Ong Teng Cheong & the Budget

In Economy, GIC on 27/03/2016 at 2:31 pm

Sometime back I said that I would blog in greater detail about Ong Teng Cheong’s unhealthy obsession about locking up the reserves. This is as good a time as any to write about the matter because of the Budget and because recently I read this: which left out not so friendly details about the People’s President.

Ong Teng Cheong wanted to lock-up reserves forever and a day. He wanted future generations to press their noses at the blast-proof windows protecting the reserves. They would be able salivate at the reserves but despite their distended, empty bellies, not able to have access to the reserves until the president gave access.

He made this very, very clear when as DPM, he didn’t want any of the interest or capital gains from the reserves to be used by the govt of the day. He wanted the constitution changed for these to locked-up too arguing that the value of the reserves must be preserved. The only way of doing this was to lock up the interest and capital gains. Taz the People’s President for you.

It was one Ah Loong that wanted a more flexible regime of using the returns for the present generations. Ah Loong, of course, got his way and the over the years more and interest and capital gains have been allowed to be used.  The returns on the reserves are being used as an endowment, with the Budget as the immediate beneficiary.


Related article: The theory and practice of an endowment fund

“I think is predominately a mindset,” says Truell*. “It is a mindset that believes that compounding cash flows over time is the most effective form of investment. It is partly also the mindset of the organisation. I have a board that consists mainly of very eminent scientists who are very empathetic to the view that you make progress over years and decades, not over the next quarter.” Truell is CIO of the Wellcome Trust


This yr, the net investment returns contribution, S$14.7 billion, means that overall Budget position is  S$3.45 billion “surplus”*, amounting to 0.8% of nominal GDP. Economists say this overall surplus position will give the Government the fiscal space to enact off-Budget measures, should the economic outlook deteriorate significantly.

“Without the contributions from GIC and Temasek, there would have been a primary deficit* of almost S$5 billion. This is bigger than the S$2.3 billion deficit* in the post-financial crisis Budget in 2009, and the S$4.25 billion deficit* last year,” said Mr Ng. (CNA)

(*As defined by the S’pore govt, not the IMF. By IMF standards, S’pore’s surpluses from its Budgets amounting to 7% of GDP: not peanuts.)

Net investment returns contribution over the years. (Source: Ministry of Finance; Infographic: Linette Lim) CNA

All these monies would have been denied to S’poreans by the People’s President. No wonder the nuts in TRELand adore and worship him: he’d have screwed their handworking fellow S’poreans.

Finally, readers may be interested in these excerpts about GIC’s mgt of the reserves from a Bloomberg article that appeared in 2014

GIC has moved away from the endowment model of strategic asset allocation it had followed for a decade. In the process, it’s become one of the world’s most aggressive sovereign wealth funds.

As the new strategy came into effect in April 2013, GIC shifted away from its traditional asset-allocation strategy to a more active approach. Its fund managers can now deviate from GIC’s portfolio if there’s an opportunity to beat the market.

“The way of generating returns through holding diversified assets and just kind of waiting would not work well anymore,” CIO Lim says.

In GIC’s early years, the government ran it as a rainy-day fund.

“My cardinal objective for GIC was not to maximize returns but to protect the value of our savings and earn a fair return on capital,” Lee said on the occasion of GIC’s 25th anniversary in 2006.

Five years later, on GIC’s 30th anniversary, in his last public speech as GIC chairman, Lee urged the fund to take bold, strategic and forward-looking decisions.

“As GIC grows larger and more established, the impetus to follow conventional practices will grow stronger,” he said at an anniversary dinner. “This could lead to mediocrity.”

In 2012, GIC began a major review of its investment strategy — only the second such examination since the fund’s inception.






  1. A Qn: The NIR used for the budget is projected returns. If the projected returns did not materialize, then how? It seemed like insurance agent selling us a policy on projected returns which never materialize.

    Am I comprehending the NIR correctly? Because this seemed to me that there might be hefty tax increase down the road if the projected returns did not materialize. This will also affect all the social spending currently on Singaporeans.

  2. No worries man!! Golden times ahead!! Even if S’pore implodes or explodes, there are still many other prosperous countries & cities to go to. Why worry so much?!?

  3. Reply to Wil as request by atans1.

    Your reading of the Constitutional NIR rule is correct – the NIR Contribution is calculated on the expected long term real rate of return (LTROR) on the government’s net assets (assets in excess of its liabilities). Pls note it is REAL returns we are talking about – that is the actual dividends and market valuation of the net assets minus the inflation rate. Therefore not all returns are spent. Then the rule limits the spent to 50% – therefore more than half of the actual or nominal returns are re-invested. Again pls note this is nothing unusual, Norway’s GPF and university endowments permit up to 100% of the returns to be spent.

    Certainly on a year to year basis, GIC, MAS and Temasek may suffer losses or as you say the returns do not materialise. But again pls note we are talking of long term returns of 20 years or more – an occasional bad year like 2015 is not going to cause a significant dip in the LTROR and we must also be mindful that inflation has fallen thus increasing the real LTROR or offsetting any fall in real LTROR. Besides a dip in the reported real LTROR simply means the expected LTROR will be revised downwards for subsequent budgets. So there is a buffer built into the NIR framework which means the available amount of spent will fall.

    As for tax increases, I do not see any reasons based on the NIR alone (although I see very good reasons for further tax increases on the top 1% to 5%). Any fall in the real LTROR may decrease the NIR Contribution but this decrease is offset by the fact that more than 50% of the LTROR is reinvested, increasing the reserves and offsetting the fall in the NIR Contribution.

    Most importantly that the Budget as presented to the public is not IMF compliant – that is to say the true fiscal position is obscured from the public (but not to the IMF since Singapore is subject to the assessments required under Article IV of the IMF constitution). The actual fiscal position are far more in surplus than the government revealed. in 2015, the government presented a budget deficit equal to 1.2% of GDP but the true fiscal position is a surplus of a surplus of 1.7% of GDP. In 2014, the government reports a surplus of 0.1% of GDP while true position is a surplus of 3.9% of GDP. There has been huge differences between the two sets of numbers simply because the government do not reveal “net acquisition of non financial assets” or simply revenues from net sale of land.

    This is the reason why the NIR contribution kept increasing despite generally poor global investment returns.

    Atans1: apols for mouthful but this is as layman as I can manage. Will write a piece on the budget being non IMF compliant after I read the MPs falling over themselves to debate fiscal sustainability and the likes without knowing what they are talking about.

    • Thanks for making it as simple as possible for lay people like me. I believe this really helps alot of people in understanding the NIR.

      Atans1: you will not mind right?

  4. I should mention that there is a certain ownself check ownself in how they determine the NIR contribution. The asset managers in GIC, MAS and Temasek make an assessment of the expected real LTROR which the government submits to the President for his approval. It begs the question how the President is able to come to a decision to approve the expected real LTROR without referring the matter back to the government if he disputes the assessment. So the issue goes back to the asset managers who indirectly works for the government. Conflict of interest is obvious. Should no agreement with the President is attained, the NIR rule permit the use of the reported real LTROR instead of the expected real LTROR.

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