[h=2]The Truth about that IMF Loan – Tharman did not seek approvals from Parliament and President[/h]
June 21st, 2012 |
Author: Contributions
Finance Minister Tharman Shanmugaratnam
Yesterday, I received confirmation from the President’s office that his permission had not been sought for our republic’s loan to the IMF.
So now we know three things in addition to the recent confirmation by the president.
These three things tell us a whole other bunch of stuff, most of which is not fit to print here but check out the comments on TRE and TOC if you want to know more. Above all else these three simple facts tell us that we should have fought harder against the introduction of an EP in 1991. Mr Jeyaretnam and Mr Chiam did their best but it was not good enough. Luckily we have video evidence of the debate to refer to and I would urge everyone to have a look and see what was said at that time. This issue has told us the EP role is an impotent one. It is the executive who should be accountable to the people through a sovereign Parliament. It is you who elect them to that role and you have every right to expect them to take care of your money and to be transparent about where it is and what it is used for.
The final fact we can glean so far is that the Ministry of Finance has tried to completely evade Parliamentary accountability by making use of the MAS as the vehicle to loan money to the IMF. Yes we are not a democracy. That they do not even answer two letters after a period of four weeks shows they do not care to be accountable. Why should they? They have eroded your rights over the decades and tightened the invisible grip of fear until they can act with impunity.
Leaving aside the issue of their high handedness and their arrogance, has the executive acted correctly in using the MAS or have they in fact acted unconstitutionally?
First a bit of context.
Back on 20th April 2012, (Yes, two whole months ago and my release on discrepancies in our budget goes back to February) the IMF Committee announced the decision to raise the IMF’s lending capacity and thanked Singapore for its contribution. I first noticed it then and later the government-controlled media carried a short piece and I wrote about it at more length in my blog at www.sonofadud.com on 25th April and 28th April 2012. The article noted that Singapore had agreed to contribute to the fund and that China and the US had not. The manner in which this was announced in the foreign press as a done deal certainly made me feel that the loan had not gone through the necessary safeguards and that the manner in which it had been agreed could not have been constitutional.
A lot of people, including lawyers, straight away told me, “Don’t be silly. The PAP will have sought Presidential approval.” But rather than cast wild aspersions, I decided to write to the Minister of Finance and ask him to explain. There followed a deafening silence. I wrote again. Silence. So I write to the President again twice and now of course it turns out that his approval was not sought and that he is leaving MAS to deal with it.
Let us visit the relevant Acts that could explain this starting with Article 144(1).
The giving of loans and guarantees is governed by Article 144(1) of the Constitution which states as follows:
Article 144(3) of the Constitution provides a list of the laws to which 144(1)(b) applies. However the only one relevant in these circumstances is the Bretton Woods Agreements Act which governs Singapore’s relationship with and subscriptions to the IMF. This is the amount of gold and local currency that the country deposits with the IMF. This in turn governs its votes as a member of IMF and also the amount it can borrow in foreign currency should it need to.
This Act itself has an inbuilt lack of accountability since it says that the MAS can accept a subscription increase at the IMF on behalf of the Government with the approval of the Minister of Finance. No resolution of Parliament is required though Presidential approval is still required.
However the IMF itself has stated that this new round of commitments is over and above countries’ current subscriptions to the IMF. Therefore Singapore’s loan commitment does not fall within 144(1)(b). I put this in an open letter to the Minister of Finance dated 29th May 2012 (http://thereformparty.net/about/press-releases/an-open-letter-to-the-minister-for-finance/):
By stating that the President has referred my letter to the MAS for an answer, we can see the way this is going.
MAS may now attempt to argue that this is within their powers because the IMF loan commitment falls with Article 24 of the MAS Act. I reproduce this below:
Only (e) seems to provide a loophole.
Financial instruments are defined under the Securities and Futures Act (Cap. 189) as:
That leaves investments.
The OECD discusses various definitions of investment (http://www.oecd.org/dataoecd/3/7/40471468.pdf). Most would seem to include loans but this is qualified normally by the inclusion of the qualification that there has to be some degree of control exercised over the institution to which the money is lent. The Canadian model does not include loans unless they count towards regulatory capital (quasi-equity) at the financial institution to which the money is lent. This is not the case here where the IMF has requested over and above Singapore’s quota at the IMF, which determines our shareholding at that institution.
However, rather than engage in a semantic debate with the government over whether this loan commitment is covered by the definition of investment, there is a more fundamental objection to the use of the MAS to evade Parliamentary and Presidential scrutiny.
Article 24 states the “funds of the Authority”. MAS acts as the manager of the official foreign reserves of Singapore but this does not mean they are the Authority’s funds just as when I managed a hedge fund, the investors’ money did not belong to me. The actual funds of the MAS are the General Reserve Fund ($41 million as of 31st March 2011) and the Currency Fund Reserves ($7,340 million as of the same date).
