LOW INVESTMENT ADJUSTMENTS

[Mr Speaker in the Chair]

Mr Yeo Toon Chia asked the Minister for Finance why the investment adjustments in FY 1988 were so low at $173.45 million as compared to the two previous financial years; and what measures his Ministry intends to take to rectify the position.

The Minister for Finance (Dr Richard Hu Tsu Tau): Mr Speaker, Sir, the Government's external reserves are invested overseas in assets denominated in a mix of major foreign currencies. The returns from these investments are in two parts - investment income and investment adjustments.

Investment income comprises interest earnings from bonds and other fixed income instruments, dividends from equities and rental income from property assets. Investment adjustments refer to the capital gains or losses realised when assets are sold and to the profits or losses arising from foreign currency movements relative to the Singapore dollar.

In the recession years of 1986 and 1987, the major foreign currencies strengthened against the Singapore dollar and this resulted in exceptionally high foreign exchange gains and consequently buoyant income from investment adjustments. In 1988, following recovery from the recession, economic growth in Singapore rebounded strongly. The Singapore dollar reversed direction and strengthened significantly against major foreign currencies. As a result, net income from investment adjustments was much lower in Singapore dollar terms.

Foreign exchange movements are inherently unpredictable. Therefore, there can be no guarantee that there will always be substantial foreign exchange gains on our investments. I can assure the Member, however, that the Government will continue to pursue a prudent strategy in the management of its overseas assets. Our aim is to maintain a good overall rate of return on our investment portfolio.