S R Nathan on his 12 years as President

(From left) Mr Goh Chok Tong, Mr S R Nathan and Chief Justice Yong Pung How during the swearing-in ceremony in the State Room at the Istana in September 1999.
(From left) Mr Goh Chok Tong, Mr S R Nathan and Chief Justice Yong Pung How during the swearing-in ceremony in the State Room at the Istana in September 1999.PHOTO: ZAOBAO FILE

In his memoirs, An Unexpected Journey: Path To The Presidency, Mr S R Nathan reveals how he arrived at key decisions on the use of Singapore’s past reserves during his tenure as guardian, including his approval of a $4.9 billion drawdown in 2009. Insight brings you excerpts from the book, which Prime Minister Lee Hsien Loong will launch on Monday.

Some members of the public assume that the president has the power to do what he likes. I have often been asked why I, as president, could not take action in matters of public interest when there was dissatisfaction with government policies.

In reality the president’s position at the apex of government is largely symbolic. The president is head of state, not head of government. He has to act within the constraints laid down by the constitution, and needs to have a good working relationship with the executive arm of government. His role is to stand apart from the executive and be above political parties. He must be free to think in terms of the nation as a whole and have the right to exercise his discretion; but he must not trespass on the prerogative of the executive arm of government.

In addition to the powers spelt out in the constitution, the president has by custom the right to be consulted, the right to warn and the right to encourage. None of these customary rights are legally enforceable. These customs also do not amplify the powers in the constitution, which required that I act as advised by the cabinet except in a few areas. However, the way in which a president attempts to exercise these “rights” attributed to him by custom is determined very greatly by the relationship between himself on the one hand, and the prime minister on the other. I exercised these rights sparingly and privately, as part of the regular consultations with the prime minister away from the public eye. I routinely saw cabinet papers, and submissions by ministers to the cabinet. Sometimes it is helpful for the president to act as a sounding board, to share problems and give a perspective on solutions the executive may have in mind. There is nothing to stop the president from seeking a review of the particular cabinet advice, especially if he can present strong reasons. The public should understand that the president has access to all the information that goes through the cabinet system, and the fact that it is open to scrutiny by another pair of eyes should provide some reassurance. The cabinet secretary is the contact point.

One well-known duty of the president is to respond to appeals for clemency made on behalf of those sentenced to the death penalty. It is a painful thing to sign a death warrant, for on that order an execution takes place and a life goes. However, the road to that place is long, sometimes two or three years before a final appeal is heard, and during that time the case is reviewed and evaluated in great detail. I followed the entire process of the clemency appeal as it is reflected in the cabinet papers (together with the advice of the cabinet), the views of the chief justice, the report of the presiding judge and the attorney-general’s opinion. If I had some doubts – say if the evidence seemed circumstantial – then I asked the attorney-general or the solicitor-general for a briefing. It happened sometimes that there were aspects to a case that were not fully explained in the summary initially presented to me. I always took pains to satisfy myself that everything has been done within the legal framework to ensure justice in the process of handling capital cases.

The new responsibilities entrusted to the elected president were derived from constitutional amendments made in 1991. Foremost was the power of veto vested in the president to safeguard the nation’s past reserves, i.e. prevent any future government from irresponsibly spending reserves accumulated by previous governments. The elected president controls the “second key” in the event that past reserves need to be called on at a time of economic stress.

The president was also empowered to approve key appointments, and so safeguard the integrity of the public service. The appointments concerned include judges, heads of statutory boards and senior officers of protected entities that come under the Fifth Schedule of the constitution.

Before my term little attention had been given to the decision-making process for the exercise of the reserved powers. Fortunately, there is provision in the constitution for a Council of Presidential Advisers (CPA). Rules are laid down as to how and when it is to be consulted by the president.

The notion of the elected president holding the second key to the reserves sounds simple to the layman, but it is not simple in reality. It carries a heavy responsibility. It seemed to me that scenarios had to be worked out. When might requests come and what form would they take? What would be sufficient justification for agreeing to such a request? Anticipating a likely request for a withdrawal from past reserves in times of severe economic distress in the future, my office and the Ministry of Finance were in frequent consultations over potential scenarios. Monitoring external economic trends and their implications for our economy became part of these regular consultations. The CPA was advised of the results of these consultations, through its secretariat.

When I came into office in 1999, the chairman of the CPA was Lim Kim San. One of my first acts was to re-appoint him. When he asked to retire for health reasons, he was succeeded by Sim Kee Boon (2004–2005), and J.Y. Pillay (from 2005).

(From left) Professor Cham Tao Soon, the late Mr Sim Kee Boon, Dr Cheong Siew Keong, President S R Nathan, Mr S. Dhanabalan, Mr J.Y. Pillay, Chief Justice Yong Pung How and the late Mr Lim Kim San at the Council of Presidential Advisers (CPA) swearing-in ceremony at the Istana in 2004. PHOTO: ST FILE

From the outset the CPA subjected to scrutiny the annual budget proposals of the government and those of the designated statutory boards and “government companies”. It was on the lookout for any potential drawing on past reserves in the expenditures recorded in their accounts, even though these accounts carried a certificate by the minister, or chairman and chief executive, confirming that there would be no such withdrawal.

