Not in Singapore’s interest to reveal size of reserves: DPM Heng

• Making public the size of Singapore’s reserves would diminish the value of the reserves as a strategic defence
• Finance Minister Heng Swee Keat also said he was alarmed by earlier comments made by opposition MP Jamus Lim that transparency can encourage “stabilising speculation”
• Mr Heng said Assoc Prof Lim was merely quoting theoretical literature and recounting past learnings of how currency speculation can affect economies

SINGAPORE — Revealing the size of Singapore’s reserves would be akin to laying bare the country’s defence plan, which will diminish the value of the reserves as a strategic defence, Deputy Prime Minister Heng Swee Keat said.

Responding to Non-Constituency Member of Parliament (MP) Hazel Poa’s call for more transparency on the size of Singapore’s reserves during her Budget speech on Wednesday, Mr Heng, who is also Finance Minister, said that it is not in Singapore’s national interest to disclose its size.

“No responsible leader would do so,” he said on Friday (Feb 26) at the end of a three-day debate on the Budget.

Mr Heng also said that he was “very alarmed” with the earlier comments by Associate Professor Jamus Lim, MP for Sengkang Group Representation Constituency (GRC), who said that revealing the size of the reserves could “encourage stabilising speculation”.

Assoc Prof Lim, who is an economics professor, was debating with Bishan-Toa Payoh GRC MP Saktiandi Supaat on Thursday on the issue of the transparency over the size of the reserves.

Also highlighting his concerns over Ms Poa’s call, Mr Saktiandi had said that Singapore would be vulnerable to “currency speculation and attacks” as it uses the exchange rate as the main instrument in monetary policy, instead of adjusting the interest rates like most other economies.

Assoc Prof Lim then countered him and said that if Singapore was off its fundamentally determined exchange rates, market participants could be encouraged to engage in speculative activity to get it back on track.

Mr Heng said that Assoc Prof Lim was quoting theoretical literature and that there are other academics who recognise that currency markets can be marked by massive instability.

“Just last year, we saw extreme capital flow volatility in global financial markets due to the uncertainties and risk sentiments associated with the pandemic,” Mr Heng said.

He then cited the example of how hedge-fund manager George Soros bet against the British pound in 1992, and caused the United Kingdom to withdraw from the European Exchange Rate Mechanism, a precursor to the European Union’s single currency then.

He also recounted memories of the stories he heard from leaders of neighbouring countries on how speculation and currency volatilities have affected them, when he was the principal private secretary of Singapore’s first prime minister Lee Kuan Yew during the Asian Financial Crisis in 1997.

Mr Heng said that the Singapore dollar is one of the most actively traded currencies in the world relative to its gross domestic product (GDP). Global daily turnover is estimated at US$37 billion (close to S$50 billion) and the annual turnover is at US$9.5 trillion.

Singapore’s nominal GDP is about US$350 billion.

“A very volatile Singapore dollar exchange rate, subject to market fads and bubbles, would not ensure low and stable prices for Singaporeans,” he said.

“As a practitioner at the frontline, who tries my best to understand the intricacies of the system, I must caution Associate Professor Jamus Lim — let us not play with fire. This is about the lives of our people, not theoretical musings,” Mr Heng said.

He also called on parliamentarians to debate on the merits of the policies and programmes, instead of “repeatedly focusing their attention on the size of reserves or notions of ‘soft’ capital or other erroneous claims”.

Mr Heng was referring to Assoc Prof Lim’s suggestion that the Government could also consider borrowing to fund human capital investments, in areas such as education and research and development.

He said that the Government has to refrain from the temptation to borrow for recurrent expenditures.

There is a tendency to expand the scope of what constitutes "soft" capital and this ends up as recurrent spending, and borrowing for this sort of expenditure will lead to higher debts.

Mr Heng added: “When borrowing is not used productively, the result has often been high debt-low growth, rather than high growth-low debt. As debt level grows, interest payments can also increase… This can lead to an unsustainable fiscal position and spiralling debt, affecting investor confidence, business’ cost of funding and ultimately our long-term growth.”

He also said that while interest rates are low for now, it may change quickly.

“Borrowing is not a form of revenue. Borrowing gives us cash for liquidity planning but it does not create free monies for spending. Today’s debt is paid for by tomorrow’s growth and tomorrow’s generation.” 

After Mr Heng’s speech, Assoc Prof Lim asked why he was dismissive of his idea of “soft” capital.

On the issue of how Singapore’s exchange rate regime leaves it vulnerable to currency speculation if the size of its reserves were made known, Assoc Prof Lim said that Mr Heng talked a lot about why the exchange rate regime is warranted but not the reasons why secrecy is maintained and pressed him for an answer.

“Indeed, speculation can be destabilising if our exchange rate is disconnected from the fundamentals. So what it leaves me to wonder is if Mr Heng is suggesting that (in) our current situation, such secrecy can help us to maintain what is an otherwise untenable rate,” he said.

In response, Mr Heng told Assoc Prof Lim not to “put words in (his) mouth”.

“I did not dismiss ‘soft’ capital. I sounded a word of caution about soft capital. Precisely because it is ‘soft’, it can morph into various shapes. And I have mentioned how many good schemes started with very good intentions, with very good people. But precisely because it’s ‘soft’, the shape changes over time and everything becomes a capital investment,” Mr Heng said.

As for Assoc Prof Lim’s points on the exchange rate and the reserves, Mr Heng said that he had already devoted more than two pages of his Budget speech to respond to him on the size of Singdollar trading and his experience while serving as principal private secretary to the late Lee Kuan Yew.

“So please, have a care… policymaking cannot be theoretical musings,” he repeated.