TR EMERITUS

I had the opportunity to catch with one my oldest friends, after a day of looking through boxes of various old cases in the warehouse. During our catch-up session, we found that we had a number of common worries, which are rooted in the fact that we are both approaching 50, our earning power is on the slippery slope down and its unlikely that we’ll reach the stage where we’ll ever be able to look to our dependents to take care of us in old age. My friend then made the point to me that whilst things are likely to look very bleak for the rest of us, I was in the lucky position of being in an industry that is likely to do well. This got me thinking about the prospects that I and many of my contemporaries are likely to face as economies (as the economies that people rather than statistics operate in) around the world lose the government support. In a way, I was lucky that I never “climbed” very high and thus don’t have that far to fall. I will probably struggle to survive like the masses. However, for those who have gotten onto the “Five C” ladder, things could be rather different. So, its perhaps a good time think of the awful scenario of the very real possibility of being thrown out of work. Let’s start with the good news. If one is thrown out of work because the employer goes bankrupt, your salary is considered a “Preferential Debt.” When a company goes under, there is a pecking order as to who gets paid. The way this works is that when a company goes under, a liquidator will step in. The liquidator’s job is to “realise” what’s left of the business (collected debts and sold off whatever assets can be sold off). The first thing that gets paid is the “expenses of the liquidation” which includes the liquidator’s professional fees. After that, if there’s money left, salaries will have to be paid, followed by CPF and the various taxes. If there’s any money left after that, the “unsecured” creditors get paid. There is, however, a cap of S$12,500 on preferential payments. So, if you’re a waiter who is owed a month’s salary, you’re in luck. Chances are your salary will be paid. However, if you’re a General Manager on S$18,000 a month, only S$12,500 will be preferred. The remaining S$5,500 will be “unsecured.” You should also be aware that only the “salary” is preferred. Leave-pay, notice-pay, medical claims and whatever allowances are not “preferred.” To qualify for any dividend from a liquidation, you need to fill out what is called a “Proof of Debt” form in order to be counted as a creditor. It also helps to know what’s going on in the liquidation process. So, where possible, try to attend the creditor’s meeting and keep in touch with the liquidation staff, especially when the topic of their payment comes around. Scrutinize to ensure that their bills are not inflated. You should take note that liquidation is a legal process, which inevitably means that it is time consuming. Any potential payouts are likely to happen not faster than six-months after the company goes into liquidation. Do not depend on payouts from a liquidation scenario to pay your bills. That’s the good news in the event that you lose your job due to your employer going insolvent. As any medical practitioner will tell you: I remember one of my first Filipina colleagues in the Bistrot telling me that she was working for a boss, she had to look after the boss’s business because the boss paid her salary and needed money to pay her salary. So, she did her part to ensure that the boss had the money to pay. The key message is that one should always be aware of what’s happening in the employer’s business for the simple reason that one’s own income is dependent on the boss’s business. The first step is to adapt the mindset that loyalty has its limits. A good businessman is always on the look out to create greater efficiencies and more importantly cost savings. You are not exempted from that. The boss will replace you with someone cheaper or a machine that merely needs a bit of oil and can-do things at a push of a button. The process used to be limited to blue-collar manufacturing jobs. Now, in the age of Artificial Intelligence (AI) and block chain, many white-collar jobs are being replaced by machines. This mindset protects you from the fantasy that the boss will always be there to protect you. One should always save for a rainy day and one should have a side-hustle, whether it’s a part-time job or find ways to make a hobby pay (I used to wait tables, until Covid put a dent in the restaurant business and I do encourage people to support the advertisers of this blog and I take YouGov Surveys). The second point is that you need to be observant about the health of the business and the boss’s reaction to his or her circumstances. If the boss has an attitude thinks has the mindset that the supplier is getting “ya-ya” and expects the supplier to negotiate for lower prices to get what is due to them – you better start preparing to upscale your alternative income and ensure that your rate of sending out CVs gets higher, because chances are they’ll treat not paying your salary in the same manner if they’re pushed into it. However, while “bad boss’s” make headlines in issues of “non-payment,” the truth is that its actually the nice guys who screw up their employees in issues of “non-payment.” Being a good person and even a good businessman does not exempt you from making bad business decisions. One of the saddest cases I had to handle involved a construction company that hadn’t paid its workers for five months. The boss was actually a good man (took construction workers on holiday with him) and had done great things for his company (they did big projects). However, he ran into a spell