TR EMERITUS

NCMP Leong Mun Wai Every year, the Budget is an arithmetic puzzle. Even financial professionals like me have problems piecing everything together because you have to go beyond the smoke screen and look for the detailed data, which are often incomplete. However, I do get a sense of the overall picture and I am going to share my understanding here. 1. The ST’s headline of $107B plan refers to the total expenditure, which comprises a $82B of operating expenditure to run the government, $20B of development expenditure and $5B of financial transfers to help Singaporeans. 2. As the total operating revenue is estimated to be $76B ($2B higher than pre-Covid level in 2019), the basic budget deficit is the difference between $76B (Revenue) and $107B (Expenditure) which is $31B. 3. It is the Government’s policy to use only half of the investment returns for spending every year so that the other half is retained in the reserves. The half-used in the budget is called the Net Investment Return Contribution (NIRC). 4. Including the NIRC from our $1.35T in financial assets which is $19.6B (meaning our Net Investment Return for 2021 is estimated to be $39.2B), the overall budget deficit becomes smaller by reducing the shortfall of $31B (Deficit) by $19.6B (NIRC) which gives a final deficit of about $11B. 4. If 100% of the Net Investment Return (NIR) of $39.2B is used, there will actually be no deficit in 2021. So the NIR provides a very strong financial base for us. Even the $52B drawdown to fight the Covid-19 only equals to about one and a half years of our investment returns. There is little damage done to our overall financial reserves and position even when we are fighting the worst crisis of a lifetime to date. 5. Needless to say, we are not encouraging reckless spending but are raising awareness that we do have the resources to help our Singaporeans do better. So let’s see how much of the 2021 Budget is additional help for Singaporeans. The direct benefits to qualifying Singaporeans are as follows: 6. Overall, Budget 2021 has touched on the right pressure points especially in the continuing effort to help Singaporeans upgrade to participate in our economic transformation through research, innovation and enterprise (RIE), tide over Covid-19 via the additional household support, and the enhanced focus on sustainability. 7. However, many of the key budget measures are short term, ad-hoc payouts which do not tackle the root cause of the problem. Middle-class Singaporeans continue to feel stressed because the rising housing, healthcare, education costs are still there. 8. Further, the measures for economic transformation are from the old mold which had proven to be not successful despite having spent about $80B on economic transformation mainly through A*Star and Enterprise Singapore in the past two decades, a sum that is far greater than the Covid-19’s drawdown. More of the same may still not work. 9. I will comment further on these points in my speech during the Budget Debate from 24-26 Feb 2021.   *Facebook post by NCMP Leong Mun Wai.      Read More →

While countries in SE Asia could still balance relations between China and the US, there was good reason for Burma's generals to share rulership with Aung San Suu Kyi. Once the US threatened everyone with sanctions and pigheadedly demanded each nation choose between America and China, of course Burma (and every other country in SE Asia) would see how unreliable the US is and eventually choose China. I would think the Western criticism of Suu Kyi during the Rohingya crisis compelled her to look to China as a buffer. This combined with the fact that China is now the largest investor in Myanmar by far prompted unease in the military, which believed China needed to be balanced. What about ASEAN? This is a test, too, which just celebrated being at the core of RCEP. Myanmar was always a problem country for ASEAN. Burma had lots of advantages in the 1950s to be a miracle economy, but lost its way under the military-led Burmese way of socialism. Now that she is once again at the mercy of her military nemesis, the once godlike icon is now the loser of this brutal games of thrones. In December 2019 Aung San Suu Kyi appeared at the UN International Court of Justice in The Hague and defended her country's military against allegations of mass murder, rape and destruction of Rohingya Muslim communities. Since she has courted China and hosted Xi Jinping a year ago, her useful backers are sitting in Beijing, not in Washington or Brussels. But the military in Myanmar is used to fending off Chinese interference and Western sanctions. Myanmar is of enormous strategic importance to China, and especially so when the government of Pakistan seems less able to protect Chinese interests in that alternate route to the Indian Ocean. If the Chinese were drawing close to Ms. Aung San Suu Kyi, who could have been cheering the generals? Last month the Chinese government’s top diplomat, Wang Yi, met military chief General Min Aung Hlaing. Nothing happens in that part of the world without China's knowledge, approval and support! It implies Communist China gaining another Authoritarian ally, the Democracy World lost a member. It implies US lost Myanmar during Trump’s watch & CIA was caught napping. Make no mistake, the Coup is probably China's first strategic strike against the Biden Administration. Biden doesn’t have a strong hand in this crisis. He can reimpose sanctions or use ‘diplomatic’ means to get the Junta