This makes it obvious that the loan will not be coming from the MAS’s own funds but from the official foreign reserves which MAS manages on behalf of the government when it is drawn upon. The Finance Minister has admitted as much when he said in his stage-managed Parliamentary answer designed to give the illusion of accountability to the IMF:
The conclusion that flows from this is:
.
Kenneth Jeyaretnam
* As a blogger, KJ hopes to help imagine a model for a New Asian Nation to bring about a free and fair future for Singapore. KJ is a Cambridge trained economist who could be broadly described as from the Keynesian school. He is also a successful ex-hedge fund manager and a liberal opposition politician who contested in the 2011 General Election with his party. He is currently the Secretary-General of The Reform Party. He blogs at http://sonofadud.com.
Yesterday, I received confirmation from the President’s office that his permission had not been sought for our republic’s loan to the IMF.
So now we know three things in addition to the recent confirmation by the president.
- We know that parliamentary approval was not sought because it is not in the Hansard.
- We also know that Article 144(1) of the Constitution governing loans has not been followed because this requires the president to concur with parliament. Both in fact must approve.
- We know that the government is going to pass this over to the MAS because the President’s letter tells us so.
These three things tell us a whole other bunch of stuff, most of which is not fit to print here but check out the comments on TRE and TOC if you want to know more. Above all else these three simple facts tell us that we should have fought harder against the introduction of an EP in 1991. Mr Jeyaretnam and Mr Chiam did their best but it was not good enough. Luckily we have video evidence of the debate to refer to and I would urge everyone to have a look and see what was said at that time. This issue has told us the EP role is an impotent one. It is the executive who should be accountable to the people through a sovereign Parliament. It is you who elect them to that role and you have every right to expect them to take care of your money and to be transparent about where it is and what it is used for.
The final fact we can glean so far is that the Ministry of Finance has tried to completely evade Parliamentary accountability by making use of the MAS as the vehicle to loan money to the IMF. Yes we are not a democracy. That they do not even answer two letters after a period of four weeks shows they do not care to be accountable. Why should they? They have eroded your rights over the decades and tightened the invisible grip of fear until they can act with impunity.
Leaving aside the issue of their high handedness and their arrogance, has the executive acted correctly in using the MAS or have they in fact acted unconstitutionally?
First a bit of context.
Back on 20th April 2012, (Yes, two whole months ago and my release on discrepancies in our budget goes back to February) the IMF Committee announced the decision to raise the IMF’s lending capacity and thanked Singapore for its contribution. I first noticed it then and later the government-controlled media carried a short piece and I wrote about it at more length in my blog at www.sonofadud.com on 25th April and 28th April 2012. The article noted that Singapore had agreed to contribute to the fund and that China and the US had not. The manner in which this was announced in the foreign press as a done deal certainly made me feel that the loan had not gone through the necessary safeguards and that the manner in which it had been agreed could not have been constitutional.
A lot of people, including lawyers, straight away told me, “Don’t be silly. The PAP will have sought Presidential approval.” But rather than cast wild aspersions, I decided to write to the Minister of Finance and ask him to explain. There followed a deafening silence. I wrote again. Silence. So I write to the President again twice and now of course it turns out that his approval was not sought and that he is leaving MAS to deal with it.
Let us visit the relevant Acts that could explain this starting with Article 144(1).
The giving of loans and guarantees is governed by Article 144(1) of the Constitution which states as follows:
144. (1) No guarantee or loan shall be given or raised by the Government —
(a) except under the authority of any resolution of Parliament with which the President concurs;
(b) under the authority of any law to which this paragraph applies unless the President concurs with the giving or raising of such guarantee or loan; or
(c) except under the authority of any other written law.
We know from the record that Parliamentary approval was not given and neither was the President’s. So, that rules out (a).(a) except under the authority of any resolution of Parliament with which the President concurs;
(b) under the authority of any law to which this paragraph applies unless the President concurs with the giving or raising of such guarantee or loan; or
(c) except under the authority of any other written law.
Article 144(3) of the Constitution provides a list of the laws to which 144(1)(b) applies. However the only one relevant in these circumstances is the Bretton Woods Agreements Act which governs Singapore’s relationship with and subscriptions to the IMF. This is the amount of gold and local currency that the country deposits with the IMF. This in turn governs its votes as a member of IMF and also the amount it can borrow in foreign currency should it need to.
This Act itself has an inbuilt lack of accountability since it says that the MAS can accept a subscription increase at the IMF on behalf of the Government with the approval of the Minister of Finance. No resolution of Parliament is required though Presidential approval is still required.
However the IMF itself has stated that this new round of commitments is over and above countries’ current subscriptions to the IMF. Therefore Singapore’s loan commitment does not fall within 144(1)(b). I put this in an open letter to the Minister of Finance dated 29th May 2012 (http://thereformparty.net/about/press-releases/an-open-letter-to-the-minister-for-finance/):
As the IMF communiqué and your own answer make clear, the contingent loan is not part of an increase in Singapore’s quota at the IMF and therefore is not exempted from the necessity for Parliamentary approval under the Bretton Woods Agreements Act.
