans lodged in the Central Provident Fund (CPF) account to play in the financial markets. The irony not missed here is that the justification for withholding a Minimum Sum in CPF is to ensure senior citizens won't gamble it all away.

The Finance Ministry boasts: "The investment returns are more than sufficient to cover the debt servicing costs." Since the people are seeing only a pathetic 2.5 to 4.00 percent return on their own monies, they had better make sure they deliver on the promise. Never mind if Christopher Balding has the charts to show that, no way, Jose, has Temasek ever achieved the double digit returns they crowed about. 

Balding also points out that should GIC and Temasek fare poorly or collapse, the Singaporean tax payer will end up with the cost of guaranteeing the CPF. Should GIC/Temasek end up in a position not being able to pay back the debt, the government will simply raise taxes on the CPF holder, asking him to subsidize the losses incurred by Temasek/GIC. Ever wonder why costs for government and government related services keep going up even though productivity and innovation in the public sector are heading in the opposite direction?

The second guy in the above example will still lose his shirt when the weather turns if his $1 million was secured as collateral for the loan, no matter if his debt is designated net or gross. GIC/Temasek should be made accountable for their own gambling debts. Like the spectacular blow-out at middle-income housing projects Stuyvesant Town and Peter Cooper Village: "The government of Singapore, well, they lost the most — over US$600 million. It all just went poof.” (Charles Bagli, "Other People’s Money").


  1. The people at Shit Times are churning more shit each and every day to cover the shit they have excreted the previous day.

  2. The 60% Singaporeans are too stupid to understand what is public debt and why it matters to us, more so than foreign debt and why we would be rated AAA precisely because the CPF is fully controlled by the government.

  3. "GIC/Temasek should be made accountable..."

    Fat chance that President Tony Tan will agree.

  4. accountabilty? That is not in their dictionary... where is Mr Cow "come clean with the people" Boon Wan?

  5. I am still wondering (probably till my last breath) as to why the allegedly incompetent Malaysian Govt can achieve & pay a much higher interest as high as 6~7% for their EPF funds year in year out while our supposedly more competent & uncorrupted Spore Govt can only achieve to pay a max 2.5~4% interest throughout all these years.

    To add insult to misery, they didn't even try to act funny like ours by subjecting a higher 4% interest rate to a certain maximum limit. Talking about who is cheating their members, it seems as if those 'corrupted' ones can pay much better than those 'honest' ones.

    1. The reason why the EPF in Malaysia can pay higher interest than our CPF is simple.

      Our CPF is retricted to investing in Singapore Government securities only. The EPF on the other hand, can invest in other asset classes, such as stocks and shares, private equity and property. The EPF has recently bought the Battersea Poweer Station in London for 375 million pounds. Their return on investments on this mix is higher than the CPF's return on SG government bonds.

      Do we want CPF to stick to safe and sound government securities or punt in the stock market and UK properties?

    2. Come on. Who are u trying to kid? SGS derives its money from? TH and GIC not belong to the government? TH and GIC invest in bonds? LOL... Try harder.

  6. Apart from the already confirmed (but not yet booked due to accounting gimmicks) losses from deals like 11b in UBS and the above-mentioned Stuyvesant, and Temasek's ABC in Australia, Singaporeans suffer from this misguided "reserve" accumulation strategy at another level. As mentioned, the high level of "reserves" is often explained away as a means to defend the Sing dollar. In the last decade or more, investors have come to believe the reserves fully justify the MAS' almost holy-cow policy of appreciating the sing dollar at 2% a year. Hence, foreigners who bring their money into Singapore get a "pao-chia" deal, but Singaporeans suffer high inflation, a humongous and often denied property bubble and perpetually suppressed low interest rates on whatever savings they leave in the banks. In short, the govt forcibly takes without asking your money as a "loan" at super low interest rates, then stoke up inflation so that they repay you in nearly worthless banana money. And when they blow in away in deals like UBS, they just tax you for more budget surpluses, or maybe like Cyprus, just write off the losses in CPF's books, the same way Dr Teo wrote of $10m in minibond losses :) Why those residents in the 14 town councils do not protest I do not understand.

