SINGAPORE'S FINANCIAL RESERVES (Adequacy of control systems)

Mr Chia Shi Teck asked the Minister for Finance, in the light of the recent report of the disappearance of huge sums of money in a country's financial reserves, whether Singapore's reserves are safe, intact and growing, and whether our control systems are adequate to prevent a similar occurrence.

The Minister for Finance (Dr Richard Hu Tsu Tau): Mr Speaker, Sir, the answer is yes, we have instituted proper control systems to monitor and keep track of our country's financial reserves.

There are adequate checks and balances in the system to ensure that investment operations are properly accounted for. Key investment decisions are made by top management of the agencies managing the reserves, namely, the Monetary Authority of Singapore and the Government Investment Corporation. Regular reports are made on the performance of the investments and the position of our reserves. The accounts and control systems are subject to the examination of internal auditors within the respective organisations as well as the Auditor-General.

Furthermore, Articles 22B, 22D and 148A of our Constitution protect reserves accumulated by past governments from being drawn down by the current Government. It should also be noted that the income earned by the investment of the protected reserves is not available for spending by the current Government but accumulates to the reserves. This means that the size of the reserves will grow over time.

Let me assure the Member that our reserves are safe and intact and unless we become spendthrift and profligate, will keep growing.

Mr Chia Shi Teck (Nominated Member): Sir, will the Minister tell us the size of our reserves and whether the size is based on our cost or the present market value of our assets?

Dr Richard Hu Tsu Tau: I have answered this question at a previous sitting of Parliament. Currently, the totality of our foreign reserves is around $65-66 billion and that is based on current market values.

Dr Kanwaljit Soin (Nominated Member): Mr Speaker, Sir, will the Minister please tell us how much of the reserves invested come from CPF money and what is the rate of return? The second question is: could some of the extra earnings that are derived from this investment be channelled back to CPF members?

Dr Richard Hu Tsu Tau: CPF funds are managed by Government through the issue of bonds. The money is transferred from the CPF to the Government in exchange for Government bonds in which they earn interest, and the returns are adequate. As far as the proportion is concerned, the figure I mentioned earlier is the official foreign reserves. In addition, the Government has other reserves held in Singapore and elsewhere. CPF funds are totally protected.

Dr Kanwaljit Soin: Sir, I know that Government bonds are bought with CPF money. But what happens to the money with which Government bonds are bought? Is the money not further invested?

Dr Richard Hu Tsu Tau: The bonds issued to CPF Board carry an interest rate. The interest is tax-free to the CPF Board and this accumulates to the CPF funds. The money collected by Government through the issue of these bonds is then invested in a variety of instruments, both domestically and externally, by the Government Investment Corporation.

Dr Kanwaljit Soin: This is what I would like to know from the Minister. What is the rate of return? The reason I am asking this question is that I think the CPF Board gives us a return which is more compatible with short-term lending but CPF money is given on a long-term basis. So I want to ask what is the return from Government bonds so that we could channel this back to the CPF members' accounts.

Dr Richard Hu Tsu Tau: The bonds are issued on published interest rate and I can supply the figure to the Member if she wishes. But it is more than adequate. The reason why they are issued against a specific interest rate, rather than channel all the money directly back, is that Government, in managing the reserves, assumes all capital risks whereas there is no risk to the CPF members. Therefore, it cannot be exactly the same. Though the earnings may vary from time to time, the interest rate payable to the CPF Board is more or less the same.