This leaves 144(1)(c) “except under the authority of any other written law” as the only way in which the government can sidestep the need for Parliamentary and Presidential approval of the IMF loan commitment.
By stating that the President has referred my letter to the MAS for an answer, we can see the way this is going.
MAS may now attempt to argue that this is within their powers because the IMF loan commitment falls with Article 24 of the MAS Act. I reproduce this below:
24. The funds of the Authority may be invested in all or any of the following:
a) gold coin or bullion;
b) notes, coin, money at call and deposits in such country or countries as may be approved by the board;
c) Treasury bills of such government or governments as may be approved by the board;
d) securities of, or guaranteed by, such government or governments or international financial institutions as may be approved by the board;
e) such other securities, financial instruments and investments as may be approved by the board.
It is quite clear from this that it is intended that MAS can only invest in trade-able securities and liquid instruments such as Treasury bills commensurate with its role as the central bank. Loan commitments are not securities.a) gold coin or bullion;
b) notes, coin, money at call and deposits in such country or countries as may be approved by the board;
c) Treasury bills of such government or governments as may be approved by the board;
d) securities of, or guaranteed by, such government or governments or international financial institutions as may be approved by the board;
e) such other securities, financial instruments and investments as may be approved by the board.
Only (e) seems to provide a loophole.
Financial instruments are defined under the Securities and Futures Act (Cap. 189) as:
“financial instrument” includes any currency, currency index, interest rate instrument, interest rate index, share, share index, stock, stock index, debenture, bond index, a group or groups of such financial instruments, and such other financial instruments as the Authority may by order prescribe;
Again this pretty clearly does not include loans.
That leaves investments.
The OECD discusses various definitions of investment (http://www.oecd.org/dataoecd/3/7/40471468.pdf). Most would seem to include loans but this is qualified normally by the inclusion of the qualification that there has to be some degree of control exercised over the institution to which the money is lent. The Canadian model does not include loans unless they count towards regulatory capital (quasi-equity) at the financial institution to which the money is lent. This is not the case here where the IMF has requested over and above Singapore’s quota at the IMF, which determines our shareholding at that institution.
However, rather than engage in a semantic debate with the government over whether this loan commitment is covered by the definition of investment, there is a more fundamental objection to the use of the MAS to evade Parliamentary and Presidential scrutiny.
Article 24 states the “funds of the Authority”. MAS acts as the manager of the official foreign reserves of Singapore but this does not mean they are the Authority’s funds just as when I managed a hedge fund, the investors’ money did not belong to me. The actual funds of the MAS are the General Reserve Fund ($41 million as of 31st March 2011) and the Currency Fund Reserves ($7,340 million as of the same date).
This makes it obvious that the loan will not be coming from the MAS’s own funds but from the official foreign reserves which MAS manages on behalf of the government when it is drawn upon. The Finance Minister has admitted as much when he said in his stage-managed Parliamentary answer designed to give the illusion of accountability to the IMF:
“However, there will be no change in OFR if the loan is drawn on by the IMF; what would happen is a conversion from a foreign investment asset to a loan to the IMF, which will still count towards OFR.”
Clearly then, this loan commitment falls under Article 144(1)(a) which states that “(No guarantee or loan shall be given or raised by the government) except under the authority of any resolution of Parliament with which the President concurs . The Finance Minister should definitely have sought both Parliamentary and Presidential approval before he made this loan commitment particularly given his conflict of interest as head of the International Monetary and Financial Committee of the IMF. In democratic countries, Ministers have been summoned before Parliament and forced to resign if they were found to have misled Parliament or broken the Constitution.
The conclusion that flows from this is:
• The Minister appears to have broken the Constitution and misled Parliament by not submitting this loan commitment for approval. He should be summoned before the House and asked to explain.
• Until that happens, I believe that the IMF cannot accept our republic’s contribution. I shall be writing to Madame Lagarde to explain my reasons.
For the record I attach my four letters below (see Link). You will see that in addition to refusing to acknowledge my concerns over the IMF loan, MOF have also refused to acknowledge or answer my queries as to discrepancies in the Budget. I will come to that next.• Until that happens, I believe that the IMF cannot accept our republic’s contribution. I shall be writing to Madame Lagarde to explain my reasons.
.
Kenneth Jeyaretnam
* As a blogger, KJ hopes to help imagine a model for a New Asian Nation to bring about a free and fair future for Singapore. KJ is a Cambridge trained economist who could be broadly described as from the Keynesian school. He is also a successful ex-hedge fund manager and a liberal opposition politician who contested in the 2011 General Election with his party. He is currently the Secretary-General of The Reform Party. He blogs at http://sonofadud.com.
