‘A disastrous intellectual package-deal, put over us by the theoreticians of statism, is the equation of economic power with political power.’ - Ayn Rand
Temasek Holdings and GIC are two of three sovereign wealth funds (SWF) owned/controlled and operated by the Singapore government, the third being MAS. SWFs first sparked global interest and scrutiny in the wake of the 2007 Great Financial Crisis. Several such institutions had bought huge stakes in tottering financial institutions then, injecting life-saving liquidity and pulling several majors banks from the financial precipice.
A recent exchange between Roy Ngerng and DPM Tharman at an IPS (Institute of Policy Studies) forum on CPF only served to showcase the incredible opacity of the state’s SWFs and our CPF. There were and still are numerous things people do not know that they do not know. And as citizens of Singapore and by transitivity, owners of the SWFs, we ought to be ashamed as shareholders of these multi-billion dollar entities.
For instance, before the IPS forum and the defamation suit involving Mr Ngerng and PM Lee, it was common knowledge that Temasek was the entity tasked with investing our CPF monies. But after the IPS forum, it is now understood that Temasek has NEVER invested a single dime from our CPF.
Instead, our CPF monies was ‘chartered’ and channelled into Special Singapore Government Securities (SGSS), which the state then proceeded to use for infrastructure developments. On hindsight, the results were mostly hunky dory. But do the ends justify the means?
Had the Asian economic boom not occur, our CPF would have been wiped clean with nothing to show. Should such risks have been taken with the hard-earned monies of the people? Had a private individual undertaken something similar, the charges would have been embezzlement and misappropriation.
But most importantly, a statement made by DPM Tharman should be analysed and quickly debunked. He stated that generally, “it is the government that takes the risk” when speaking about GIC. To hear such a flawed statement originating from one of the most educated and academically decorated members of the cabinet is extremely disappointing. The buck never ends with the government but the people. This false sense of security given to citizens is a façade designed to reassure people of the safety of their CPF contributions. Ultimately, if the government takes a wrong turn, taxpayers pay the price.
As an entity now known to be solely responsible for the investment of CPF monies belonging to Singaporeans, GIC operates with the transparency of a hypothetical self-contained banana republic in the Caribbean. Little is known about this multi-billion dollar entity besides the pro forma yearly reports it issues.
With deep pockets and the implicit backing of the government of Singapore, it is an entity able to move markets both domestic and global. But should state-owned organisations still exist in a purportedly free market? Shrouded in secrecy, they can hardly be accountable to their real shareholders, the citizens of Singapore.
While GIC prides itself in having a large diversified global portfolio, 31% of Temasek’s portfolio comprise of stakeholdings in local corporations. A cursory glance over any major companies’ annual report would present Temasek Holdings or a Temasek-linked company as one of the top 20 largest shareholders. Examples of such companies would include NOL, Singtel, Olam, SMRT, etc.
The presence of such a deeply pocketed shareholder may result in strategic and business malinvestment as Temasek brings along a false sense of security into the company. Credit ratings of such companies would be artificially enhanced, resulting in a prolonging of mistakes instead of forcing painful yet necessary restructuring through the will of free markets. For example, a certain shipping line operates with perpetual overcapacity while a train company only started replacing track sleepers after an extended period of time.
The presence of Temasek and GIC in the local economy means that persistent government assurances that the state doesn’t interfere in business decisions should be met with quick disbelief. Even if such interventions were not explicit, they are almost certainly implicit with majority ownership. Precedence would imply that no GLEs (Government-linked enterprises) would ever be left alone should disaster strike. Our SWFs would step in as sugar daddies offering monies compensating for mistakes made.
How different is this from that of crony capitalism; a system of implicit contracts between the state and large corporations? Can Singapore still consider itself economically free as stated by Fraser Institute and Heritage Foundation/Wall Street Journal in their respective reports?
Of course, there are numerous reasons and purported advantages ascribed to SWFs. An argument given by the Singapore government most recently was that SWFs allow the state to draw money from it in the event of an economic crisis or national disaster. This is analogous to any individual drawing down on his savings deposit to fund his living expenses in the event of unforeseen circumstances.
But the issue here is as follows; if the state is merely saving up for national contingencies, why is there a need for an SWF? Any textbook definition of an SWF would be one along of the lines of it being a state entity dedicated to growing the value of a given reserve. But is it the responsibility and prerogative of government to enhance its reserves indefinitely?
Detractors will surely raise the issue of budget surplus management. Well, the response is simple! Save what is conceivably necessary for contingencies and return the excess to the people. An even better way to solve the surplus problem is to lower taxes! After all, governments are generally unproductive organisations with perpetual economic losses.
Another possible argument favouring SWFs is that their presence helps boost Singapore’s status as a financial hub. The operational existence of two huge asset funds locally was deemed necessary to provide the impetus for foreign fund managers to set up operations within the country.
However, there is little evidence to prove that offshore funds are being drawn into Singapore due to the presence of our SWFs. The hot monies that these funds bring into the country typically enter countries with open and vibrant economies. For instance, Hong Kong is a financial centre yet operates no SWFs of Singapore’s design. Hence, this establishes that SWFs play no role in drawing overseas funds.
In addition, how many “hubs” can Singapore realistically have? We are already being promoted as an educational hub, tourism hub, financial hub and trading hub, amongst other hubs. Is this really necessary or is the state pouring taxpayer’s money into diversification just for its sake? The defence for diversification is that should one sector weaken, others will prop up the economy in a selfless act of chivalry.
Unfortunately, such a rosy scenario has been invalidated and negated by the Financial Crisis of 2007. It is simply a well-documented myth. The near collapse of the financial sector brought down with it most other sectors. All economic sectors are henceforth proven to be intricately intertwined and diversification to reduce the risk of total collapse is but a pipe dream pursued by the state as a reason to interfere in the economy.
Every state has a strong tendency to interfere in the economy, potentially making decisions resulting in economic crises, blaming the free market for all their troubles and then declaring that such calamaties make state intervention and direction more necessary than ever. But such statements do not absolve governments from any blame! Until every company is free from state links, the market is never truly free and governments should be blamed for economic crises.
Sovereign wealth funds, despite all the mythical and imagined advantages it supposedly offer, are tools for intervention in the economy. Any state organisation backed with the power to tax will receive unfair advantages in the credit markets relative to private institutions. Is Singapore still a fair, free and entrepreneurial market then? So long as the SWFs exist, it is not.
Benedict Chong
TRS Contributor