of bad luck and decided to throw all his eggs into a “big-kill” project. However, the usual story of slow payments down the line happened and he couldn’t sustain it. His staff from the admin down to the workers gave their all and worked for him without pay for five months. He took personal sacrifices to do what the right thing by his workers. Sold his private property and his BMW so that the workers could get something. In the end, it still wasn’t enough and we had to move in despite his best efforts to save his business. He was put into personal bankruptcy thanks to a ruthless labor supplier and sorting out the wage bill was not funny (I broke professional rules to help a few of the guys out). He was a good guy and his intentions were good. He was by all intents an inspiring leader (as my boss pointed out – the workers were quite happy to take photos with him despite not being paid for over five months). However, he broke the cardinal rule of business – he ran out of money. Your bills will not stop pilling up just because your boss is running for sainthood. If your boss misses one month’s salary, it should be a sign that he or she is not going to be able to pay the month after that. Now, this is not a hard and fast rule. There are situations where the boss had a bad month and the next month proved to be significantly better. You might want to stay for another month, especially if you see your boss has sold his home to ensure that you can keep yours. However, the reality is that businesses do go through rough patches and a good majority do not recover. Even if you decide to give two months of free work, you should leave by the third if you see that you’re not going to get paid. Your bills don’t stop just because your employer is going through a rough patch. Ignore the rosy statistics. Governments are now pulling back support and many businesses will go under. One needs to be ready for the awful eventuality that your employer might be one of them.   Tang Li *Although I’ve been based mainly in Singapore for nearly two decades, I’ve had the privilege of being able meet people who have crossed borders and cultures. I’ve befriended ministers and ambassadors and worked on projects involving a former head of state. Yet, at the same time, I’ve had the privilege of befriending migrant labourers and former convicts. All of them have a story to tell. All of them add to the fabric of life. I hope to express the stories that inspire us to create life as it should be.      Read More →

Among other things that Ong Ye Kung (OYK) spoke about at the recent Singapore Perspectives conference, he said that a 2 party political system is unlikely to happen in Singapore because of our geography and the reality of a city state. I beg to differ. Let me explain. Apart from geography and Singapore being a city state, many other factors influence our domestic political developments too. To begin, in our early years, Barisan Sosialis, a split away party from the pap, was a political force to be reckoned with and its demise was neither due to geography or Singapore being a city state, rather, it was, to a very large extend, due to other reasons. With a persistent lowering of the calibre and quality of newer pap leadership, the regression of Singapore under lhl's leadership and the growing numbers of disappointed Singaporeans overall as more and more citizens are able to feel it and relate it to their everyday struggling and suffocating lives be it the cost of living, diminishing decent employment prospects, having a greedy government, their CPF savings being forcibly held back against pap's very own promise of release, retirement inadequacies, very, very expensive public housing, depressed wages, stressful education system and the lack of confidence in their future which is best manifested in our young married citizens' reluctance to having children...the tides against continued pap rule is waning. People's frustrations, disappointments and courage have never been clearer and getting even more clearly displayed with each passing election even with dangling pap carrots. So, going forward, whether we have a 2 party political system or a coalition government is not for OKY or any pap leaders to dictate or decide but the people. The late LKY was farsighted enough to have predicted that a time will come when the other side is able to assemble a team equal to or better than the pap and the people will say let's try the other side and I might add the pap has only itself to blame when that time comes. For a long time, they have been hammering their own coffin nails. In early C19 days, lhl's exhortations to the people not to wear mask if they are not sick and all his ka kia ministars echoed in unison turned out to be wrong. The aim of having at least 85% of our population vaccinated in order to achieve herd immunity again turned out to be wrong and their calls to people to vaccinate in order to protect themselves and their families, although sounded so right, again turned out to be wrong too. Trust me I have no difficulty going on with their many, many wrong advices and decisions... The writing is all over the wall. The tides against the pap are turning fast and fierce. To OYK, I will say this to him. Your brave words and brave front are no match in the face of reality. Even if hardcore pap suckerporeans fail or refuse to wake-up, their children maybe different. In politics, never say never. Think.   Simon Lim      Read More →