During my tenure, there were three government changeovers – in November 2001, May 2006 and May 2011. On all these occasions, the “current reserves” of the government were diligently transferred to “past reserves”.

2002 saw the government make a proposal to the president for the use of past reserves. The issue at hand was the rejuvenation of HDB housing estates through the tearing down of old blocks and more intensive use of the land thus released, through what is known as the Selective En-bloc Redevelopment Scheme (Sers). As part of the process, the government had to acquire the individual flats from the HDB lessees living in the old blocks, paying them fair and appropriate compensation. The funds for the compensation would come out of current reserves, but the benefits were expected to come after the term of the current government, when the vacated land was intended to be sold at a higher value and the proceeds put to past reserves. The government argued that the acquisition costs should therefore be funded out of past reserves.

I could see the merits of the argument. However, I felt that safeguards should be put in place to ensure that the land thus acquired and developed would indeed have a significantly higher value than the past reserves used to fund its acquisition. I kept the CPA informed of my views, and my office also discussed our concerns with the Ministry of Finance (MOF). The ministry came back with a modified proposal, whereby past reserves would be used to fund acquisitions of land only where the gross plot ratio could be increased by at least 30 per cent after acquisition. This figure was based on the intensification of land use achieved by past Sers sites. I then gave my approval to the proposal, with the agreement of the CPA. Thus we were able to safeguard past reserves while allowing them to be used productively to the long-term benefit of Singaporeans.

A question my predecessor Ong Teng Cheong had raised in 1999 was why all the net investment income (NII) on the reserves went to current reserves. Following a government review in 2007, the spending framework was re-examined, to see how government might tap on more of the investment returns for the budget, but on a basis sustainable over the long term.

President Ong Teng Cheong (foreground right) hosted a lunch at the Istana for former President Wee Kim Wee (left) and Mr S R Nathan, after Mr Nathan had been elected but before he took office, in August 1999. PHOTO: MICA COLLECTION, COURTESY OF NAS

Prime Minister Lee Hsien Loong (at the time concurrently finance minister) came to brief me and the CPA chairman on the government’s proposal to revise the existing spending rule, introducing a provision that would take into account capital gains, besides the NII now being shared. My staff’s observation was that there would be higher volatility of NII with the inclusion of capital gains, and they questioned how the rule would operate when the NII was negative. MOF responded with an offer to review the framework. During the year following that review, MOF briefed me and the CPA on their revised proposal for the spending rule.

Discussions between my staff and the MOF officers were followed by a session involving the CPA and the minister for finance and his senior officials, to clarify further the proposed NII framework.

Following those discussions, I recognised the merits of the proposal as a sustainable way of providing resources for measures to meet society’s needs in the years ahead. Following deliberations by the CPA and their recommendation I approved the revised spending rule in January 2008. This new spending rule would retain the 50 per cent cap on spending from expected investment returns over the long term, which would now include expected capital gains. It would also be estimated on a real basis, i.e. adjusted for future inflation. The spending rule was thus based on a new and broader definition of investment returns that would look at total returns instead of just dividends and interest, and a projection of long-term real returns instead of actual annual returns. By using a projection of expected returns over a 20-year horizon, which is roughly equal to three investment cycles in global markets, the volatility of returns on an annual basis is smoothed out. The basic precepts of the new rule were similar to what several well-established overseas endowment funds have adopted. They were also more consistent with the investment strategies of our investment companies – to invest for the long term and ride out the market cycles. The new framework was called Net Investment Returns (NIR) to distinguish it from the NII, and it became effective from Financial Year 2009/10.

A more severe test of the second key system came in 2008. Economic growth had prevailed during my second term of office until the last six months of that year, when our economy took a sharp downward turn.

President S R Nathan is sworn in for a second-term 
at the Istana State Room in September 2005.  PHOTO: ST FILE

On 15 September 2008, after a housing bubble burst in the US, Lehman Brothers, a leading American investment bank, went under with more than US$600 billion in debt. The US was facing a full-blown financial crisis. The Singapore government had noted the unprecedented steps being taken by foreign governments to stimulate their own economies, and anticipated a worsening economic scenario at home.

No one knew at the time how long the crisis would last and how much more serious it would become. From mid-2008, I had already begun asking entities such as the Monetary Authority of Singapore (MAS), the Ministry of Trade and Industry (MTI), the Government of Singapore Investment Corporation (GIC) and Temasek Holdings to brief me and the CPA on developments and the potential impact on their investment portfolios. Close consultations between my office and the MOF took place until early January 2009, when MTI and MAS were called in to brief me and the CPA.

Given the seriousness of the situation, the MOF held a discussion at the working level with my office about actions the ministry might have to take to protect Singapore’s financial system, and which might involve the use of past reserves. The situation was developing fast. Around the world several jurisdictions had announced their willingness to issue guarantees on bank deposits to restore confidence in their banking systems.

