DEVELOPMENTAL INVESTMENT FUND BILL

Order for Second Reading read. 2.15 pm

The Minister for Finance (Dr Richard Hu Tsu Tau): Mr Speaker, Sir, I beg to move, "That the Bill be now read a Second time."

The Bill before the House seeks to establish a Developmental Investment Fund to facilitate developmental investments by the Government. It also seeks to make consequential amendments to the Development Fund Act and the External Loans Act.

Rationale

The Government has identified the need to strengthen Singapore's competitive position to meet the challenges posed by a rapidly changing global competitive landscape. Towards this end, capabilities in the more knowledge-intensive parts of the value chain have to be developed. Our human resources must be enhanced and our science and technological capabilities upgraded to allow us to achieve our objective of becoming an advanced and globally competitive knowledge economy within the next decade.

The Government has, over the years, been undertaking a host of developmental investments aimed at enhancing, either directly or indirectly, the economic growth, employment opportunities and general welfare of Singapore. An example of such developmental investments would be the US$1 billion Technopreneurship Investment Fund (TIF) announced in April last year.

Currently, only investments made with the primary purpose of deriving some interest, income or profit are permissible under the Financial Procedure Act. As a result, investments with developmental objectives such as the TIF have to be funded under the Development Budget and therefore treated under the Government's cash accounting system as expenditure, rather than investments.

The Government has thus decided to establish a new fund, the Developmental Investment Fund (DIF) to finance developmental investments. This would allow the investment nature of these developmental investments to be properly reflected. The investments will not be treated as straight expenditure, which would be the case if the investments continue to be funded through the Development Fund. This would allow the better accounting and management of public moneys invested by the Government for developmental purposes. The DIF will be limited to investments where returns are clearly required and expected. Normal development expenditure and development loans will continue to be funded through the Development Fund.

Specific provisions of the Bill

I shall now proceed to explain the specific key provisions of the Bill, which are:

Clause 3: Sources of funds for the DIF

The DIF shall receive capital sums mainly out of transfers from the Consolidated Fund which are approved by Parliament, or through loan proceeds.

Clause 4: Purposes of the DIF

The DIF can only be used to form companies, acquire securities in public authorities and corporations or otherwise invest, for any developmental purposes. Section 7(3) of the Financial Procedure Act will not apply to the developmental investments made under the DIF.

Clauses 5 and 6: Responsibility for the DIF

The general responsibility for the DIF will rest with the Minister for Finance. Other Ministers may be assigned responsibility over accounts within the DIF, but the Minister for Finance will remain overall responsible for the control, supervision and management of the DIF. All the Ministers will have to establish and adhere to investment policies and standards that a reasonable prudent person would adopt to reduce risk, ensure reasonable returns and the achievement of specific developmental objectives.

Clause 10: Raising of loans

The Minister for Finance will be empowered under the DIF Act to raise loans of a sum not exceeding in the whole S$10 billion. Parliament may by resolution, and with the President's concurrence for the resolution, raise this loan limit.

Clause 18: Financial Statements

Annual financial statements of the DIF will have to be prepared at the end of each financial year, and submitted to the Auditor-General. The audited financial statements and auditor's report will be presented to Parliament.

Clause 21: Consequential Amendments

The Bill also makes the following consequential amendments to the Development Fund Act (Chapter 80 of the

1995 Revised Edition) and the External Loans Act (Chapter 102 of the 1985 Revised Edition):

Amendment to the Schedule to the Development Fund Act (Cap.80)

With the amendment, investments in securities for developmental purposes will cease to be annually appropriated from the Development Fund by Parliament as expenditure in a Supply or Supplementary Supply Bill. Funding for such activities will instead be met from the new Developmental Investment Fund.

Amendment to the External Loans Act (Cap. 102)

This amendment will allow loans to be raised outside Singapore for purposes of the Developmental Investment Fund.

Sir, I beg to move.

Question proposed.

Mr Low Thia Khiang: I would just like to have some clarification from the Minister. Would the Minister explain what does he mean by "developmental purpose" and what sort of investment is considered investment for developmental purpose?

Dr Richard Hu Tsu Tau: As I have explained, we have special funds assigned to the Economic Development Board, the Cluster Development Fund, and the Technopreneurship Investment Fund. These are monies invested in companies or individuals which have a purpose of developing new industries or new companies to generate future profits for Singapore. These are monies which will be spent for the purpose of developing a particular activity which is expected to generate returns.

Under the normal Development Fund in our Budget, the development expenditures would be monies which are expensed in the current year, like expenditures in building up infrastructure, buildings and so forth which have value but not spent specifically for purposes of generating profit. So we want to separate the two types of development expenditures. The development investment type would be financed over a period of time depending on the nature of the activity. On the other hand, development expenditure for basic infrastructure, such as monies spent on reclamation of the foreshores of Jurong Island, is expected to provide basic infrastructure for use in Singapore in the future and these would be charged against the development fund and expensed the year in which it is spent. That is the basic difference.

Mr Low Thia Khiang: A further clarification. In other words, we would be expecting a reasonable return from the developmental investment.

Dr Richard Hu Tsu Tau: Yes, indeed.

Question put, and agreed to.

Bill accordingly read a Second time and committed to a Committee of the whole House.

The House immediately resolved itself into a Committee on the Bill. - [Dr Richard Hu Tsu Tau].

Bill considered in Committee; reported without amendment; read a Third time and passed.