RESCUE AND ASSISTANCE PACKAGE FOR INDONESIA

Mr Chiam See Tong asked the Minister for Finance why is there a necessity for Singapore, being such a small country as compared to Japan, to contribute a large and equal amount of US$5 billion to help Indonesia in the present currency turmoil.

The Minister for Finance (Dr Richard Hu Tsu Tau): Mr Speaker, Sir, with your permission, I would like to take Question Nos. 1 to 3 together as they are related?

Mr Speaker: Yes, you may.

Dr Richard Hu Tsu Tau: Because of our close links with our neighbours in the South East Asia region, Singapore is affected by the economic well-being of their economies. It is therefore in our interests to do what we can to maintain economic and financial stability in the region.

I will first take up Mr Inderjit Singh's question and explain the nature and form of the rescue package to Indonesia.

Singapore's contribution to the Indonesian reform package is in two parts. The first is a loan of US$5 billion to supplement the aid package offered jointly by the International Monetary Fund (IMF), the World Bank and the Asian Development Bank (ADB). The second is the purchase of Rupiah to support the Indonesian currency.

Let me elaborate on the first part of our assistance package. Indonesia has adopted a strong economic reform programme which should help to restore confidence in the economy. This programme, which was formulated with the assistance of the IMF, World Bank and ADB, will be supported with US$23 billion of financing from the three multilateral agencies as well as from Indonesia's own substantial foreign reserves. However, if for some unforeseen reasons, the multilateral financing proves to be inadequate, then Singapore and several other countries with regional interests, including Japan, the United States, Malaysia, Australia and Brunei, have agreed to provide supplementary financing to support the programme. In particular, Singapore has pledged to contribute up to US$5 billion to this "second line of defence". There is every likelihood that there may be no need to draw on this supplementary line of credit.

The second part of our assistance package involves the purchase of Rupiah to support the Indonesian currency. Singapore and Japan share the view that loss of confidence was the primary cause of the recent depreciation of the Rupiah. The fall in the value of the Rupiah has been excessive and could jeopardize the successful implementation of the economic reform programme. Therefore, both countries have agreed to collaborate with Bank Indonesia, through joint intervention in the foreign exchange market, to promote the strengthening of the Rupiah to levels more consistent with Indonesia's economic fundamentals. The amount of our intervention is not predetermined and will depend on developments in the foreign exchange market.

Mr Seng Han Thong has asked whether the US$1 billion loan to Thailand and US$5 billion assistance to Indonesia will affect our reserves and Singaporeans' Central Provident Fund (CPF) savings, in case of default. I would like to assure Mr Seng that our CPF savings are not at risk at all. CPF funds are invested in Singapore Government bonds and the Government's external reserves are well in excess of its CPF obligations.

Furthermore, the facilities offered to Thailand and Indonesia are sovereign loans and remain part of our foreign assets. The loans are to help maintain foreign reserves of those two countries at a "comfortable" level to instill investor confidence. Neither Thailand nor Indonesia have ever defaulted on their sovereign debts.

Mr Chiam See Tong has asked why Singapore, being such a small country, needs to contribute an amount equal to Japan's to assist Indonesia. I would like to point out that Singapore's loan was made as a result of a request from the Indonesian Government for assistance, and Japan subsequently matched our offer. Our willingness to extend a substantial loan despite our small size is reflective of the importance Singapore places upon its relationship with Indonesia and the close ties between the leaders of Indonesia and Singapore.

Mr Singh has also asked how Singapore and other ASEAN countries will benefit from Singapore's financial assistance to Indonesia. The recent currency turmoil has revealed the close interdependence of the economies in this region. As the largest economy in ASEAN and a close neighbour, the health of the Indonesian economy is critical not only to Singapore but also to the overall prosperity of the region. The restoration of investor confidence in Indonesia will help to stabilise regional financial markets. Singapore will also benefit in the long term when the Indonesian economy recovers and resumes strong growth.

Mr Inderjit Singh (Ang Mo Kio): Sir, I would like to ask the Minister who will administer the US$5 billion loan. Will IMF do it or will Singapore do it directly? Is the loan targeted for any specific spending in Indonesia or is it a general fund?

Secondly, if the loan is administered, will it affect any Singapore Government's spending plan for the next few years, eg, in upgrading programmes or any other programmes like the MRT lines and so on?

