SINGAPORE'S RESERVES (Long-term target)

Mr Chia Shi Teck asked the Minister for Finance if he has a long-term target for Singapore's reserves, expressed in absolute dollar terms or in terms of the number of months of imports.

Dr Richard Hu Tsu Tau: Sir, it is generally accepted internationally that countries should have hard currency reserves of between three and six months' of imports. Depending on a country's degree of self-sufficiency, reserves at these levels should be sufficient to act as a cushion against temporary dislocation in the country's economy. In the case of Singapore which imports all its energy and practically all its food, our level of reserves should clearly be around the upper bound of the 3-6 months' range and more, if possible.

Our current official foreign reserve of more than $60 billion is equivalent to about seven months' imports. However, as a country without natural resources, our aim should be to accumulate, over time, as much reserves as we can afford to do so without over-taxing our people and without denying ourselves the expenditures necessary for economic growth. I should also point out that our existing absolute level of reserves cannot be allowed to remain static. It must increase in line with our GDP growth. As our population grows and our standard of living increases with economic growth, so will our imports grow.

Mr Chia Shi Teck: Will the Minister confirm that our foreign assets include only the liquid holdings of the Government and do not include investments of the GSIC, the statutory boards and STH group?

Dr Richard Hu Tsu Tau: They are the liquid assets of MAS and BCCS.

Dr Kanwaljit Soin: I am not clear about what the Minister said. How many months is the ultimate target? It is seven months now. But do we have an ultimate target of how many months of our GDP?

Dr Richard Hu Tsu Tau: No. I said that we should try and increase our reserves as much as we can without over-taxing our people. So the more we can accumulate during periods of good economic growth, as we have seen in the last two years, the more we should attempt to accumulate.

Mr Chia Shi Teck: Will the Minister explain the term "imports"? Does it include all the entrepot trade imports or is it retained imports or just essential imports?

Dr Richard Hu Tsu Tau: "Imports" are the total imports into Singapore.

Mr Chia Shi Teck: Under what circumstance would Singapore need to draw on the imports based on the seven months?

Dr Richard Hu Tsu Tau: In case of an international disaster where there should be major trade wars leading to economic decline in the world and since we are heavily dependent on exports, our growth could collapse and revenue would, therefore, decline badly.

Mr Chia Shi Teck: Sir, under those circumstances, it would seem more natural for Singapore to do only the net essential imports, like food and medicine, and there would be no more trading imports or raw material imports. If that is the case, then our reserves could last us probably years.

Dr Richard Hu Tsu Tau: That is true. But if we limit our imports to food and medicine, then we will have no imports to produce manufactured goods for export to earn future income. So we will then totally rely on living on our reserves and that will not last very long if we have to consume all of it.