GOVERNMENT RESERVES (Target for optimum amount)

Mr Chiam See Tong asked the Prime Minister whether the Government has any target for an optimum amount of reserves and, if so, has it achieved the optimum.

Dr Richard Hu Tsu Tau (for the Prime Minister): Mr Speaker, Sir, this question has been asked several times in the past, but let me explain again the Government's policy on reserves.

It is generally accepted internationally that countries should have foreign hard currency reserves of between three to six months of imports. Depending on a country's degree of economic self-sufficiency, reserves at these levels should be sufficient to support a temporary dislocation in the country's economy.

In the case of Singapore, with its high dependency on imports, our level of reserves should clearly be in the upper bound of the three to six months' range and more, if possible. Our current official foreign reserves of around US$75 billion is equivalent to about seven months of 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. Over the years, Mr Chiam will have noted, Government has lowered personal, corporate and property taxes substantially in order to stimulate growth. At the same time, the Government has spent many billions of dollars to build up world class infrastructures in health, education, housing and transportation.

I should also point out that our 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 Chiam See Tong: Sir, can the Minister tell us whether, other than the three to six months of imports, there are any other reasons for having such high surpluses?

Dr Richard Hu Tsu Tau: Other reasons have already been said in the past. The Senior Minister had said, when asked questions about the assets managed by GIC, that Singapore needs large reserves to defend our currency against speculative attacks.

Mr Chiam See Tong: Sir, are there other reasons than defending our currency against speculative attacks?

Dr Richard Hu Tsu Tau: I do not know specifically what he is asking. I think it is good to have large reserves anyway.

Mr Chiam See Tong: Sir, we have heard that the reserves have been used for upgrading of HDB flats and because of the downturn, there were not enough reserves, the upgrading of HDB flats was held back. Are these some of the reasons?

Dr Richard Hu Tsu Tau: I am afraid Mr Chiam is mistaken. The upgrading programme was funded from surpluses. And when the surplus moves up and down, the programme will be adjusted accordingly.

Mr Chiam See Tong: Are reserves not actually from the surpluses that we have?

Dr Richard Hu Tsu Tau: Part of it, yes, of course, those which we have not spent. When we have surpluses beyond what we need, during times of good economic growth, this will be added to our reserves for a rainy day.

Mr Chiam See Tong: Therefore, the surpluses and reserves are tied. They are the same, are they not? If you have got less surpluses, that means you have got less to put into the reserves?

Dr Richard Hu Tsu Tau: Budget surpluses only account for part of it. Our land sales are also transferred to reserves. That is the other large component.

Mr Low Thia Khiang: Would the Minister for Finance clarify the Government's position on the reserves? Is the Government saying that no matter under what circumstances, it will never touch the reserves, or would it, under certain circumstances, dig into the reserves? If so, what would be the circumstances?

Dr Richard Hu Tsu Tau: The circumstances would probably be what we are facing now. The reserves would be available for use if there should be a major economic dislocation in the world affecting us. The size of that is not something we can pre-determine but it is a bulwark which we can fall back on. I can assure the Member that it is not the intention to lock up our reserves permanently but it should be used with discretion and care.

Mr Chiam See Tong: Sir, if I am not mistaken, our reserve is in S$139 billion now. Is this not in excess of six months' imports?

Dr Richard Hu Tsu Tau: I do not know where you get such a figure.

Mr Chiam See Tong: It was published in the papers.

Dr Richard Hu Tsu Tau: Who publishes it? Singapore dollars probably. Mr Chiam See Tong: Yes, Singapore dollars.

Dr Richard Hu Tsu Tau: I was talking about US$75 billion. This is probably equivalent to your figure in Singapore dollars.

Mr Speaker: Mr Chiam, would you like to ask your next Question?

Mr Chiam See Tong: Can I ask one more question?

Mr Speaker: All right.

Mr Chiam See Tong: Sir, assuming that we exceed seven months' imports, do we still continue to collect money to increase the reserves?

Dr Richard Hu Tsu Tau: I thought I had answered that question. I said that we should accumulate as much as we can afford above the seven months, because of our great dependency on imports. We have no natural resources whatsoever. If there should be a prolonged downturn, then I think every cent we put aside would become very useful. There is no limit. We are talking about putting aside as much as we can without affecting our ability to finance our needs and without taxing the people unnecessarily.

Mr Chiam See Tong: Can I clarify with the Minister that, in fact, seven months' imports is only a guideline, and there is no limit to collections for our reserves?

Dr Richard Hu Tsu Tau: I have said that several times. I do not know why he needs elaboration.