Concern about loan offer

Singaporean officials have justified this decision as a bid to ensure the stability of the region--a decision that has been lauded by the International Monetary Fund as motivated by "enlightened self interest". Other reasons cited by officials include Singapore's "special relationship with Indonesia" and Indonesia's importance as the largest economic presence in the region.

In Parliament, Finance Minister Dr Richard Hu sought to answer queries from fellow MPs. Below is a brief summary of his points:

• The two-part US$10b loan meant to restore investor confidence in Indonesia is not a gift, and will carry commercial interest rates. The first US$5b package will be used only to supplement the US$23b IMF bailout package if it proves inadequate. The second US$5b package will be used to buy rupiah to insure the currency's stability, but according to Dr Hu "the amount of our intervention is not pre-determined and will depend on developments in the foreign exchange markets".
• The loans will be extracted from MAS reserves, according to Dr Hu, and thus will not affect CPF holdings, as those funds are invested in Singapore government's bonds. According to him, the government's external reserves are well in excess of its CPF obligations. · The loan will not affect current government's operating expenditures, and thus its surpluses, according to Dr Hu. "There should be no direct impact on the government's programmes, including the upgrading programmes, provided government continues to run budget surplus the next few years," he says.
• The US $10 billion loan offer is considered a "sovereign loan" and prior parliamentary and Presidential approval had already been given under the Financial Procedure Act in 1986 and the Monetary Authority of Singapore Act in 1980.
• The buying of US bonds and the disbursement of the Indonesian loan are in principle the same thing, according to Dr Hu "This loan merely converts a US dollar loan extended to the US government to a loan extended to Indonesia," he says. Hence there is no change in its "asset position."
• While "the risk" of Indonesia defaulting on the loan "is always there", Dr Hu says that Indonesia and Thailand have not defaulted on their loans before. Also, he considers this economic situation a "temporary problem," and believes the loan will reassure economic confidence for the region.

What remains unelaborated is the issue of the equivalence of bonds and loans. How does one explain "no change in asset position" to a taxpaying layman? Also, could the rationale for Indonesia's ability to repay its loan seem too precognitive?

The issue of the Singaporean public's lack of input in this decision has also been left unanswered. This point, first brought up by NCMP Opposition MP JB Jeyaretnam, continues to be dismissed, and ignored, in official statements regarding the loan.

In a recently released statement, the Worker's Party's denounced the loan offer as being "unconstitutional", their contention is that the pre-approval given under the Financial Procedure Act in 1986 (by President Wee Kim Wee for the purchase of Indonesian equities) and under the Monetary Authority of Singapore Act in 1980 (by President Benjamin Sheares to approve the purchase of Indonesian and Thai assets) had in fact been nullified by the provision of Article 144, which was only enacted in 1991.

Article 144 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."

Not surprisingly, the Finance Ministry along with the Attorney General have disputed Jeyaretnam's reading of the article, claiming that he had misinterpreted the constitution. According to the Attorney General, the provisions on pre-approvals have nothing to do with article144 as it refers to the "giving of guarantees or the raising of loans by the government, and not the giving of loans to others."

Jeyaretnam however rebuts that their interpretation "made no sense," and that if it was right, "the law must be an ass". He has since asked for the loan issue to be heard in a constitutional court.

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Feedback:

The govt made a mistake and forgot to abide by the rules it had set. Now it is trying to cover up. Already the explanations given during the parliamentary sessions are stupid. I can live with the explanation that we need to support our neighbour in times of need. If they tumble we too will have to bear the brunt. Not this crap.
chukang@pacific.net.sg

I support our government whole heartedly Well Done Singapore government.
bbzhenyu@pacific.net.sg

In any case, Singaporeans should pull themselves together to get over the crisis other than anything else. If the decision made is correct and benefits the nation, the procedure doesn't really matters. What is important is whether does it solve or help the situation we're facing.
heetony@hotmail.com