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The Mess that is Singapore Part 1: Explaining the Debt

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  • tremeritus
    The Mess that is Singapore Part 1: Explaining the Debt May 12th,
    Message 1 of 1 , May 11, 2012

    The Mess that is Singapore Part 1: Explaining the Debt

    Ever since my paper on Temasek and Singapore was covered in Mostly Economics writing a plea for “clarifications from Temasek and SG govt”, I have begun receiving emails and postings to either explain or defend something further.  Today, I will focus on the questions pertaining to the debt side.

    The basic question numerous posters and email have raised is whether public Singaporean debt is actually attributable to state owned enterprises or the social security fund known as the Central Provident Fund?  There is a short answer and a long answer.  The short answer is that it doesn’t matter.  Think of a company like GE.  If GE Capital goes out and borrows money, there is still an increase in the total debt of GE the parent company.  So whether it is the Central Provident Fund or the state owned enterprises, at the end of the day there is still a rapid increase in the total debt of Singapore.

    The longer more detailed answer is even more unpalatable.  While there is most definitely a significant portion of Singaporean public debt issued by the Central Provident Fund but guaranteed by Singapore, the important part is not who holds the debt, but rather whathappened to the money that was borrowed.   If the Singapore state issues debt, whether it is to a foreigner, a private citizen, or the Central Provident Fund, Singapore now has more funds that they must either spend or invest.  That inflow from issuing debt does not just disappear.

    Since 1990, the Singaporean government has realized cash flow from increasing borrowing of $250 Billion SGD.  To add on to this, the Singaporean government has enjoyed public surpluses of $262 Billion SGD.  Think about that for one minute: free cash flow into government coffers between additional borrowing and surpluses averaging more than 16% of GDP between 1991 and 2010.  Since 1991 alone, without factoring in revenue from interest, accumulated cash flow from additional borrowing and government surpluses has totaled $512 Billion SGD.

    To give you two numbers to help you wrap your head around that number, that is equal to 155% of 2011 Singaporean GDP or roughly equal to the combined assets of Temasek the the Government Investment Corporation of Singapore (The GIC does not publish assets under management but most estimates have it in the $250-300 billion USD range).  The $500 billion dollar question then is: where did all this money go?  In other words, how does the total increase in debt and the total government surpluses equal the estimated amount of assets under management?  (It is also important to remember that this data only goes back to 1990, not the 1974 since Temasek inception).

    Now let’s turn to where the money has gone.  Here is a graph of the hypothetical growth of assets under management by government linked entities such as Temasek or the CPF.

    If these free cash flows averaged annual growth of only 1%, assets would still amount to more than Temasek and the GIC combined.  If annual growth was the GIC average of 7%, Singapore would still be sitting on more than $1 trillion SGD rather than the current estimate of around $500 billion.  A 10% rate of return would leave Singapore with $1.4 trillion SGD.  If public surpluses and borrowing were invested and returned even a balanced portfolio average, the current assets managed by public bodies in Singapore would truly be staggering.

    As was noted in the original paper, this implies one of two things:  1) the returns are fictitious and there has been a lot of money lost OR 2) there are enormous unreported holdings controlled by Singaporean public entities.  You simply cannot explain $500 billion SGD in surpluses and increased indebtedness without asking where that money has gone.  As of right now, there is no record of public Singaporean assets to match what we would expect to find.  Show me additional assets that should be there.  Temasek and GIC don’t have them.  Where is the missing money?  If it wasn’t spent, and there is no public record of that, then it should be a financial asset under public Singaporean control

    As a last point, if these surpluses and additional borrowing even matched the rate the CPF pays out to Singaporean citizens of 4% would equal approximately $750 billion SGD.  This is 50% more than the estimated holdings of Temasek and the GIC.  Unless someone can find hundreds of billions of unreported Singaporean public assets, we should assume this money has gone to money heaven.

    Next time, I will describe exactly how the Central Provident Fund plays in to all this and why Singaporean should be worried…..very very  worried.


    Christopher Balding

    *The writer is a professor of business and economics at the HSBC Business School at the Peking University Graduate School. An expert in sovereign wealth funds, his writings have been published in such leading journals as the Review of International Economics, the Journal of Public Economic Theory, and the International Finance Review on such diverse topics as CDS pricing, the WTO, and the economics of adoption and abortion.  His work has also been cited by a variety of media outlets including the Wall Street Journal and the Financial Times.