Mark my word. Singapore will soon hold the highest public debt in the world. But it's not what you think. MAS and price stability : One of the main responsibility of MAS is to maintain price stability in the country. Instead of managing the prices of each product and service, MAS does this by focusing on one single price - the SGD exchange rate. Some central banks, like the US Federal Reserve Bank, manage inflation using the interest rate. Others, like MAS, manage by the exchange rate. On a day-today basis, the spot rate is a function of supply and demand, ie the liquidity of SGD has an important function. The spot rate is highly volatile. MAS manages by allowing the rate to move within a band. When the rate moves to the upper band, MAS intervenes in the market to buy foreign currency (sell SGD), thus bringing the rate down. On the other hand, when the rate moves to the lower band, MAS intervenes to sell foreign currency (buy SGD), which forces the rate up. In the long run, the SGD exchange rate is a function of how the Singapore economy performs. As Singapore is a floating rate regime, the MAS allows the SGD to find its equilibrium. It does not, and cannot, control the exchange rate in the long run. Where does MAS get the money to settle the market intervention purchases : To buy the foreign currency is no problem for MAS. E.g. when MAS purchases USD from a bank, it pays SGD by simply crediting the bank's Reserve a/c with the central bank. MAS creates the SGD out of nowhere. This is digital money 'printing' by the central bank. The counterparty bank remits the USD to MAS' a/c with the Fed at NY. However, to sell the foreign currency, eg Yen, MAS must first have the Yen in its account with the Bank of Tokyo, the Japanses central bank. MAS pays Yen from its account at BOT. To receive the SGD, MAS debits the counterparty bank's Reserve account.. Intervention in the forex market is part and parcel of MAS's monetary policy management. This requires MAS to take care of 2 critical issues. (1) In practical terms, MAS has unlimited capacity to buy all the foreign currency it needs since it pays for them simply by "printing" SGD out of thin air. Unrestrained "printing" of SGD is inflationary as too much money circulating in the economy puts downward pressure on its value. MAS must control the amount of money in circulation caused by "printing" SGD to pay for the foreign currencise. (2) MAS must always hold substantial balance of foreign currencies at all times. Sanitising the SGD "printing": MAS mops up the SGD 'printed' in its market intervention operation by a process called 'sanitisation'. This is done by issuance of Treasury bills/bonds. Banks and investors purchase these SGD securities which are settled by MAS debiting banks' Reserve a/c with the central bank. This nullifies the inflationary effect on SGD "printed", or in central banking lingo, the SGD is "sanitised". There is no increase of money in circulation. In effect, foreign currency purchased are funded by debt in the form of Treasury bills/bonds. Hence MAS has an increase in assets (foreign currence) counter-balanced by an increase in liability (securities, ie debt). How much foreign currencies should MAS hold: To answer this question, one needs to know the purpose for forex reserves. It is (1) to influence the SGD exchange rate as described above; (2) to maintain confidence in the SGD (which is fiat, a currency not backed by anything); and (3) to backup balance of payments of the country (this is the international inflow and outflow of funds out of various activities like trade, investment, remittances, aid, foreign-currency debt servicing, other financial activities etc.) MAS holds these foreign currencies so the economy can absorb any external shocks. By experience, MAS takes the view an optimum size is about 65%-75% of the GDP. Based on 2020 GDP of SGD459b, the holdings should be SGD298b to SGD344b. This works out to about 7 months of Singapore's import. Official Foreign Reserves (OFR) : MAS invests these foreign currency holdings in liquid foreign assets as very short term investments. This include deposits with other central banks in demand accounts (which earns no interest), overnight and short-term deposits, foreign Treasury bills/bonds, Special Drawing Rights, and Gold. The aggregate of these is known as Singapore's OFR. There is a holding cost to keeping all these foreign currencies. Firstly, the market intervention may incure exchange losses. Secondly, there is debt servicing which may be higher than the interest received on the short term investments. Country Reserves : Every country has revenue, mostly from taxes. Lucky countries have income from natural resources like oil. Each year, excess revenue over expenditure goes to build up the country's reserves. Singapore is unique in 2 aspects. (1) By law, Singapore government cannot borrow to fund expenditure. The government cannot have a deficit budget. It is in the happy position of having budget surpluses all these years. (2) The proceeds of government land sales cannot be spent. All these funds are transferred into the national reserve. The MAS is the government's banker. The Ministry of Finance deposits all incoming money into its account at MAS and periodically transfers surpluses to GIC or Temasek to invest. The national reserve is state funds, which is public money. It belongs to Singaporeans collectively. It is managed by GIC and partly by Temasek. The mistakes people make about Singapore National Reserves: In trying to quantify Singapore national reserves, many make 3 common mistakes: (1) They assume GIC investments are all national reserves. It is not. GIC manages the government's reserves, and funds from Special Singapore Government Securities. These SSGS funds are Central Provident Fund money which the government invests on behalf of the CPF Board. Since GIC co-mingles the invesment, there is no way to determine, on valuation basis, how much of the investments