This article is to highlight the common law application to the CPF Board’s investment of member’s accounts in Special Singapore Government Securities (SSGS) which stands in the way of transparency.
GIC Monies is CPF Monies?
The CPF Board invests the monies on members’ accounts in SSGS. This should be well known by now. That the MOF stated CPF monies are managed by GIC does not mean the assets in GIC belong to CPF under the law. This is the common law application of “bailment”. Bailment describes a legal relationship in which physical possession of personal property is transferred from one person (the ‘bailor’) to another person (the ‘bailee’) and is distinguished from a contract of sale as it only involves the transfer of possession and not its ownership. The definition of what is bailment and what is not, underpins the modern financial system since its birth in the 16th century.
In most legal systems including Singapore, a bank deposit or the purchase of a bond as the CPF Board has done, is not a bailment. It means the funds deposited or the proceeds of the bond purchase are no longer the property of the depositor or the bond investor respectively, and will become the property of the bank or in this case, the government who is the issuer of the bonds. The depositor has a claim on the bank or CPF has a claim on the government and has an asset. On the side of the bank or the government, it is a liability. The bank or the government has no further obligations to the depositor or CPF than the timely payment of stipulated interest and the repayment of principal. In other words, since the monies is now its property, the bank or the government can do what it wants with the monies it received , i.e. to spend or to invest together with other monies.
A Real Example
This writer’s day job is a real example, described here in simplified form. He receives monies from issuing bonds to various investors. He also has monies from the company he works for, e.g. its own capital and reserves. He invests some of it according to regulatory requirements and allocates most of it to various operating divisions to make their own investments. Other than abiding by the terms of the bonds such as payment of interest and principal, the writer has no obligation to investors and they cannot tell the writer what to do with the monies, as these are no longer their property. It is as if, he is working for the Government’s Treasury although a financial corporate treasury is far more complex. To keep the investors sweet, like his counterparts in the industry, the writer involves himself in investor relations to explain the company’s earnings, business strategies, its risks, etc, which is a moral obligation, not a legal one. This the government does not do which tells rather much about how it treats its citizens.
How GIC monies can become CPF monies
Again the answer is simple enough even if the process is difficult due to politics. There are two ways of achieving this. One is to index SSGS interest rates at 2% or more over the inflation rate. This will ensure more of GIC’s earnings are earmarked to pay CPF interests, leaving less for Past Reserves and for politically motivated spending via the NIRC. So more of “GIC’s monies become our monies.” The other is to abolish SSGS altogether and replace it with ownership in GIC. CPF has full legal claims to its returns, leaving nothing for the politics of the NIRC and Past Reserves. There is total transparency as it means all of “GIC monies become our monies”. Needless to say, the government will not accede to any of this.
Government has all the cards but keep turning the screws
The writer feels that calls for public enquiry by understandably irate citizens are premature and likely will lead nowhere. The Government has the law on its side and any public enquiry will get no further than the common law application. In other words, the entire construct of GIC holding CPF monies through SSGSs cannot be taken down by legal proceedings. It has always been a political issue and can only be resolved through the ballot box.
Citizens should continue to keep themselves knowledgeable about the economics and politics of this critical, even existential issue of CPF. “The Truth will set you Free” so was written in a certain book. Keep the issue front, back and centre of political discourse and it may even cause the Government to sanction a rise in CPF interest rates heading into the election. Do not vote against your own economic interests.
Chris K
* Chris K holds a senior position in a global financial centre bigger than Singapore. He writes mostly on economic and financial matters to highlight misconceptions of economic policy in Singapore.