  7. http://en.wikipedia.org/wiki/The_Merchant_of_Venice

  8. From what I see, CPF WAS a good idea when Singapore first began as a country. It create a good source of funds to invest in infrastructure to grow the country.

    Now it becomes a source of funds to write blank cheques to gamble with.

    All these funds could have been gambled on young local companies instead fattening the pockets of greedy bankers and foreign banks.

  9. Frankly, I don't think you are qualified to write about finance because your article is full of holes.

    First you talk about the 2 guys who borrow $1 million from the bank to invest. This is called leverage. Leverage magnifies your profits or losses. the higher the leverage the higher the magnification.

    Then you suggest that GIC and TH are like the 2 guys and this is where you are horribly wrong.

    GIC invests the surpluses of the government. They invest whatever money the government gives to them from the surpluses. They are an investment fund, not a hedge fund. They only invest what money they have. They do not borrow to increase their investment funds. They are not on leverage.

    TH was formed to hold the shares of the state enterprises of which we are all familiar with. Since then, TH has grown entirely with internally generated funds, dividends from their holdings, proceeds of stock market listings (e.g Singtel) and profits of their share sales (they made a lot of money from BOC and ICBC, for example). They do, however, have some modest borrowings in the form of corporate bonds issued but they amount in total to less than 5% of their total assets.

    Regarding the losses from bad investments in the last few years, market professionals just shrug and say, no big deal. It's the chattering classes that are cursing and swearing and wondering if it is our CPF money that's been lost.

    First, we must put things in perspective and have a sense of proportion. GIC and TH are estimated to have lost perhaps US$10 billion in bad investments in the last few years. This is 2% of their combined assets of about US$500 million.

    Bad news get into the press, good news seldom. Do we read about their successful deals and the profits they made in the same period? No. As any investment manager will tell you, it is impossible to score 10 times out of 10. You win some, you lose some. What is important is in the end you win more than you lose.

    Regarding Balding, I suggest you read what he writes with a lot of caution. His credibility was torn to shreds in one of his articles a few months ago when he made the absurd claim that the 400 staff of TH were paid an average salary of US$52 million a year, including drivers and cleaners. He has a personal agenda though I don't know what it is.

    1. If you think you are really qualified, show us the money trail of our CPF. What happens to the money used to purchase the govt bond. As for Balding, that is only one thing that he got wrong. As you wrote, it is impossible to get 10 out of 10. You win some, you lose some. Or are you applying double standards? Try discredit every single statement of his if you think he is totally wrong.

    2. I agree with Anon@4/09/2013 9:01 PM -- show us the money trail of our CPF monies then.

      Why is it that when TH reported a returns of a whopping ~17% this is translated into a abysmal 4% interest returns in our CPF? Is the discrepancy due to management costs of our CPF monies by TH or GIC? Have you heard anywhere where an investment has (i) a returns of 4% (barely above inflation), and (ii) has a management fee of 13%???

      Would YOU put your money in such a investment entity?

    3. TH and GIC combined assets US$500 billion? How come you know and nobody else knows? And they lost only $10 billion over the last few years. Show us.

      "Frankly, I don't think you are qualified to write about finance....."

    4. You don't know but lots of people do. TH publishes an annual report and their fund size is public knowledge. GIC does not publish, but investment houses and the financial media such as Financial Times, Reuters and Bloomberg who track GIC's activities can estimate their fund size. Their estimates average US$400 billion.

      I estimate their realised losses at $10 billion. UBS is not yet a realised loss as GIC is still holding on to their shares. Their net investment in UBS, less dividends received so far, is still under water, but not by a lot.