Dr Richard Hu Tsu Tau: The loan will be administered between the Monetary Authority of Singapore (MAS) and the Indonesian Ministry of Finance. It will be a direct loan from MAS to the Indonesian government and will, as I mentioned earlier, if drawn down, be used basically to act as part of the Indonesian government's foreign reserve. It will have no impact whatsoever on the Singapore Government's current operating expenditures and therefore its surpluses, if there are any, so that there should be no direct impact on the Government's programmes, including the upgrading programmes, provided the Government continues to run current surpluses in its budget in the next few years.

Mr J. B. Jeyaretnam (Non-Constituency Member): Mr Speaker, Sir, I have about three questions. May I ask them altogether?

Mr Speaker: Yes.

Mr Jeyaretnam: I had intended to ask the Prime Minister these questions but I see he is not in the House. So I will address them to the Finance Minister.

I should first of all like to know where and when was this decision taken to grant the assistance to Indonesia. Secondly, who took the decision? Was it taken by the Cabinet or by any of the Ministers? Thirdly, why was the approval of Parliament not sought before the decision was taken and the announcement made? Finally, was the approval of the President sought before the decision was taken and the announcement made?

Dr Richard Hu Tsu Tau: Mr Speaker, Sir, I do not know exactly where and when the decision was made but it was several weeks ago, and the decision was taken by the Prime Minister in consultation with his senior advisers, which include the Senior Minister, the Deputy Prime Minister and myself, and subsequently the decision was approved by Cabinet.

Who took the decision? The Prime Minister ultimately, including his senior Ministers. Why was Parliament's approval not sought? A decision of this sort is entirely within the prerogative of the Executive. It is no more than a conversion of one loan to another form. For example, we buy from time to time large quantities of, let us say, 5-year US bonds. This loan to Indonesia merely converts the US$ loan extended to the US government to a loan extended to Indonesia. There is no change in the asset position. Therefore, there is no need to refer to Parliament. Equally, for the same reason, there is no need to refer the matter to Parliament because Parliament's responsibility is to approve legislative matters and not to get involved in Executive decisions on a day-to-day basis.

The President's approval was not necessary because in 1980 President Sheares had already approved the purchase of Indonesian assets and in 1986 President Wee Kim Wee also approved the purchase of Indonesian equities and these Presidential approvals are still valid notwithstanding the election of the Elected President. If the Elected President feels that there is something untoward which he dislikes he can still veto these actions but it does not require his specific approval.

Mr Leong Horn Kee (Bishan-Toa Payoh): Mr Speaker, Sir, I would also like to ask a few questions for elaboration. First, I would like to ask the Minister whether he could elaborate on the economic ties between Singapore and Indonesia. As he mentioned, there are very close economic links between the two countries, eg, the trade ties between Indonesia and Singapore and what are the figures. Secondly, could he elaborate on the reserve that will be drawn upon and where will the money come from? Does it need us to sell off some of our foreign assets or draw down on some of our own particular reserves held in various currencies and what sort of impact will it have on the funds that we have? Thirdly, could the Minister elaborate on some of the details of the loan, eg, the interest rate if there is a drawdown, the repayment schedule and the terms of repayment?

Dr Richard Hu Tsu Tau: On the question of trade ties, I will refer his question to the Minister for Trade and Industry. I think he will have occasion to speak later on some question. He has the exact figures.

Where does the money come from? It comes from MAS' own assets. MAS manages a portfolio of substantial size and holds its financial assets in various forms, largely financial assets in US dollars, Deutsche Mark or Yen. As I mentioned earlier, the Indonesian loan is therefore a conversion of one asset form to another, so it has no impact on MAS' reserve position.

The loan is a five-year facility drawn down on five tranches of $1 billion each at the request of the Indonesian government. It will be at commercial interest rate, ie, SIBOR plus a premium, SIBOR being six months US dollar inter-bank interest rate. The loan will have to be repaid either earlier or the maximum of five years.

Mr Chiam See Tong (Potong Pasir): Sir, as regards the 16 Indonesian banks that were asked to be closed by their government, do the Singapore Government and any Singapore Government related companies have an interest in them?

Dr Richard Hu Tsu Tau: As far as I am aware, none. These are relatively small banks in Indonesia. Do not forget, Indonesia has currently, I think, 256 banks and this is the first phase of the banking reform which Indonesia is implementing.

Mr Jeyaretnam: May I ask the Minister or perhaps the Prime Minister, now that he is here, whether the decision was taken in Jakarta, or was it taken here? And secondly, how does the Minister or the Cabinet reconcile this - not seeking Parliament's approval - with Article 144 of the Constitution, and likewise not getting the President's approval?

Dr Richard Hu Tsu Tau: The decision was taken in Singapore and conveyed to Indonesia. It has to be, because the Prime Minister and his advisors are in Singapore and he alone went to Indonesia together with some aides. I have mentioned earlier that there is no need for such a decision to be subject to the approval of the President. I do not know what part of the Constitution is he talking about.

