A reader posted this in the comments section of the last article:
can you make this posting and analyse in your future post ?
"The Mess that is Singapore: Part II Explaining the Role of the CPF"
This guy is a higher flyer...
before sin censor it.
This professor is a expert in SWF, and find something wrong with TH and gic.
Christopher Balding is a professor in Peking University, HSBC Business School,[Link].
You can read his article in full but I'll summarize it as usual so there is clarity on the issues and questions he asked:
The Mess that is Singapore: Part I Explaining the Debt
1. Most of the public debt issued by Singapore govt consists of money borrowed from the CPF Funds of Singaporeans.
2. Since 1990, the Singapore govt borrowed $250B and has another $262B in budget surpluses, giving a total of of more than $500B.
3. GIC + Temasek do not publish their assets but it is estimated to be roughly $500B.
4. Even if they return 1%, they should have significantly more mone...and if returns are 7% as widely believed, the money should have doubled.
5. What happened to the money? Is it lost or hidden?
The simple answer to this question is the Singapore govt has never published the total assets of the GIC so we don't know. There is no reason yet to believe anything sinister is going on. Former President Ong tried to get a full list of the assets but was told it is not a simple task. Over the years, there were reports of GIC investing in real estate, commercial properties around the world and those have to be revalued. Its not a mess as Christopher Baling alarmingly claimed but a lack of information.
In his next posting, The Mess that is Singapore: Part II Explaining the Role of the CPF:
"The reason the CPF matters and should concern Singaporeans is simple. The government of Singapore is borrowing money from its citizens through the CPF payed 2.5-4% and investing that money in other assets through GIC and Temasek hoping to earn a higher return. Publicly, GIC and Temasek claimed to have earned 7% and 17% since inception meaning they are earning a comfortable spread above the 2.5-4% they must pay for those funds. If Temasek and GIC earn less than the 2.5-4% they pay to the CPF, the government must essentially subsidize the losses to keep the CPF whole."
This issue has been discussed on my blog. If GIC makes above 2.5% (-4%), it keeps the excess returns. If it makes less than 2.5%, how does it pay the debt owed to CPF/Singaporeans? They would have to collect more taxes or print money to monetize the debt. The other way is to kick the can down the road by delaying CPF withdrawals.
Countries build up reserves to guard against crisis and financial instability. However, GIC and Temasek's fund are invested in various risk bearing assets that will be affected by crisis - the last crisis they lost $50B. To fund the deficit in the budget due to the jobs credit in the last crisis roughly $4.5B of reserves was used. The size of the reserves are far bigger than what is needed to cushion against crisis - remember if the crisis is very big e.g. local bank failures, etc it is best not to use reserves created from borrowings from CPF to do it.
My main objection to the whole system is the fix returns for CPF account holders who at the end of the day bear the risk if there are investment losses and inflation but get none of the excess returns. The 2nd problem is even basic information on the total assets is not made public by the GIC. Third issue is the size, you can't just keep building and controlling it because a large part of it is paid for by ordinary Singapore taking up high debts for housing. There has to be a limit beyond which the surplus should be used to benefit Singaporeans in more direct ways rather than go into reserves controlled by a small group of elites.
Our contribution to the CPF is extremely high but retirement is still a worry for Singaporeans. This is caused by 2 things - low fixed returns on CPF money and use of CPF for expensive public housing. Both results in flow of money to the GIC to build up govt coffers and causes major retirement problems for ordinary Singaporeans. Many Singaporeans accept the system as it is thinking they can always monetize the homes for retirement (overseas?), it makes they system all the more vulnerable as housing prices get linked to Singapore's ability to retire for poor and lower middle income Singaporeans. The whole system passes the risk to Singaporeans who are already shouldering plenty of risks due to the healthcare system and the lack of social safety nets.