    5. There are two or more ways to look at an issue. If one of the ways doesn't suit you, doesn't mean it's "full of holes". I don't view an argument favorably when it starts off doing personal attack.

    6. If you are indeed qualified to write about finance as what you seem to be trying to explain here, can you then please explain why is it then that nobody from GIC or TH has ever rebutted Balding's articles officially, especially when it reflects so badly on GIC/TH investments.

      You have also said that bad news get into the press, good news seldom. But with our Shit Times in control of the media here, isn't the opposite of what you are claiming is actually happening here.

      So anyway, are you trying to cover up for your master's deceit because there is really no reason for you to speak up without facts to back you up ?

    7. If I am not mistaken, Balding did not make the absurd claim that "the 400 staff of TH were paid an average salary of US$52 million a year, including drivers and cleaners."

      From what I understand to be correct, he commented that total administratives expenses published in the books was extremely high and when compared to the no. of staff employed, it is quite an unusually high figure for administrative expenses to be recorded.

      It seems like you are putting words in his mouth. The odd thing is that the TH management does not see it necessary to provide an explanation. It is as if something is wrong somewhere.

    8. @Anon 4/10/2013 11:30 AM

      Precisely, management fee for most investment hedge funds are usually pegged at around 1-2% with the added feature of the investor being able to withdraw their investments at their will.

      TH - a GLC that uses our monies through CPF, sees NO OBLIGATION whatsoever to reveal clearly its gains and losses towards CPF, and justify its high management fees.

      Does TH look like a value for money investment entity? Anyone who has some financial acuity knows the answer to this question.

      Notwithstanding the conflict of interests (which the PAP has difficulty understanding with AIMsgate), between the current PM LHL and Ho Ching of TH... The PM's response to this is equally bizarre - they (LHL and HC) discussed this and thought it would not be a problem and concluded it wasn't!!! Did they take us for idiots???

  10. If Lehman can fail, why GIC, MAS, TH cannot? Is CPF monies even secured? Can they just pay you back in kind? Many loopholes lah.

  11. And the PAP still has the audacity to go around on a shopping spree buying expensive US Fighter Jets.

    Vote them out in GE2016.

  12. the old fart has confirmed several times, GIC manages not only "budget surpluses" but the bulk of the CPF money "lent to the MAS" in the form of Sing Govt Bonds. In reality GIC is gambling with CPF money as if it was the government's own money. As in Cyprus, CPF holders shud recognise that money lent to banks or govts is fully subject to "haircuts". But at least in Cyprus, the cypriots willingly deposit the money in (ie lend it to) the banks. Here, your permission is not sought, neither directly nor thru parliament. Prepare for the day when they raise taxes from you, to repay you this debt which was lost in casinos! Or outright write-off. The way the central banks are printing money worldwide (Japan prints 20% of our GDP in one month! US prints one third of our GDP in one month, how much reserves does GIC and TH manage again??), even if foreign bond markets do not crash, they will be worthless in Sing dollar terms in a few years. It is an open currency war of debasement going on around, and the twins of GIC and TH are happily doling out big cheques in the same debased foreign currencies, while the MAS keep the Sing dollar appreciating!! It doesn't look to me like these people know what they are doing. What do you think?

  13. They dont have to know their works.

    They only need to know how to reward themselves.

    You die, your bizness!

  14. well .... somebody has to lose in the game of multi billions "investments"

    what matters most are;

    transparency ... who are those involved, the timing of those investment and divestment

    but for some .... impairments are the norm

  15. I m very very sure if you let Workers Party manage our Singapore SWF, the returns will be much better than what we are getting now. I think impairments will be the rarity even when there is a worldwide financial crisis.

    It will be totally transparent, in the way like for every investment made, they will publish whose idea was it, what price they invested in, for how long they intend to hold, and what price they got out. They must also justify why they want to invest in that company.

    And the best is that the investment managers are paid much less than the private sector.