Singapore joins IMF and World Bank

3 Aug 1966: Singapore joins the International Monetary Fund and the World Bank

 

On 3 August 1966, Singapore became the 104th member of the International Monetary Fund (IMF) and of the International Bank for Reconstruction and Development or the World Bank in short form (Singapore year book, 1967, p. 133). The IMF and the World Bank were conceived in June 1944 at the United Nations Monetary and Financial Conference at Bretton Woods. The role of the IMF is to stabilise international exchange rates and promote liberal economic policies. The Fund also provides members with funds to cover short-term balance of payment problems. The World Bank offers loans to members to finance productive investments (Parliamentary Debates: Official Report, 22 June 1966, Vol. 25, col. 122). Singapore’s accession to the two international organisations was authorised by the Bretton Woods Agreements Act of 1966 (Government Gazette. Acts Supplement, 4 July 1966, Act 34 of 1966, p. 297).

 

Singapore before being an IMF member
Before Singapore became an IMF member, it had sought assistance from the organisation. Following Singapore’s separation from Malaya on 9 August 1965 and during the process of negotiating with Malaysia for a common currency and banking system, Singapore had asked the IMF to provide technical assistance and to act as a broker in negotiations (Parliamentary Debates: Official Report, 26 August 1966, Vol. 25, col. 267).

 

The IMF sent two missions to carry out these functions. The first mission arrived in December 1965. It conducted a preliminary study, released on 1 March 1966, to identify the concerns of Singapore and Malaysia regarding the common currency question (Parliamentary Debates: Official Report, 26 August 1966, Vol. 25, cols. 267-269). The second IMF mission brokered the final rounds of negotiations that were held between 10 June 1966 and 5 July 1966 (Parliamentary Debates: Official Report, 26 August 1966, Vol. 25, col. 269).

 

Singapore’s first loan from World Bank
Prior to joining the World Bank, Singapore had received assistance from the institution in the form of two loans (Parliamentary Debates: Official Report, 22 June 1966, Vol. 25, cols. 123-124). The World Bank’s first loan to Singapore was signed on 16 May 1963. Amounting to US$15 million, the loan was used for the construction of the first phase of the Pasir Panjang ‘B’ Power Station (Public Utilities Board [PUB], 1964, pp. 12-13). As a pre-requisite for the loan, the World Bank requested that the government establish a statutory authority to manage the utilisation and repayment of the loan (Debates: Official Report, 5 April 1963, Vol. 20, cols. 114-117).

 

The Public Utilities Board (PUB) was constituted on 1 May 1963 under the Public Utilities Ordinance of 1963 (PUB, 1964, p. 5). In addition, the Loans (International Banks) Bill was passed on 5 April 1963 to enable the government to borrow from the World Bank and to “ensure that certain of the requirements in regard to guarantee are sufficiently safeguarded” (Debates: Official Report, 5 April 1963, Vol. 20, cols. 88-113). The World Bank’s second loan of US$6.8 million was granted on 2 March 1965. It was made to the PUB for the Johor River Water Project (PUB, 1967, p. 7).

 

Application for membership
Singapore applied for membership in the IMF and the World Bank on 8 September 1965. The terms and conditions for Singapore’s entry, which included the subscription fee, payment of subscription and determination of the par value of the Singapore currency, were approved by the two organisations on 21 February 1966. Singapore was then given six months to accept the membership offer (Government Gazette. Acts Supplement, 4 July 1966, Act 34 of 1966, pp. 301-304).

 

To seek the government’s authorisation to accept the membership offer, Minister for Finance Lim Kim San put forth the Bretton Woods Agreements Bill for the first parliamentary reading on 22 June 1966 (Parliamentary Debates: Official Report, 22 June 1966, Vol. 25, col. 122). As the Bill was tabled on a Certificate of Urgency, the second reading was conducted on the same day as the first reading. In the second reading, Lim asserted that Singapore, having achieved independence, “must” become a member of the World Bank, otherwise it would not be able to obtain further loans from the Bank. Previously, the two World Bank loans that Singapore had obtained in 1963 and 1965 were secured by virtue of its memberships of Britain and Malaysia respectively (Parliamentary Debates: Official Report, 22 June 1966, Vol. 25, cols. 123-124). In his speech, Lim added that the Port of Singapore Authority (PSA) had successfully secured a US$15 million loan from the World Bank in July 1965. However, the loan was “held in abeyance” by the World Bank because Singapore was not yet its member (Parliamentary Debates: Official Report, 22 June 1966, Vol. 25, col. 124).