to reverse their Coup. But Biden might have to strike back ‘strategically’ at China loud & clear. Anything less may be taken as sign of weakness. This is a major challenge for Biden. If he appears toothless and ineffective in this destruction of a Democracy, that perception of him will carry throughout his administration! In the US they had just come thru an insurrection at the Capitol incited by one bellicose leader who refused to accept free and fair election results and a 250 year tradition of the peaceful transition of power, aided and abetted by a political party that has turned against democratic rule of law. We will have to wait and see. U.S. has no vital geopolitical interests in Myanmar, beyond “human rights” and “democracy”--- easily manageable by soft diplomacy. The real victims of this coup and Myanmar’s return to junta rule are ordinary Burmese. Considering the stance which Aung San Suu Kyi took against Rohingya muslims, she may have been a nationalist toward Buddhist Burmese but not someone committed to democracy which, to my understanding, values human rights and equality above all else and compels people to take actions in accordance with the principle. No one is completely devoid of self-interest and free from temptation of absolute power. The fate of Myanmar is ultimately in the hands of the Burmese and this coup demonstrates that. ASSK is just another cautionary tale of how weak and fundamentally undemocratic nationalist movements are. You don’t build a country by dividing it. You don’t engender a love for democracy in people by excluding them from it.   SojoüRne Sim        Read More →

In a few hours my old Cambridge colleague, the Finance Minister and Postponed Yet Again Seat Warmer PM-In-Waiting Heng Swee Keat, will be presenting Budget 2021. State media have been busy as usual doing their job of hoodwinking gullible Singaporeans and spreading fake news and disinformation. They have been trumpeting the Government’s supposed fiscal largess in generously dipping into the reserves to finance spending to shore up the economy and support hard-pressed Singaporeans. The figure most often bandied about is that the Government has allocated $100 billion to support the economy during Covid, or over 20% of GDP. For instance, the State Times writes on 15 February: Last year, the Government set aside a war chest of almost $100 billion – or nearly 20 per cent of gross domestic product (GDP) – to cope with the pandemic, with most of the funds used to support businesses and help workers keep their jobs. However as I wrote in Heng Swee Keat Must Issue a Correction Notice Under POFMA to MP Ms Tin Pei Ling the real support provided to the economy is nothing like that number. This is what I said: I am curious as to where this figure of $100 billion, or $93 billion, comes from. A comparison of the total expenditure for 2020 including special transfers but excluding transfers to endowments and trust funds (which are not current spending) versus the same figure for 2019 shows that the increase was only some $65 billion. Also the Special Transfers figure in the Unity Budget of $34 billion presumably includes the extra $13 billion which you are allocating to the Contingencies Fund, since you have not provided an updated Analysis of Revenue and Expenditure in your Fortitude Budget Statement. If one subtracts the $13 billion allocated from past reserves to the Contingencies Fund (which may never be spent) from the total for Special Transfers (excluding Top-Ups to Endowments and Trust Funds) then total spending is only some $52 billion more than last year. Another way of measuring the Government’s support is to look at the projected budget deficit in the Fortitude Budget Statement of $74.3 billion and subtract both the Top-Ups to Endowments and Trust Funds of 17.3 billion and the allocation of $13 billion to the Contingencies Fund. This gives a figure of $44 billion. You have already allocated $20 billion to the Jobs Support Scheme to help fund up to 75% of the wages of Singapore citizens and PRs. However given that probably more than half of the economy should be classified as being in the public sector and that a large proportion of the Jobs Support Scheme will go to Government-linked companies (GLCs) we should probably deduct half of the $20 billion as just a transfer payment from central Government to other entities in the public sector. We should also deduct $1.9 billion provided from past reserves under the Temporary Bridging Loan Programme and the Enterprise Financing Scheme shown in the Solidarity Budget since the Government is acting as a guarantor only. The final cost will depend on the loss that is left after the banks have exhausted the recovery process. The current cost of these guarantees is zero and they do not constitute actual spending. Unfortunately your Government’s guiding principle of obfuscation and hiding the true surplus from the people means that I am forced to make assumptions. As a minimum you should publish the General Government surplus, which should include all entities in the public sector including GLCs and take account of changes in the value of all assets including land as well as the true figure for the reserves. Thus I have no idea of how much the real deficit is and am forced to guess. A major problem is that the Government includes allocations out of the reserves (which in breach of the Constitution clearly do not appear in the Statement of Assets and Liabilities presented to Parliament with the Budget