Mr Jeyaretnam: It is Article 144 of the Constitution.

Dr Richard Hu Tsu Tau: Perhaps to refresh my memory, Article 144 refers to what?

Mr Jeyaretnam: Sir, I am sorry. I have got the Article now, and Article 144 says quite specifically:

"No guarantee or loan shall be given or raised by the Government -

except under the authority of any resolution of Parliament with which the President concurs;" And this was an amendment which was made in 1991. So, going back to 1986 and before that will not help us.

Dr Richard Hu Tsu Tau: No. I do not agree with his interpretation. As far as I am aware, we have the Attorney-General's advice that such granting of loans and the purchase of securities of this type had prior approval of two Presidents.

Mr Jeyaretnam: What does the Minister think that Article 144 then tries to say?

Dr Richard Hu Tsu Tau: I am not a lawyer. I shall not argue this with him. I do not believe that it applies in this case.

Mr Chiam See Tong: I do not know whether the Minister has answered my question. Singapore being such a small country, why is there a necessity for Singapore to give such a big loan to Indonesia?

Dr Richard Hu Tsu Tau: Mr Chiam was not here when I answered the question. Because of our special relation with Indonesia and the fact that Indonesia is our close neighbour and the largest economy in ASEAN and its welfare is critical not only to us but to all the countries in ASEAN, and because of the special relationship between our leaders and President Suharto - I think these are very important reasons.

Mr Chiam See Tong: Sir, is this $5 billion loan, $1 billion per year to be specific, significant to prop up the Indonesian economy?

Dr Richard Hu Tsu Tau: By itself, no. As I have mentioned earlier, it is a back-up facility which we are providing together with a number of other countries which needs only to be drawn down if Indonesia's frontline defence of US$23 billion is fully used and they require supplement to hold up their external reserves.

Mr Chiam See Tong: If the answer is no, why do we need to give such a large amount?

Dr Richard Hu Tsu Tau: It is a commitment; it is not giving. It is not a gift. This is a commercial loan attracting commercial interest rates.

Mr Chiam See Tong: Is there no risk that this loan will be defaulted?

Dr Richard Hu Tsu Tau: I have mentioned earlier that neither Thailand nor Indonesia has ever defaulted on sovereign loan and I think the risk is, of course, always there potentially. But neither is the purchase of a $5 billion US bond totally risk-free. One cannot say for certain that the US government will never default on its loans either.

Mr Chiam See Tong: The Minister will surely know that buying US bonds is completely different from making a loan to Indonesia which is in financial trouble now.

Dr Richard Hu Tsu Tau: What is the difference, in principle? Are you saying that they are going to default?

Mr Chiam See Tong: Are you going to say that they are not going to default?

Dr Richard Hu Tsu Tau: Are you saying the US government is not defaulting ever?

Mr Chiam See Tong: No. I say that there is a difference.

Dr Richard Hu Tsu Tau: There is no difference.

Mr Chiam See Tong: There is a difference between buying US bonds and giving a loan to a country which is now in financial trouble.

Dr Richard Hu Tsu Tau: They are temporarily in financial trouble. The purpose of the loan is to get them out of it and they will pay back.

Mr Chiam See Tong: Can we not give a smaller loan?

Dr Richard Hu Tsu Tau: Perhaps he suggests $100 will do?

Mr Chiam See Tong: I know there are more urgent needs in Singapore for money, especially at Potong Pasir. The Government is refusing even to spend money on building two MRT stations. And here you are making large loans to other countries. Surely I am concerned.

Dr Richard Hu Tsu Tau: Expenditures in Potong Pasir are not restricted by reasons of generosity but whether they are in fact useful, and there will be adequate funds if Government considers they are necessary.

Mr Chiam See Tong: Is the Minister saying that because of generosity we are giving such a big loan to Indonesia?

Dr Richard Hu Tsu Tau: It is not generosity. It is a commercial loan earning interest.

Mr Chiam See Tong: It is generosity.

Mr Inderjit Singh: Sir, I would like to move on a bit from here. I would like to clarify the answer given by the Minister that this package is specially just for Indonesia. So my question to the Minister is: is there any current plan to rescue any of the other ASEAN economies? Or will the Government consider doing so if there is a call for help?

Dr Richard Hu Tsu Tau: In addition to the Indonesian loan, we have also extended US$1 billion facility to Thailand. Beyond that, we do not see any other potential request from the ASEAN region. But if there are, we have to think very hard because of our extensive commitments already.