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Will Govt dip deep into reserves?


With Singapore staring at what might be its worst recession ever, the Budget to be unveiled today has taken on an added significance — even more so after senior Government leaders floated the idea of unlocking the closely-guarded national reserves for the first time.

But while the size of the Budget measures could easily be more than twice that of packages unveiled in previous downturns, several economists whom Today spoke to said that those hoping for a “big bang” approach might be disappointed — as the sacred cow is likely to be left untouched for now.

“Their intention was probably to highlight the possibility (of dipping into the reserves) if the recession lasts more than a year,” said CIMB-GK economist Song Seng Wun. He was alluding to recent comments by Prime Minister Lee Hsien Loong and Senior Minister Goh Chok Tong that the Government is mulling over the option of dipping into its reserves, unofficially estimated at more than $380 billion, including assets managed by the Government of Singapore Investment Corporation (GIC).

While not ruling out the possibility of the Government tapping “modestly” into the reserves at this stage, Singapore Management University economics professor Davin Chor felt it is more likely to use this Budget to signal its readiness to “dip further into these reserves” if economic conditions worsen.

Given that Parliament and the President would need time to deliberate over the decision to unlock the reserves, Citigroup economist Chua Hak Bin agreed that such a move, if any, would occur later in the year in the form of off-Budget measures.

Under the Constitution, surpluses accumulated by a Government during its term of office would be locked away in the reserves once Parliament is dissolved and elections are called.

Mr Song estimates that the current Government has accumulated some$60 billion in surpluses since it came to power in May 2006 — a sum that would in all likelihood offset any fiscal stimulus package.

In the past, measures to combat the previous downturns have cost the Government between $8 billion and $10 billion,Dr Chua pointed out. This time round, analysts are expecting the final cost to add up to between $20 billion and $25 billion.

Since Finance Minister Tharman Shanmugaratnam reiterated the Government’s measured stance in November to “keep some powder dry” — in contrast to firing all its bullets — global economic conditions have spiralled out of control alarmingly. And some economists feel that the Government should not keep too many bullets for later.

CRISIS OF CONFIDENCE

Said Centennial Group economist Manu Bhaskaran: “This is not a poker game ...It is a question of making a judgment on the severity of the downturn on demand and how much additional support the Government needs to give so that this demand shock is mitigated.”

Mr Bhaskaran added: “There are many things unpredictable about this crisis but one thing that is reasonably sure is that Singapore’s economy is facing the most severe downturn since Konfrontasi with Indonesia in 1963.”

Concurring, Nanyang Technological University economics don Choy Keen Meng called on the Government to use “80 to 90 per cent of its ammunition on Budget Day”.

Pointing out that the world economy is essentially mired in a “crisis of confidence”, Assistant Professor Choy said: “The Government needs to decisively exorcise the bad ‘animal spirits’ and turn sentiment around by coming up with a package that exceeds expectations.”

Arguing that the economy would hit rock bottom within the first half of this year, he reiterated that the “right time to stimulate the economy is when it is near the trough”.

Still, SMU’s Assistant Professor Chor believes a balance would be struck.

He added: “While I expect a fairly significant upfront outlay, the actual implementation and release of some of the stimulus funds is likely to be spread out over the course of the fiscal year.

“This would give some leeway for the Government to adjust the measures in response to changing conditions.” - TODAY/rs

SINGAPORE, January 12 - Following are terms and conditions of a bond to be issued on January 15, 2009


Borrower Singapore Government

Issue Amount S$1.2 Billion

Issue Code N708100S

Coupon 2.875% p.a

Issue Date January 15, 2009

Maturity Date July 01, 2015

Average yield and price 1.60% p.a and 107.908%

Cut-off yield and price 1.71% p.a and 107.208%

Coupon Payment Dates 01 January and 01 July

Denominations S$1,000

Auction Date January 12, 2009

Method of Sale Uniform-Price Auction

For ratings information, double click on

For all bonds data, double click on

For Top international bonds news [TOP/EUB]

For news about this issuer, double click on the issuer RIC,

Data supplied by International Insider.

the purpose of the reserves is meant to be called upon in times of recession, to help the economy bounce back on track. the reluctance for the MIW to dig into the reserves..... only few possibilities
1. the reserves arent there where they're supposed to be
2. the reserves were already assigned for other expenditure, not made known the the ppl
3. reserves never existed from the start