are national reserves and how much belong to CPF managed funds. (2) They include OFR as part of national reserve. It is not. The OFR is simply liquid foreign assets MAS maintains to manage their monetary policy. (3) They exclude government deposits with the MAS. The central bank is the government's banker. The Ministry of Finance deposits incoming funds with MAS. These deposits would include surpluses and land sales proceeds not yet transferred to GIC. That is, a portion of the MOF's deposit with MAS are national reserves. Three misconceptions in MAS' increase of OFR : (1) The economic success of Singapore caused the increase in OFR. This is not completely correct. A currency strengthens or weakens against another has much to do with their trading patterns and balance of payments relationship. Take Philippines for example. Its huge diaspora of overseas workers remit a massive USD30b home. (2) Investors and businesses poured in massive foreign currencies for SGD assets. This is totally incorrect. The Foreign Exchange market is the biggest financial market in the world. It is bigger than all the other financial markets combined. Singapore is an important financial centre. In 2019 Singapore was ranked 3rd in the world with average FX volume of USD633b per day. The 5 top currencies traded in Singapore are USD, JPY, EUR, AUD and SGD in that order. The daily volume of SGD traded in 2019 was USD57b. To have a sense of perspective, this was a hefty 42% increase from 2016. But the reality is trade and economic activies driven forex deals form a very low volumn. As high as 90% of the trades are actually driven by speculative and hedging activities. (3) The increase in OFR means Singapore wealth has increased. This is wrong. This increase is simply due to MAS managing its monetary policy. It does not represent increase in national wealth as a popular foreigner called 'Critical Spectator', an avid supporter of PAP, once erroneously claimed Singapore grew richer by over S$200b with S$160b from increase in OFR. Transfer of OFR to GIC : When OFR is in excess of requirements, MAS can technically invest it in better yielding longer term and higher risk assets. However, MAS is a regulatory body, not an investment agency. This acess OFR is transferred to GIC to better manage the funds. The transfer is by set-off against MOF deposits with MAS. Thus MAS sees a reduction in asset (OFR) and liability (Government deposits). This has been mentioned as a transfer of OFR to GIC which led most people, such as Critical Spectsator, to hold an incorrect view that OFR is government reserves, it is wealth. The view is a misinterpretation from a wrong perspective. Remember, MOF deposits at MAS comprises of revenue receipts, and budget surpluses (inclusive of land sales proceeds) not yet transferred to GIC. It is the surplus component of MOF deposits that is being transferred to GIC. In other words, it is a fiscal decision, the normal transfer by the government of its surplus. MOF makes a withdrawal and MAS liquidates some OFR assets to fund the cashout. Fundamentally, it is a case of MOF transferring its surplus to GIC, not MAS transferring OFR to GIC. This procedure imposes a limitation on the amount of OFR that MAS can liquidate. It depends on the quantum of surplus that the government has deposited at the MAS. This has led to a situation where MAS' excess OFR cannot be fully liquidated, causing it to be left invested in low-yielding assets. Proposed MAS Amendment Bill : This is where the MAS Amendment Bill comes in. It seeks to remove the need for government surplus to be built up for the MAS to liquidate excess OFR. The proposed procedure will see the MOF issuing foreign currency RMSG (Reserves Management Singapore Security). MAS subscribes directly for these instruments and pays for it using the OFR which MOF then transfers to GIC. What this means to MAS is a replacement of one asset class with another. Excess OFR is replaced by RMSG, which is a debt from the government. The government will then better invest excess funds in higher yield assets under GIC. The instrument is purely a technical way to work the process as they are non-marketable and reside only in the books of MAS. The SGD580b cap on RMSG issuance is basically just an administrative number. The proposed legislation provides the transparency that the process is purely a monetary and not a fiscal initiative. It is not about MOF creating debt to fund expenditure. The decision for timing, quantum and currency of RMSG to be issued is for MAS to make, as well as redemption requests. Blurring the Reserves in GIC : Those who are seeking to determine the real worth of Singapore reserves will have to appreciate that the investments of GIC will be funded by 3 components -- CPF funds, RMSG funds and surplus + land sales proceeds. Only the 3rd component qualify as national reserves. In case of need when OFR has fallen below required threshold, MAS can initiate the redemption of RMSG and move foreign currencies back to beef up OFR numbers. That call may well require GIC to make forced sales of long term assets, quite possibly with losses. Singapore as the highest indebted country : Singapore is currently ranked 5th country with the highest public or national debt. With RMGS in play, Singapore will soon overtake Japan with the dubious honour of becoming the highest indebted country in the world. But don't loose sleep over this. Like Japan, the national debt is all mostly domestic. In Singapore's case, the national debt is mostly SSGS (from CPF money) and RMGS (OFR money from MAS). Both of these are money that the government, by law, cannot spend away.   Pat Low * Article first appeared on Chempost.      Read More →