    4 Responses to “The Mess that is Singapore Part 1: Explaining the Debt”

    ---------- Forwarded message ----------
    From: Robert HO <robert.ic019@...>
    Date: 30 April 2012 11:27

    Subject: FACT: LIE KY 2A1B nepots repeatedly rigged elections to continue in power and $; FACT: They have beaten political detainees to death, jailed them 32 years; CONCLUSION: THEY DOUBTLESS STOLE THESE $Bs

    RH:  FACT:  LIE KY 2A1B nepots repeatedly rigged elections to continue in power and $;  FACT:  They have beaten political detainees to death, jailed them 32 years;  CONCLUSION:  THEY DOUBTLESS STOLE THESE $Bs [you mean to say they have rigged elections, beaten opponents to death, jailed them decades but when it comes to money, they suddenly become honest and refrained from stealing even a cent?  When both LIE KY and 2A1B have corruptly accepted 15% illegal discounts on luxury condos?  Click on this].

    ---------- Forwarded message ----------
    From: Robert HO <robert.ic019@...>
    Date: 19 April 2012 12:30

    Subject: Fwd: Proofs in pdf document report by HSBC that LIE KY 2A1B famiLEEs etc have stolen some US$275b [S$350b] unaccounted for

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    A Brief Research Note on Temasek Holdings and Singapore: Mr. Madoff Goes to Singapore

    Christopher Balding 

    HSBC School of Business

    February 8, 2012

    Financial data reported by Temasek Holdings and Singapore reveal problematic characteristics. First, Temasek reports an average annual return of 17% for 35 years despite Singaporean stock returns averaging less than 8% during this same time period. Given the range of stock market returns and its portfolio companies’ returns, it is highly improbably that Temasek has earned the returns claimed in its annual reports. Second, Singapore has become one of the most indebted countries in the world despite supposedly running large and sustained government surpluses. Given publicly available economic data on Singaporean finances, there is a minimum of $350 billion SGD or $275 billion USD unaccounted for from historical surpluses and financing operations. Third, given these results I find that for every $1 SGD in public borrowing, Singapore has received only 25 cents of publicly held Singaporean assets. Either financial returns have been drastically overstated or there are large unreported Singaporean controlled holdings.

    Number of Pages in PDF File: 13

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    Date posted: February 09, 2012  

    Suggested Citation

    Balding, Christopher, A Brief Research Note on Temasek Holdings and Singapore: Mr. Madoff Goes to Singapore (February 8, 2012). Available at SSRN: http://ssrn.com/abstract=2001343 or http://dx.doi.org/10.2139/ssrn.2001343

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    HSBC School of Business ( email )
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    Shenzhen, Guang Dong 518055
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    ---------- Forwarded message ----------
    From: Robert HO <robert.ic019@...>
    Date: 19 April 2012 12:12

    Subject: Proofs in pdf document report by HSBC that LIE KY 2A1B famiLEEs etc have stolen some US$275b [S$350b] unaccounted for


    Any rudimentary analysis of Temasek and Singapore finances should be struck by two glaring facts. First, Temasek claims of 17% annual returns for 35 years is so far outside the range of any ordinary investment return as to warrant skepticism. Second, Singapore is the only known country in human history to simultaneously run large and sustained budget surpluses and become one of the most indebted countries in the world today.

    Scenario #1: Assuming Temasek Returns and Singapore Finances Are Perfectly Accurate

    1. Temasek has established the greatest institutional track record of investment, possibly, in the history of human existence.

    2. Singapore maintains large unreported asset holdings that by conservative estimates could top $1 trillion SGD or $800 billion USD from accumulated historical budget surpluses and financing operations.

    3. Given the current estimate of $650 billion SGD of combined assets under management between Temasek and GIC, this results in an upward revision of assets under management by at least $350 billion SGD or $275 billion USD. Given numerous assumption parameters, this should be considered a very conservative estimate.

    Scenario #2: Assuming Temasek Returns and Singapore Finances Are Not Perfectly Accurate

    1. Temasek is reporting inflated returns by using methods that do not represent standard accounting practices.

    2. Singapore has inaccurately reported public finance data on revenue, expenditures, surpluses, total outstanding indebtedness, and asset holdings to bolster its perceived credit risk and the state of its public finances.

    3. Either by over reporting surpluses and the returns earned or underreporting its total assets, Singapore and the two sovereign wealth funds under its management have not accurately accounted for its finances to the public. The amount of the missing funds should conservatively be estimated $275 billion USD or $350 billion SGD. The missing funds may be located in a variety of places such as in poor investments returns or unreported asset holdings.

    In short, due to the large government budget surpluses and the increased debt, it seems highly improbable that the current numbers published by the Singaporean government and markets can be reconciled either to external data or to each other. If investment returns and public finance data is accurate, there must be an enormous pool of unreported assets controlled by the Singaporean government. If investment returns and public finance data as currently published is inaccurate, this represents a serious problem.
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