BRUNEI RINGGIT TO THE SINGAPORE DOLLAR PEG

Mr Ahmad Mohd Magad asked the Deputy Prime Minister whether the Brunei ringgit to the Singapore dollar peg poses any adverse risk to the Singapore dollar in view of the widely publicised Amadeo scandal and the current fragility of the Brunei economy; and if so, whether the Government intends to take any measure to delink the Brunei ringgit from the Singapore dollar.

BG Lee Hsien Loong: The Currency Interchangeability Agreement (CIA) between Singapore and Brunei has been in operation since June 1967. Under this agreement, the currency notes of one country are acceptable in the other country as customary tender, although not legal tender. The CIA applies only to currency notes, but banks in Singapore have extended it to include interbank funds. This reflects the confidence of the banking communities in both Singapore and Brunei in the CIA.

This arrangement has benefited both countries. Firstly, it has strengthened financial links between the two countries, enabling Brunei banks to utilise the Singapore dollar banking and financial facilities in Singapore as though they were in Brunei dollars. Secondly, by eliminating exchange rate risk and transaction costs, it has facilitated bilateral trade and investment. Thirdly, both Singapore and Brunei have enjoyed low inflation, as a result of the credible Singapore dollar exchange rate policy.

Brunei is currently experiencing some financial and economic turbulence. Contributing factors include the Asian currency turmoil, the sharp fall in oil prices, and also problems that are more specific to Brunei. But unlike other regional countries, Brunei does not suffer from an over-extended financial sector, an overbuilt property market or a current account deficit.

Singapore's own economic and financial fundamentals are sound. Brunei is not a large market for Singapore's goods and services, representing 1% of our total trade. Its capital flows are small in Singapore's context. As a result, the developments in Brunei have had only a minimal and transitory impact on the Singapore dollar.

The Straits Times (17th August) quoted one senior Bruneian official as saying: "The currency agreement has withstood the test of time and is working very well. We see no reason to change it." Singapore concurs with this view. In fact, MAS had earlier publicly stated (15th July) that we have no intention to break the CIA.