What is KJ's problem?

[jw5]

You will have to look at it carefully. Foreign Currencies Reserve can arise from different sources... from sales of products and services or FDI.

For the case of FDI, the currencies raised is just a liability which would most probably have to be repatriated in future, either in the form of profits or liquidation. Thus, it is not an "asset" earned but rather, a liability.

Goh Meng Seng

Lau Goh, assets = liabilities + equity + reserves.

There is no such thing as a liability which is also considered as reserves.
If a loan is given to IMF, it is considered as an asset to SG, because it is future money that will be received from IMF. (and this asset constitutes part of our reserves)
It is similarly considered as a liability to IMF, because it is future money that will be repaid by IMF.

 

[cass888]

Your response is acceptable for a JC student writing a General Paper. But not for an aspiring politician.

Please explain to all of us - how does what you write below differ from any bank, be it UOB/DBS/Citibank/Standchart? They all work on the same principle - with the exception of the Central Banks (and even then only if they borrow the money they print).

If the reserves are being deposited somewhere, I'd much rather they be deposited in IMF rather than one of the commercial banks like Citibank or Standard Chartered Bank.

The current idea that international financial system is built on relies heavily on leveraged credit terms. It is just a system which assumed that not everyone will fall apart at the same time, thus, someone could just patch the holes for another. Something like an insurance system. But we all know, when there are massive claims made against insurance company, it will just collapse.

It is just pure liquidity play on IMF's part in promising for immediate repatriation of money to us if we need it. That is based on the assumption that the whole system doesn't collapse or less than a percentage of loans are being recalled, so that they could get it from somewhere else to cover that hole. But such guarantee is as good as dust if multiple failures occur, which ironically, is when we needed the money most.

Goh Meng Seng

 

[cass888]

If Seb is reading this, he must be rubbing his hands in glee that he replaced this imbecile with Hazel Poa.

Lau Goh, assets = liabilities + equity + reserves.

There is no such thing as a liability which is also considered as reserves.
If a loan is given to IMF, it is considered as an asset to SG, because it is future money that will be received from IMF. (and this asset constitutes part of our reserves)
It is similarly considered as a liability to IMF, because it is future money that will be repaid by IMF.

 

[londontrader]

It was not too long ago that Singaporeans lost huge sums of money when they "lent" it to Lehman mini-bonds and Pinnacle Notes. Like investing in Lehman mini-bonds and Pinnacle notes, this loan pledge is not a low risk endeavor. To this date, there has been no published material on the default risk or the amount of interest that Singapore will be earning. We also do not know if there are clauses like the infamous "credit event" which will cause this instrument to become worthless.

Actually, people didn't lend money wrt to mini-bonds etc. because they INVESTED their monies in these structured instruments that (not so clear to some) had no guarantee of repaying the principal amounts. Singapore's IMF pledge comes with an explicit guarantee of repayment when needed. So what's the default risk of lending to the IMF? Let's see, the Fund has never not repaid a loan in it's 67 years in operation.

 

[londontrader]

Why is Singapore so special when there is no parliamentary scruntiny over the UK's larger loan? Is Singapore going to be stingy?

Are you just plain dumb?
Go ask George Osborne why he had to go hat in hand to Parliament for permission to "lend" to the IMF

 

[londontrader]

Other countries pledged more. Why no KJ style letter from their constituents?

You live on Mars or something?
So what about the uproar in the UK amongst the Conservative Party's OWN MPs with regard to the recent UK pledge?

 

[londontrader]

Aiyah, KJ also not totally wrong here lah.
Parliamentary scrutiny (which of course is a mere formality in SG) is fine and it's ok for him to question that.

Then again, as a politician, he should also realise that something like this is not one of the key concerns of most Singaporeans.
A commitment or future loan to IMF is also not negative for SG, considering that it's only 1% of what IMF is looking for and many countries are doing the same.

Actually, KJ makes an impt point.
Most people have no problems with an IMF pledge to aid financial crisis mgt
But I believe some people will have a problem with a PAP govt (using the same mechanism) making a $ pledge to a corrupt neighbour ie. remember Suharto's Indonesia

 

[aurvandil]

Captain Goh Meng Seng, either MAS is lying or you are. Will you categorically deny that what MAS is saying is true?

This is because the IMF is obliged to immediately repay the loan in the event that a country has a balance of payments need.

The MAS statement is very carefully worded in a misleading manner.

The loan is not repayable on demand.

To get IMF to pay back the loan, Singapore first needs to have a "balance of payments need".

Secondly, this is a obligation rather than a legal requirement of the loan.

To put it in context using your UOB analogy, it is as if UOB set up rules which says before you can get your money back, you must first show you have a need for the money. And even if you show that you have a need, UOB is only obliged rather than required to give you back the money.

As I wrote previously, the last sovereign debt crisis in South America left the IMF close to bankruptcy. Even if we could somehow show we have a "balance of payments need", it is unlikely IMF will have the money to meet their obligation to give us back our money. The more likely scenario is that IMF will come calling again and ask us for another US$4 billion or so.

 

[aurvandil]

Agree on the point on the mini bonds. i am using it to illustrate that this is not a straight forward bank deposit as some here are claiming. The point here about getting the money back on demand in inaccurate based on MAS statement. Singapore first has to demonstrate a "balance of payments need". IMF also is only obliged rather than required to return the money. Given that the money is going to bailout Europe, it would be unrealistic for us to expect that we will be able to get it back as and when we like.

