Temasek doesn’t really make 16%
Your CPF money isn’t really safe.
And Lee Hsien Loong is a coward.
Sometimes we get so caught up in the day-to-day arguments that crop up on Facebook, social media, and even in real life, that we lose track of the big picture. Despite the very obvious question marks surrounding the way CPF funds are managed, though the government, through Temasek, through GIC and ultimately by the Lee family, I realise that I’ve written almost nothing on the topic. Given Lee Hsien Loong’s sustained and ethically dubious attack on fellow blogger Roy Ngerng, now seems like a good time to visit these topics.
It is completely inconceivable that Temasek has achieved the returns it claims through ordinary open market investment performance. Any attempt to attribute these returns to particularly excellent investment decisions by the Prime Minister’s wife is beyond ludicrous. Professor Balding has written on a few occasions about how out of kilter the numbers claimed by Temasek look when compared to pretty much every other index, benchmark or verifiable institutional investor (of which there are plenty). Are we supposed to believe not only that Ho Ching is the greatest investment manager of recent years, but also that all of her predecessors at Temasek were also the greatest investment managers in the world during their times as well? This is an incredible claim and the onus is on Temasek to prove it. Temasek has the numbers. If Temasek wants to claim extreme out performance of every benchmark over many years, let them go ahead.
Of course, Temasek will not come out and prove anything, because they cannot. Any careful attempt to verify the numbers will just throw up awkward questions. How much of Temasek’s returns are attributed to being sold government assets at offensively cheap prices? How much of Temasek’s returns are subsidised by government policy? Since the PM and the CEO of Temasek are literally in bed together, the scope for conflicts of interest is obviously massive. Can Temasek and the government prove that no errors have been made? Can they prove that no transactions were mispriced due to information leaks or conflicts of interest? Can Temasek and the government prove that suitable “Chinese walls” exist to prevent such issues arising? Do such “Chinese walls” extend to the bedroom of the Prime Minister and his wife?
Let’s just talk briefly about one deal between Temasek and the government. The sale of Changi Airport in 2009 for a reported S$3.3 billion. Temasek (under Ho Ching) paid this price with a cash injection from the government (under PM Lee). Yet Changi Airport was reported as having total assets of S$7.2 billion. Not to mention the fact that it sits on 1,300 hectares of valuable land. It’s interesting to look at how much that land itself might have been worth. Also in 2009, a 1.4 hectare land parcel at Jurong West was sold for S$38.5 million, that is about $27.5 million per hectare, which pro-rated for the size of Changi Airport puts the land value alone at more than ten times what Temasek paid for the land plus airport. Or to put it another way, you could demolish Changi Airport and bulldoze the runways, and just the land itself would still be worth more than Temasek paid for the worlds greatest airport. This is the sort of sweetheart deal that allows Temasek to claim unrealistic and inflated returns.
You may be wondering, if Temasek’s investments don’t make such great returns, where do the funds come from to pay back the money borrowed from our CPF accounts? The answer, obviously, is that it doesn’t come from anywhere. Obviously, as we are reminded every year, the CPF money is not getting paid back. Borrowers don’t just default on their borrowings, and unilaterally restructure their debts for no reason. Yet this is what happens every year when the minimum sum is increased, and when the retirement age is increased. A couple more tricks exist that governments can use to make inconvenient debts go away. The first is to “inflate it away”. This happens when the interest rate on the debt is below inflation, and in real terms the notional size of the debt will diminish. Again, this is exactly what we see when a large chunk of CPF savings is yielding 2.5%. Of course the last trick is to run a ponzi scheme, where new CPF members funds are used to cover the losses of those who need to make withdrawals, and we see an element of this again in the government’s never-ending immigration policies. To many people, Singapore is pretty full, and the case for increasing immigration and PR numbers to 2030 and beyond is not at all obvious. But all those new CPF members contributions would be convenient for the government in the case of CPF insolvency.
So, we have restructuring of the CPF debt, we have delayed repayment of the CPF debt, we have government policy that inflates the CPF debt away and we have government policy that guarantees an endless but hardly justified supply of new contributors to the CPF scheme. It looks bad.
Maybe now is a good time to remember that the largest increase in the minimum sum in recent years was 10.4% in 2009, coming hot on the heels of GIC and Temasek losing over $50 billion dollars in the global financial crisis. Coincidence? Or further evidence that a need to cover loses is driving the government’s policy to restrict withdrawals?
A few other thoughts on the CPF money. Is it safe? Really safe? Suppose that it is. The government has an investment model and system that guarantees the 2.5% on your ordinary account and also guarantees the 4% on the other accounts. Why doesn’t the government stop doing whatever it is doing that only guarantees 2.5% on the ordinary account, and just do whatever it is doing that gives 4% on the other accounts? Remember, money doesn’t just grow on trees, certainly not at Temasek. They must be doing something to make that 4% if it is really guaranteed, so what is it, and why don’t they do more of it? Why can they not guarantee 4% on the ordinary account as well?
Final point on CPF. The current outstanding debt is $249 billion, and the interest rate is presumably some mixture of 2.5% and 4%. Let’s be generous and assume 3%, that puts just the interest payments at an eye-popping $7.5 billion each year. So even if no one retired, and even if no one withdraws any of their CPF funds, the government has to find $7.5 billion, each and every year, just to pay the interest due on the various accounts. Just to give some context, $7.5 billion is a huge figure, more than the government’s entire annual spending on any one of many essential ministries including health ($7.1B), transport ($6.1B), trade and industry ($2.6B), national development ($2.0B) or in fact many others. Where is this money coming from every year, especially in 2009 when they lost over $50 billion?
Lee Hsien Loong
How many people really believe that Lee Hsien Loong became Prime Minister on merit and not because of his father? And how many also believe that he became Chairman of GIC (again taking over from his father), purely on merit? It is fair to say that the Brigadier General who apparently cannot shoot straight has done very well for himself. And with his wife at Temasek, and a brother bouncing around some of Singapore’s largest companies and statutory boards, not to mention the whole Hotel Properties “thing“, that “whiff of nepotism” has unfortunately never been far from Singapore’s most powerful family.
But while Lee senior has on occasions been willing to stand up and defend his reputation in court, the eldest son has preferred to hide behind his lawyers, and hide behind the legal system his father built. And since going to court to defend your reputation, and going to court and then refusing to answer any questions about your behaviour are two very different things, it is hard to know how much of a reputation LHL even thinks he himself has to protect.
Remember that the New York Bar Association once described how the Singapore government has “been willing to decimate the rule of law for the benefit of political interests”. This is the legal system that the Lees built, and it is the den into which one must step when challenged by the Lees to “prove” any suggestion of their wrong doing. The last (perhaps only) person to succeed was JBJ, and they did no less than re-write the constitution to prevent a repeat. Bear this in mind when Lee Hsien Loong threatens to sue Roy, or when the AGC threatens to sue Alex Au for that matter.
You see, Lee Hsien Loong’s political career is fundamentally built on a lie – that he has the merit to be in all the positions of power that he enjoys. And only by refusing to answer any questions, hiding behind his lawyers, hiding behind judges, hiding behind a legal system decimated by his father for political ends, can he maintain the charade. This is why any defamation case brought against Roy Ngerng is likely to be nothing more than a sham, and why Roy has nothing to gain and everything to lose if the matter goes to trail.