By Chew, Valerie written on 16-Mar-2009
National Library Board Singapore

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Singapore's national reserves are essentially the net assets (i.e., assets minus liabilities) of the country. Being a small nation lacking in natural resources and relying heavily on external trade, Singapore needs to have ample reserves as its security net - to ensure a stable currency and to provide a cushion in times of crisis. Another purpose of the reserves is to provide a continual stream of income for current and future generations. Recognising the strategic importance of the reserves, the government has judiciously been building up the reserves over the last few decades. To protect this "nest egg" from potential misuse, the government needs the consent of the Elected President before it can draw on past reserves. On 21 January 2009, this approval was given for the first time in the history of the Elected Presidency.

Definition
The Constitution defines "reserves" as the excess of assets over liabilities of the government, statutory boards and government companies. The reserves comprise financial assets (e.g., cash, shares) and physical assets (i.e., land and buildings). The Government of Singapore Investment Corporation (GIC) and Temasek Holdings, both government companies, have been given the mandate to invest some of the reserves with the objective of maximising the long-term value of the assets.

The Constitution also provides the definition of "past reserves", as opposed to "current reserves". Past reserves are those that were not accumulated by the government during its current term of office, including relevant accretions derived from investing the reserves. Current reserves are those not deemed to be past reserves.

Size and Management of the Reserves
The actual amount that Singapore has in its reserves is a closely guarded secret for strategic reasons, but it is widely known to be in hundreds of billions. For a rough idea of how much it could be, analysts often look at the amount of foreign reserves held by the Monetary Authority of Singapore (MAS) to maintain the stability of the Singapore dollar as well as the assets managed by GIC and Temasek. Singapore's total foreign reserves were estimated to be S$252.8 billion at the end of February 2009, while Temasek and GIC officially manage portfolios of S$127 billion (as at 30 November 2008) and "well above US$100 billion", respectively.

System of Safeguarding Past Reserves
In August 1984, then Prime Minister Lee Kuan Yew mooted the idea of giving the President more powers to help safeguard the country's reserves. Six years later, then First Deputy Prime Minister Goh Chok Tong introduced in parliament the Constitution of the Republic of Singapore (Amendment No. 3) Bill that proposed the creation of an Elected President with veto powers to safeguard the national reserves and the integrity of the public services. The Bill was passed on 3 January 1991 and took effect on 30 November 1991. Thus was born the "two-key system" of protecting past reserves, with the government and the President each holding one key. The government would be able to tap on past reserves only if the President agrees to use his key.

Bills passed by parliament become law only after the President has given his assent. As custodian of Singapore's past reserves, he can withhold his assent to any Supply Bill, Supplementary Supply Bill or Final Supply Bill - thereby blocking the Budget for the financial year - if it is likely to draw on past reserves. Similarly, statutory boards and government companies listed in the Fifth Schedule of the Constitution are required to present their annual budgets and supplementary budgets to the President for his approval before the start of each financial year. If a budget is likely to draw on past reserves, he may refuse to approve it.

In addition, the Minister for Finance, Accountant-General and Auditor-General have to inform the President of any proposed transaction by the government that is likely to draw on past reserves. The same requirement is applied to the Fifth Schedule entities, which are the Central Provident Fund (CPF) Board, Housing and Development Board (HDB), Jurong Town Corporation (JTC), MAS, GIC, Temasek Holdings and MND Holdings. If the President objects to the proposed transaction, he may exercise his veto.

The President's veto is final, with one exception. The Constitution requires him to consult the Council of Presidential Advisers (CPA) before he makes his decision on a possible drawdown of past reserves. If he withholds his assent to a Supply Bill, Supplementary Supply Bill or Final Supply Bill against the recommendation of the CPA, the government may overrule his decision with a resolution that is supported by at least a two-thirds majority in parliament.

After the President approves a request to draw on past reserves, he must convey his opinion to parliament in writing, thereby making his opinion public as it will be published in the Government Gazette.

To help the President monitor the past reserves, the government provides him with detailed accounts regularly. Under the Constitution, the President may request for additional information and the relevant agency has to comply.

Former President Ong Teng Cheong had worked with the government to develop a set of working principles in 1999 to guide the actual implementation of the constitutional safeguards. The resulting white paper titled The Principles for Determining and Safeguarding the Accumulated Reserves of the Government and the Fifth Schedule Statutory Boards and Government Companies was approved by the Cabinet on 13 May 1999 and tabled in parliament on 2 July 1999. However, it was not made legally binding so as to keep the procedures flexible enough to deal with the countless possible scenarios.

Major Constitutional Amendments
There have been two major constitutional amendments in relation to the amount of investment returns being channelled into past reserves. The first was enacted on 23 January 2001. The Constitution of the Republic of Singapore (Amendment) Act 2001 included an amendment to protect the Net Investment Income or NII derived from past reserves. NII refers to the interest and dividend income earned from investing the government's reserves. With the amendment, the government would be able to spend only up to 50% of NII derived from past reserves each year because at least half of it would be regarded as part of past reserves and thus protected. Before the amendment, there was no such cap. However, the amendment did not apply to reserves under the Fifth Schedule entities.

The second amendment involved a more fundamental change - a revision of the framework under which the government was allowed to spend the returns gained from investing the reserves. In effect, the changes increased the amount of investment returns that the government could spend each year while retaining the 50% limit. After much debate in parliament, the Constitution of the Republic of Singapore (Amendment) Act 2008 was enacted on 29 October 2008.