every year and which for all the useful information it provides might as well be a sheet of Lee Hsien Loong’s or Heng Swee Keat’s used toilet paper) in actual spending, regardless of whether the monies are spent or whether they are instead allocated to endowments and trust funds or placed in the Contingencies Fund. If we estimate, based on the reasoning above, that actual additional spending (after netting off transfers to Government-owned and -linked companies through the Jobs Support Scheme) is around $35 billion then that is only about 7.4% of GDP. Even if we assume generously that actual spending was $44 billion then that is still less than 10% of GDP or less than half what the Government wants you to think it is spending. By contrast the total amount of stimulus provided in the US has been about 18% of GDP, including the last stimulus bill of $900 billion passed before Trump left office. One of the new President’s first acts will be to pass a new stimulus package of roughly $1.9 trillion, or just less than 10% of GDP which will take total spending to over 20% of GDP. Other developed countries appear to have spent similar amounts as a proportion of GDP, though in many cases it is not clear what the amount of additional spending has been as opposed to monetary support through the central bank or loan programmes. In the case of the latter, only the actual loan losses should be classified as spending. Since Singapore is much more dependent on external demand than the US and most developed countries (in 2020 it ran a current account surplus of $82 billion or 17% of GDP),  and trade and tourism have been hit hardest during the pandemic, the Government should have provided greater stimulus not less. The lack of support shows in the fact that GDP in 2020 dropped by 5.4% whereas in the US GDP dropped by only 3.5%.  US GDP is expected to recover all its losses by the middle of next year whereas last week PM Lee said only that he expected the bulk of the economy to recover by the end of 2020.  Growth is forecast in the 4 to 6% range which would still mean that by the end of 2020 GDP would be slightly below what it was in 2019 if the economy grew at the mid-point of the estimate. Rather than rein in its support, as the State Times says the Government is planning to do, we need to continue to spend at the same level or higher in 2021. I have highlighted before the low level of support which went to households compared to the amounts pumped into the Jobs Support Scheme, a substantial proportion of which is a transfer from one pocket of Government to another. This is what I said in my earlier article: According to your figures total direct support for Singaporeans from your Government amounted to a derisory $2 billion up to the Resilience Budget and is probably no more than $2.5 billion now. If that is divided among 4 million Singaporeans residents (citizens and PRs) that is about $620. Contrast this with the US$3,200 or roughly $4250 in stimulus checks that will have been mailed to most adult Americans in 2020 and 2021 and US$500 per child under 16 (including the latest proposed payment of $1400). In addition Americans have received expanded unemployment benefits which have also kicked in in other developed countries (what are known as “automatic stabilizers”). By comparison, what the PAP touts as support for Singaporeans is merely the norm in safety nets and welfare payments in other countries. The PAP Government need to stop treating the reserves as their own personal treasure that must be hoarded and not spent. As I have said before, they are not operating a mama shop with a profit and loss ledger, however much Lee Hsien Loong and his wife have awarded themselves the positions of towkays who control the country’s wealth. Unless Budget 2021 continues the previous level of support and provides much more generous assistance to Singaporean households it will be a failure. We will all pay for it in terms of lower growth and higher unemployment than there needs to be. Unfortunately the lessons of Keynes and Modern Monetary Theory, though becoming mainstream in the US, have not been learnt by Heng Swee Keat and Lee Hsien Loong. Heng should return to his alma mater, Cambridge, for a refresher course.     Kenneth Jeyaretnam   About the author: I’m a Singaporean economist who became an opposition activist. I blog to provide an alternative to the porkies that the Pinkies tell. It just so happens that my alternative is the truth. That’s why I’ve never been sued in any civil or criminal court no matter how hard hitting my criticism. I’m quoted and interviewed and asked to speak across the world but largely censored in Singapore in an effort to silence my political opinions. The left hate me because they think I split their vote and because I eschew their outmoded economic models. Models that don’t work. The Right and the Conservatives hate me because I’m a liberal. I’m not sure what the middle think of me. I don’t think there are more than a handful of people in the middle, here in Singapore. I’m a Singaporean born and bred, dual heritage, my parents Singaporean established here before the State of Singapore was created. I’m not Eurasian. I read economics at Cambridge and could be broadly described as from the Keynesian school but I believe in interventions. I was formerly a successful hedge fund manager. After economics and politics my greatest interests are history, film and Makan. I run but I run so I can eat like a Singaporean.        Read More →