On the IMF being a safe institution, it has been close to bankruptcy before. We should not assume that just because it has a good brand name (aka Lehman),it can never go bankrupt.

Actually, people didn't lend money wrt to mini-bonds etc. because they INVESTED their monies in these structured instruments that (not so clear to some) had no guarantee of repaying the principal amounts. Singapore's IMF pledge comes with an explicit guarantee of repayment when needed. So what's the default risk of lending to the IMF? Let's see, the Fund has never not repaid a loan in it's 67 years in operation.

 

[londontrader]

Going back to my Lehman example, people were induced to place money into the instruments because Lehman was supposedly a "safe" global investment bank. This seems to be the same argument some here are using to justify why our loan pledge to the IMF, if called upon, is a "safe" investment. It should be noted that up till the time when Lehman went bankrupt, none of the paper that Lehman sold had ever defaulted. You therefore cannot say that just because IMF has never defaulted before, this loan pledge if called upon is a "safe" investment.

Here is a bit of advice from a person (me) who actually works for a global bank:

There is no such thing as a safe global investment bank! Do bear in mind that you talking about institutions that are typically highly levered even on an ordinary day (let alone in a crisis). The safe label (misguided) occurs because of the belief that banks always get bailed out because authorities fear bank runs. Well, not always the case!

Yes, not defaulting before is no guarantee by itself. That's why credit analysts look at balance sheets etc. So, you want to compare the IMF's and what was Lehman Bros?

BTW Lehman had gotten into financial trouble before 2007-08 (look into the firm's history)

 

[londontrader]

If it was such a "safe" and "good" investment opportunity, countries like China with huge surpluses would be banging down the door to pour money into this investment. If you look into the details, you will probably find that it is a high risk/low return investment.

The argument below also cannot hold water. Going back to the Lehman example, just because you bought less than 1% of the paper Lehman issued does not make the investment "not risky".

China made a 43 billion USD IMF pledge on the same terms!
And you need to get it thru your head that this is NOT AN INVESTMENT
It's a pledge to fund an emergency crisis mgt pool, if and when needed

That's because Lehman went BANKRUPT and every investor/lender (small or big) stopped being repaid
So the risk here is that the IMF goes bankrupt

 

[aurvandil]

So, you want to compare the IMF's and what was Lehman Bros?

If you look at IMF's history, it has always gone back to members for bailout money when it runs out of $.

The three largest are typically the US, Europe and Japan.

For what's happening now, we can safely rule out Europe since the money is being used to bail out Europe.

Given the current state US finances and economic performance since the 2007 crisis, you have got to wonder if the US can come in in any meaningful way to bail the IMF out.

As for Japan, they have a moribund economy. Their capital city got hit by an earthquake and they had a nuclear reactor meltdown. They are currently thinking of opening casinos to help with their public finances.

In the past, China has never been a big contributor to the IMF. Kee chiu anyone who thinks that China will dump billions to bail out Europe and the IMF.

The risks are much greater than many people think.

 

[londontrader]

UK is debt ridden, double dip recession, high unemployment, and functioning democracy much better than Singapore. Their constitution also is similar. Yet no parliamentary approval was asked for their 10 bn pledge.

OK let's try it again

THE UK GOVT SOUGHT AND GOT PARLIAMENTARY APPROVAL FOR THE IMF PLEDGE

Clear now?

 

[londontrader]

To the financial gurus wat is the ror tat sg can expect fr such exercise ?

right now it's zero because zero money has changed hands

 

[londontrader]

To me, I only know that if you lend $$ to others, always be prepared they will not return you, not mater how trusting that person is.
And if I am not comfortable with the amount, I won't lend it to you even when you "promise" you will return me.
The only safe bet you may get back your $$ back is to sign an IOU.
So to me, lending is always risky, no difference between high or low risk.

Take it from a banker, YOU'RE THE PERFECT CUSTOMER!

"lending is always risky, no difference between high or low risk"

I'll let my repo desk know that !

As for your IOU, it's toilet paper when the fellow you make the loan to goes bankrupt

 

[londontrader]

Conduct a National Referendum to determine if SIngaporeans support making the pledge

Parliamentary approval YES
A referendum??? I think NOT

 

[londontrader]

We are not depositing money in a bank. We are contributing to a global bailout fund managed by the IMF to help stop the breakup of Europe. If the loan pledge is called, the default risk is probably higher than putting money in a Lehman mini bond.

How do you arrive at that analysis?
The real default risk is a bankrupt IMF
Will the IMF Bankrupt itself to save the euro?

 

[steffychun]

OK let's try it again

THE UK GOVT SOUGHT AND GOT PARLIAMENTARY APPROVAL FOR THE IMF PLEDGE

Clear now?

No they did not. Where is your proof?

 

[steffychun]

You live on Mars or something?
So what about the uproar in the UK amongst the Conservative Party's OWN MPs with regard to the recent UK pledge?

You live on Saturn. Uproar but no parliamentary vote.

 

[londontrader]

Yes, steffychun is right. Governments are different from households and individuals. They can borrow any amount they like. After all, they can just print $ to repay their creditors. What can go wrong with printing money?

The IMF can't print money or so the last time I checked