Although Singapore’s banking system remained sound, the government decided on a similar move to ensure that banks in Singapore were not put at a competitive disadvantage. After Hong Kong, an important financial centre in our own region, started to issue guarantees on deposits in its territory, we had no alternative but to follow suit.

On 15 October 2008 the minister for finance formally briefed me and the CPA, presenting a request to use past reserves to provide a guarantee on all non-bank deposits of commercial banks, merchant banks and finance companies in Singapore, capped at S$150 billion. The assessment of both MOF and MAS was that a guarantee of up to S$150 billion would be more than adequate to meet possible liabilities arising from the failure of any Singapore financial institution. I was able to give my approval the following day, following deliberations with the CPA and on its advice. Singapore thus kept well abreast of the developing situation.

In that same month Prime Minister Lee Hsien Loong said the government was preparing measures to help businesses and households cope with the recession. He told parliament, “By Budget next year, in February, the situation will be clearer and then we can decide what we will do.” He said Singapore had the resources and the resilience to see us through, and did not foresee the need to draw on past reserves to deal with this recession.

But by the following month, November, the situation had clearly undergone a drastic change. The prime minister announced that the budget would be brought forward to January 2009, and announced several immediate measures, including a loan access scheme for businesses and a new training programme for workers, to help those retrenched to get new jobs. As we moved into 2009, the global economic crisis was deepening. MTI had by then revised Singapore’s economic growth projections for 2008 downwards a record five times. With the US economy worsening and the entire global financial system in jeopardy, the crisis was unlike anything we had faced since independence. The Singapore economy, after growing at 8.8 per cent in 2007, and 4.5 per cent in the first half of 2008, began contracting in the third quarter of 2008, when manufacturing output plummeted. By the first quarter of 2009, the forecast for Singapore’s GDP growth had turned negative, and was subsequently revised downwards to the range from -9 to -6 per cent.

This was the situation that finally led the government to seek the president’s approval to draw on past reserves for the first time. Early in January 2009, MOF discussed with my office the possible use of past reserves for some of the measures that government was contemplating. Uppermost in their minds was the need to save the jobs of individual Singaporeans. They wanted to encourage banks not to cut back on lending to companies, so that companies could maintain employment and avoid major retrenchment. My officers raised concerns about tapping on past reserves, when current reserves were still available. MOF explained that government wanted to retain some current reserves to deal with unexpected contingencies that may arise, especially in view of the grave uncertainties in the world economy.

In mid-January the prime minister came to see me to explain what exactly the government intended to do, and how much of the past reserves would be called upon for the specific purpose of saving jobs through an innovative “jobs credit scheme”, and also help businesses get continued access to bank financing through the “special risk-sharing initiative” (SRI). The government proposed that the two schemes be funded from past reserves to the tune of S$4.9 billion. The jobs credit scheme involved a government payment of a subsidy to employers for all jobs they provided, at the rate of 12 per cent of monthly wages up to S$2,500. This turned out to be very effective in forestalling retrenchments, and helped companies restart activities when conditions improved.

I personally sensed it would be prudent to use the past reserves given the exceptional circumstances. I asked for the CPA to be convened, and after the prime minister left I asked to see J.Y. Pillay, chairman of the CPA.

The following day, MTI and MAS were called in to brief me and the CPA on the economic outlook and forecast. Then came a presentation from MOF. Minister for Finance Tharman Shanmugaratnam and Minister for Trade and Industry Lim Hng Kiang were questioned at length. The CPA agreed to consider the finance minister’s proposals and await his written request. The following day the formal request was received, and the CPA met in closed session. The day after that, following the CPA’s unanimous recommendation, I approved the proposal in writing.

Giving approval to release S$4.9 billion from the past reserves took less than two weeks. This led to some public questioning. In a press interview on 17 February, I gave an account of events, describing the series of meetings and consultations that went on while the crisis deepened, and the factors that had led me and the CPA to agree to the government’s request. In the circumstances the CPA and I had had to act quickly. With hindsight, I am glad the decision was taken early – any delay would have led to an even greater worsening of the economic situation.

The amount actually drawn from past reserves for the Resilience Package was S$4 billion. In February 2011, the government returned that sum to the past reserves, even though there was no legal or constitutional obligation to do so. The deposit guarantee scheme expired on 31 December 2010 without being triggered.


“It was 11pm and we had retired to bed. The phone rang...it was Senior Minister Lee Kuan Yew. He asked if I had time to go to see him the next day. Still puzzled, I said that was fine and hung up. ‘Hey presto,’ my wife said, ‘another great challenge. Perhaps we are going to be uprooted again.’
Mr Nathan on being asked to stand as president in 1999, when he thought he was on the verge of retirement


“On more than one occasion I thought he had reached the end of a successful career and could look forward to retirement. Each time, a new call has come and he has responded. We both feel that in answering the summons we are repaying a debt to Singapore, and also more personally to Mr Lee Kuan Yew, who has always been willing to put trust in my husband.”
Mrs Umi Nathan (above, with Mr S R Nathan), on her husband’s public service career