Before the amendment, NII was the basis for determining the amount of investment returns that could be spent. Following the amendment, a broader definition of investment returns known as Net Investment Returns or NIR was adopted. NIR is made up of the total returns on reserves invested by GIC and MAS as well as the NII from other assets, mainly those managed by Temasek. While NII consists of actual dividends and interest earned each year in nominal terms, total returns include capital gains/losses and are calculated based on the real expected returns over a long-term period of 20 years. The government will use the additional funds gained from the amendment to pay for the country's growing needs in various areas such as education, healthcare, transport and social services.



Author
Valerie Chew



References
All the president's powers. (1991, December 30). The Straits Times. Retrieved on February 8, 2011, from NewspaperSG.

Attorney-General's Chambers. (2009, March 15). Constitution of the Republic of Singapore. Retrieved March 12, 2009, from http://statutes.agc.gov.sg/non_version/cgi-bin/cgi_retrieve.pl?actno=REVED-CONST&doctitle=CONSTITUTION%20OF%20THE%20REPUBLIC%20OF%20SINGAPORE%0a&date=latest&method=part&sl=1

George, C. (1999, July 5). Govt, president agree on principles over reserves. The Straits Times. Retrieved on February 8, 2011, from NewspaperSG.

Government of Singapore Investment Corporation Pte Ltd. (n.d.). About us: Overview. Retrieved March 12, 2009, from http://www.gic.com.sg/aboutus.htm

Lee, U. (2008, September 16). Bill to allow more spending with gains from investing reserves. The Business Times. Retrieved March 11, 2009, from Factiva database.

Ministry of Finance Singapore. (2009, March 16). FAQs: Protection of reserves. Retrieved March 12, 2009, from http://www.ifaq.gov.sg/mof/apps/fcd_faqmain.aspx?qst=2fN7e274RAp%2bbUzLdEL%2fmCxs7iwcgv8gv2atNDOvsLC7FaqRZ6JRbhktggqxaRFABaCS%2bSjUT3Vtcn%2bCAl1XrN2VK28qAxNHweC84FdWRscg5klzOh3OvsXM6AWNzAFNLeeOUeu08pL7p2qzJ%2fdZ1k0zFhEoQs4Fuls1JtMSG61B7%2b4uBT4Fzl1aWylhaTFzt0Rrene9z%2bIu%2b8kc19rKEaJCB5YeFEC%2bnyI%2bQwOnR4TPdhyFn%2f4KIA%3d%3d

Monetary Authority of Singapore. (2009, March 9). Official foreign reserves. Retrieved March 12, 2009, from http://www.mas.gov.sg/data_room/reserves_statistics/Official_Foreign_Reserves.html

Oon, C. (2009, February 18). Constitution keeps procedures flexible. The Straits Times. Retrieved March 11, 2009, from Factiva database.

Paulo, D. A. (2008, September 16). Spending to meet the nation's needs. TODAY. Retrieved March 11, 2009, from Factiva database.

Singapore. (2008). Constitution of the Republic of Singapore (Amendment) Bill. Retrieved March 12, 2009, from http://www.parliament.gov.sg/parlweb/get_highlighted_content.jsp?docID=404067&hlLevel=Terms&links=CONSTITUT,REPUBL,SINGAPOR,AMEND,BILL,BILL,BILL&hlWords=%20%20&hlTitle=CONSTITUTION%20OF%20THE%20REPUBLIC%20OF%20SINGAPORE%20AMENDMENT%20BILL&queryOption=1&ref=http://www.parliament.gov.sg:80/reports/public/hansard/title/20081020/20081020_S0004_T0001.html#1

Singapore Parliament. (2001). Parliamentary debates: Official report (9th Parliament, 2nd session, 13th sitting, vol. 72, cols. 1300-1332). Singapore: Govt. Printer.
(Call no.: RSING 328.5957 SIN)

Yap, E. (2009, February 11). 2 years of Temasek growth wiped out in months. The Business Times. Retrieved March 11, 2009, from Factiva database.

Zakir Hussain. (2008, October 11). Unlocking more of the reserves' returns. The Straits Times. Retrieved March 11, 2009, from Factiva database.


Further Readings
Low, L., & Toh, M. H. (1989). The elected Presidency as a safeguard for official reserves: What is at stake? Singapore: Times Academic Press in association with the Institute of Policy Studies.
(Call no.: RSING 339.35957 LOW)

Singapore. (1988). Constitutional amendments to safeguard financial assets and the integrity of the public services. Singapore: Singapore National Printers.
(Call no. RSING 324.22095957 SIN)

Singapore. (1990). Safeguarding financial assets and the integrity of the public services: The Constitution of the Republic of Singapore (Amendment No. 3) Bill. Singapore: Singapore National Printers.
(Call no.: RSING 324.22095957 SIN)

Singapore Parliament. [1990]. Report of the Select Committee on the Constitution of the Republic of Singapore (Amendment No. 3) Bill [Bill no. 23/90]. Singapore: Singapore National Printers.
(Call no.: RSING 342.595703 SIN)

Singapore Parliament. (1999). The principles for determining and safeguarding the accumulated reserves of the government and the Fifth Schedule statutory boards and government companies: Presented to Parliament by command of the President of the Republic of Singapore. Singapore: Government Printers.
(Call no.: RSING 336.5957 SIN)

Teo, A. (1999, July 5). White paper clarifies powers of president on reserves. The Business Times. Retrieved March 11, 2009, from Factiva database.

The Ong presidency. (1999, August 29). The Straits Times. Retrieved on February 8, 2011, from NewspaperSG.



The information in this article is valid as at 2009 and correct as far as we are able to ascertain from our sources. It is not intended to be an exhaustive or complete history of the subject. Please contact the Library for further reading materials on the topic.