 

Advantages of IMF’s members
To justify Singapore’s IMF membership, the Finance Minister mentioned several advantages. First, Singapore could purchase gold or other currencies from the IMF instead of resorting to drastic monetary policies domestically if it faced balance of payments difficulties. Second, Singapore’s membership in the IMF “instils confidence” on Singapore’s monetary policies as it was an indication that the government accepted the articles of agreement of the IMF and abided by the Fund’s practices on the par value of the Singapore currency and exchange controls. Third, as a member, Singapore would be able to seek the “competent and objective assessment” and “advice” of the IMF and the World Bank regarding its economy. Fourth, since IMF membership was a pre-requisite for World Bank membership, it was crucial for Singapore to join the IMF (Parliamentary Debates: Official Report, 22 June 1966, Vol. 25, col. 124).

 

In the second reading, Lim also examined the subscriptions Singapore was asked to pay as a member of the IMF and the World Bank. The subscription to IMF was US$30 million. Singapore was obliged to pay 25% of the fee in gold and the remaining in local currency. Singapore’s subscription to the World Bank was US$32 million. Upon joining, Singapore was required to pay 10% of the fee, of which 1% was payable in gold and the remainder in local currency. In total, Singapore’s initial subscription payment to both the IMF and the World Bank was US$7.5 million in gold, US$320,000 in gold or US dollars, and US$25.4 million in local currency, which would mostly be issued in the form of non-interest bearing, non-negotiable notes. The Finance Minister noted that these subscriptions would be returned in full if Singapore withdrew from the IMF and the World Bank, or if the institutions ceased to operate (Parliamentary Debates: Official Report, 22 June 1966, Vol. 25, cols. 124-125).

 

Concerned for high subscription rate
The subscription amount was a concern for Tang See Chim, Member of Parliament for Choa Chu Kang. Tang felt that, instead of placing the money in the World Bank “as subscription and in turn borrowing [them] back”, it could be “used for [Singapore’s] own development”. He also noted that the World Bank had displayed “extreme conservatism in its lending policy”. The Bank was only willing to extend its lending facilities to water schemes and educational projects. It did not cover other social development schemes such as housing and sewerage. Tang added that the World Bank was not very “generous” to Singapore in “financing local costs of development projects” (Parliamentary Debates: Official Report, 22 June 1966, Vol. 25, cols. 126-127).

 

In response, the Finance Minister explained that the subscription to the IMF and the World Bank was Singapore’s “commitment [to the institutions] rather than an outright payment”. He also highlighted that the team, which was sent to negotiate Singapore’s membership, was aware that the World Bank was “rather conservative” in approving loan applications. As a result, the team had made it “very clear” to the World Bank that if the Bank did not review its lending policy, Singapore would withdraw its membership. However, Lim emphasised that because the Singapore economy was still developing, it would be “preferable” to join and remain as members of the two organisations (Parliamentary Debates: Official Report, 22 June 1966, Vol. 25, cols. 128-129).

 

Passing of Act of Parliament
After the Finance Minister gave his reply, the Bretton Woods Agreements Bill was read a second time before it was considered and reported without amendments in the whole Parliament. The Bill was then read a third time and passed (Parliamentary Debates: Official Report, 22 June 1966, Vol. 25, col. 129). On 4 July 1966, the Bill became an Act of Parliament after it received assent (Government Gazette. Acts Supplement, 4 July 1966, Act 17 of 1966, p. 297). This paved the way for Singapore to finalise its membership in the IMF and the World Bank.

 

On 3 August 1966, Singapore signed the original articles of agreement of IMF and the World Bank to become a member of the two institutions. The documents were signed on behalf of the government by Goh Koh Pui, then chairman and general manager of PSA, in Washington D.C. (Singapore year book, 1967, p. 133).

 

Recipient of more loans
Between 3 August 1966 and 30 June 1970, Singapore received eight loans amounting to US$92.4 million from the World Bank. The major recipients included the PSA, PUB and the Singapore Telephone Board (STB). The following are some details of how the loans were utilised.

 

The PSA obtained one loan from the World Bank. The loan agreement of US$15 million was signed on 11 August 1966 and used to expand Singapore’s port facilities (Port of Singapore Authority, 1967, p. 19).

 

The PUB received three World Bank loans. The first loan of US$10 million, granted on 4 November 1966, was for extension works to the Pasir Panjang ‘B’ power station (PUB, 1967, p. 6). The second loan of US$23 million, finalised on 5 July 1967, was for the Board’s electricity and distribution projects as well as the Seletar Project (PUB, 1968, pp. 8-9). The third loan of US$20.5 million, signed on 25 April 1969, was to help finance various PUB electrical distribution and transmission programmes for the 1969 to 1971 period (PUB, 1970, p. 7).

 

As for the STB, the Board successfully applied for two World Bank loans. They were granted on 15 September 1967 and 19 December 1969 respectively. The first loan of US$3 million was to finance part of STB’s Second Five Year Plan (1966-1970) (Singapore Telephone Board [STB], 1968, p. 6). The second loan of US$11 million was for a five-year programme (1970-1975) to boost Singapore’s demand for telephones and reduce the number of people on the waiting list for new telephones (STB, 1970, p. 5).

 

Sources

The information in this article is valid as at 2011 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.

Subject
Economy