Budget debate: Singapore must protect reserves, not in national interest to reveal its size, says DPM Heng

Singapore's reserves serve as a bulwark against extraordinary crises, said Deputy Prime Minister Heng Swee Keat.
Singapore's reserves serve as a bulwark against extraordinary crises, said Deputy Prime Minister Heng Swee Keat.ST PHOTO: GIN TAY

SINGAPORE - Singapore's reserves play critical roles in stabilising the economy during crises and shocks and providing a steady steam of revenue, and any decision on the use of the strategic assets is not taken lightly, said Deputy Prime Minister and Finance Minister Heng Swee Keat on Friday (Feb 26).

Wrapping up the debate on the Budget, he reiterated the importance of carefully husbanding the past savings, saying: "We have inherited a strategic asset for the long-term survival and success of Singapore. Protect it, nurture it, and never squander it."

Mr Heng noted that by staying true to values of prudence and stewardship, Singapore had built up significant reserves - and the confidence to deal with any crisis in its path.

Past reserves have been drawn on to deal with two crises so far: $4 billion in 2009 to deal with the global financial crisis; and up to $53.7 billion in 2020 and 2021 to respond to the Covid-19 pandemic.

The funds serve as a bulwark against extraordinary crises, he said as he outlined three key roles of the reserves.

The other two are to serve as an endowment fund, providing a key stream of revenue to supplement Singapore's annual Budget through the Net Investment Returns Contribution (NIRC) framework; and to provide a buffer against shocks and attacks on Singapore's financial system.

Singapore's past reserves comprise assets invested by its central bank, the Monetary Authority of Singapore (MAS), as well as state investor Temasek Holdings and sovereign wealth fund GIC.

Mr Heng explained Singapore's "two-key" approach to managing and safeguarding its reserves - with the President serving as custodian, and the Constitution vesting in the President discretionary powers to withhold assent to budgets and expenditures proposed by the Government that may lead to a draw on past reserves.

"It is public information that, under our Constitution, the President has access to information about the size of reserves," he noted.

Threat of speculation

Over three days of debates, there were MPs, like Mr Alex Yam (Marsiling-Yew Tee GRC ) and Mr Liang Eng Hwa (Bukit Panjang), who cautioned against dipping too readily into the reserves, and those like Non-Constituency MP (NCMP) Leong Mun Wai, who suggested tapping more of it through the NIRC.

Fellow Progress Singapore Party NCMP Hazel Poa also called on the Government to reveal the size of the pot.

To her, Mr Heng said this was akin to laying bare Singapore's defence plan - and would diminish the value of Singapore's reserves as a strategic defence.

"No responsible leader would do so," he added.

Pointing to Mr Saktiandi Supaat (Bishan-Toa Payoh GRC)'s explanation on Thursday of Singapore's vulnerability to currency speculation and large capital outflows, he reiterated that it would not be in Singapore's interest to disclose the figure.

Mr Heng also said he was "very alarmed" by Associate Professor Jamus Lim's (Sengkang GRC) immediate response to Mr Saktiandi.

Noting that the Workers' Party MP had cited "theoretical" literature that speculation could be stabilising, Mr Heng said: "I would also point out that there are other academics who recognise that currency markets can be marked by massive instability."

He added that most economists today acknowledge that market-driven short-term flows are fickle and extremely volatile.

The episode involving hedge fund manager George Soros taking on the Bank of England in 1992, by betting against the sterling pound and "dramatically" destroying the United Kingdom's monetary system, is a stark example, he said.

"To put it simply, foreign exchange speculations have been and continue to be a threat to economies, especially small, open ones like ours," added Mr Heng.

Singapore, being a financial hub, had portfolio and banking-related flows that amounted to $294 billion last year, amid volatility in the global financial markets sparked by the pandemic, he noted.

This represented 63 per cent of gross domestic product.

"MAS kept the Singapore dollar nominal exchange rate stable during this period, backed by the full power of our reserves, giving banks and businesses certainty to make decisions under very trying circumstances," he said.

DPM Heng's experience during Asian, global financial crises

Mr Heng then related his personal experience during the Asian financial crisis in the late 1990s, when he was serving as principal private secretary to founding Prime Minister Lee Kuan Yew.

Mr Lee had been invited by several countries in the region to share his views, as the Singapore dollar, backed by the reserves, was relatively unscathed by currency devaluation crisis.

"It was very painful to see how speculation and the currency volatilities that those countries faced were destroying businesses, big and small, and the lives of the men and women in these places," said Mr Heng.

He noted that the Singapore dollar is one of the most actively traded currencies in the world relative to the country's GDP. The currency's daily turnover is estimated at US$37 billion (S$49 billion) globally, or annual turnover of US$9.5 trillion, far exceeding Singapore's nominal GDP of US$350 billion.

Compared with other countries, the exchange rate is far more important for Singapore, which is unique in its operation of an exchange-rate-centred monetary policy, noted Mr Heng.


Deputy Prime Minister Heng Swee Keat wrapping up the debate on the Budget Feb 26, 2021. PHOTO: GOV.SG

As managing director of MAS during the global financial crisis that started in 2008, Mr Heng said his team had to guard not just against the failures of banks, but also against the flights of capital and the risks of speculation on the Singapore dollar.

As a board member of MAS now, he added, he wanted to ensure the authority can continue to effectively use Singapore's exchange rate to deliver price stability.

"A very volatile Singapore dollar exchange rate, subject to market fads and bubbles, would not ensure low and stable prices for Singaporeans," he warned.

He noted that in normal times, Singapore's reserves also underpin its AAA sovereign credit rating and confidence in its exchange-rate monetary policy system.

"As a practitioner at the front line who tries my best to understand the intricacies of the system, I must caution Associate Professor Jamus Lim - let us not play with fire," said Mr Heng. "This is about the lives of our people, not theoretical musings."

"And I urge all members of this House to focus the debate on the merits of the policies and programmes and how we can improve the lives of Singaporeans, instead of repeatedly focusing their attention on the size of the reserves."