Singapore’s sovereign wealth funds (SWFs), which have helped bail out troubled global financial institutions, could for the first time be tapped to help the ailing domestic economy, a report said yesterday.
The city-state’s leaders are considering the unprecedented step of drawing on its reserves to fund aggressive measures needed to fight an economic downturn, Singaporean Senior Minister Goh Chok Tong (吳作棟) was quoted as saying in the Straits Times.
Goh, a former prime minister, said the reserves were for a rainy day, and now the weather had turned bad.
“If this is not a rainy day, I don’t know what is a rainy day,” Goh was quoted as saying ahead of the government’s budget statement on Thursday.
The reserves include assets managed by the Government of Singapore Investment Corp (GIC) and Temasek Holdings, the newspaper said.
GIC and Temasek are both sovereign wealth funds — a form of government-created investment vehicle that has emerged as a potent force on global financial markets.
Late last year and early this year GIC injected billions of dollars into Swiss bank UBS as well as US banking giant Citigroup. Temasek pumped billions into the former US investment bank Merrill Lynch.
All three financial institutions suffered massive losses from US subprime, or higher-risk, mortgage investments. The US mortgage crisis evolved into a global economic slowdown which, late last year, made Singapore the first Asian economy to enter recession.
A 2007 report by Citigroup Global Markets listed both Temasek and GIC as among the largest SWFs in the world.
“The issue which the prime minister and the minister of finance are now thinking over is whether we should go to the president and ask him for approval to use the reserves for extraordinary measures,” Goh said.
GIC in September said its nominal rate of return over the past 20 years was 7.8 percent in US dollar terms. It said it managed well over US$100 billion in investments.
Temasek, which has stakes in well-known regional firms including Singapore Airlines, in August reported a record annual profit of S$18.2 billion (US$12.25 billion).
The country’s official foreign reserves were US$234.5 billion in 2007.
“There must be exceptional measures for exceptional times,” Goh said, without revealing a figure for how much the government might take from the reserves.
Singapore Finance Minister Tharman Shanmugaratnam has said that the “significantly expansionary” budget would emphasize help for businesses.
Singapore is Southeast Asia’s wealthiest economy in terms of gross domestic product per capita, but its heavy dependence on trade makes it sensitive to problems in developed economies, particularly the key export markets of the US and Europe.
Just a little more than two weeks ago the government forecast that the economy could range between a contraction of 2 percent and expansion of 1 percent this year.
But Singapore Prime Minister Lee Hsien Loong (李顯龍) was quoted on Saturday as saying that Singapore would scale down its economic forecast for this year because the global situation had worsened.
“It’s a situation which is already gloomier now than it was on New Year,” Lee was quoted as saying in the Straits Times.
Singapore’s key exports fell a sharper-than-expected 20.8 percent last month from a year ago.