MAS: IMF loan not unconstitutional

Central bank responds to Reform Party chief's claim that loan breaches law

By Andrea Ong, The Straits Times, 7 Jul 2012

THE Monetary Authority of Singapore (MAS) has clarified that the Republic's pledge to lend US$4 billion (S$5 billion) to the International Monetary Fund (IMF) does not breach the Constitution.

It was responding to media queries on letters and blog posts by Reform Party chief Kenneth Jeyaretnam charging that the loan commitment contravenes Article 144 of the Constitution.

He said the pledge, announced by MAS in April, had not been approved by Parliament or the President, despite a provision that 'no guarantee or loan shall be given or raised by the Government except under the authority of any resolution of Parliament with which the President concurs'.

Yesterday, MAS said Article 144 does not apply to lending, but 'prevents the Government from borrowing without the authority of Parliament and the President's concurrence'.

'Borrowings by the Government increase its financial liabilities and could result in a draw on its past reserves,' it explained.

Article 144 was introduced in 1991, it added, to prevent a 'profligate government' from borrowing to fund its spending and putting past reserves at risk.

In 1997, Non-Constituency MP J.B. Jeyaretnam - the Reform Party chief's father - cited the same provision when objecting to a US$5 billion loan offer to Indonesia. Then Attorney-General Chan Sek Keong explained that it must be read by applying each verb to its appropriate subject, to be understood as: 'No guarantee shall be given and no loan shall be raised by the Government' without approval from Parliament and the President.

MAS reiterated yesterday that Article 144 'does not cover the loan commitment to the IMF'.

While it agreed to the loan as part of an international effort to boost the global lender's resources, the loans will be activated only when the IMF's existing resources fall below a critical level and the fund makes a request.

Any such loan is part of a country's Official Foreign Reserves, and the IMF must repay it immediately if it is needed for a country's balance of payments, said MAS. It will not reduce Singapore's reserves, nor require money from the government budget.

If it had any reason to believe that the loan commitment would lead to drawing on past reserves, MAS is obliged by law to report this to the President, it said. But it 'had no reason to do so as the potential loan to the IMF would have carried low credit risk'.

Mr Jeyaretnam said on his blog he had written to the Finance Ministry twice, but it did not respond. He wrote to President Tony Tan Keng Yam and was referred to MAS, and he also wrote to IMF chief Christine Lagarde.

Yesterday, he filed an application with the High Court to quash the loan commitment and ask it to stop the Government or MAS from giving loans or guarantees to the IMF unless they are done according to the Constitution.

The Attorney-General's Chambers said it would not be appropriate to comment on the application, as it had not been served with it before office hours ended.

MAS' response to queries on S$5-billion loan to IMF

Article 144 of the Constitution does not apply to lending by Government. It instead prevents the Government from borrowing without the authority of Parliament and the President's concurrence. This is because borrowings by the Government increase its financial liabilities and could result in a draw on its past reserves. (Article 144 similarly covers guarantees given by the Government because these amount to contingent liabilities.)

Article 144 is one of the Constitutional provisions that was enacted to prevent a profligate Government from borrowing to finance spending and hence putting past reserves at risk. The legislative intent was clearly expressed in the White Paper that preceded the Constitutional amendments. The interpretation of Article 144 was subsequently also set out in an opinion by the then Attorney-General, Mr Chan Sek Keong, which was cited in Parliament in January 1998.

MAS has agreed to a US$4 billion contingent loan to the IMF. This is part of the international effort to boost the IMF's resources, with US$456 billion being committed to date. The loans will be activated only when the IMF's existing resources fall below a critical level, and a request is made by the IMF. Any such loan to the IMF will be part of a country's Official Foreign Reserves (OFR), as the IMF is obliged to immediately repay the loan in the event that a country has a balance of payments need. The MAS loan will therefore remain in the OFR and not lead to a reduction in the reserves. Neither will any money come out of the Government Budget.

Article 144 does not cover the loan commitment by the MAS. However, the Managing Director of the MAS is required by Article 22B(6) of the Constitution of Singapore to inform the President of any proposed transaction which is likely to result in a draw on its past reserves. If MAS had any reason to believe that the loan commitment to the IMF will result in a draw on past reserves, it would have been obliged to report this to the President. It had no reason to do so as the potential loan to the IMF would have carried low credit risk.



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