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Speech By Mrs Lim Hwee Hua, Minister Of State For Finance, At The Committee Of Supply Debate 2006 In Parliament, 1 Mar 2006

01 Mar 2006

Sir, first, let me thank Members for their comments and suggestions.

2. In addition to balancing the Budget and providing a fiscal framework that is best for business and beneficial for citizens, the Ministry of Finance is also keenly focused on seeking the best value for money in Government, both for expenditure as well as in investments.

Value for Money in Government Spending

3. First, on value for money in Government spending. Members have heard the Prime Minister. Every dollar the Government spends has first to be earned. Members of this House can be assured that we are conscious of the need to live within our means. Our philosophy is always to exercise prudence in spending and to deliver more for the dollar.

4. Sir, Mr Steve Chia is concerned about the budget allocated for organising the annual meetings of the Boards of Governors of the IMF and the World Bank group. I would like to state that we do not take this expenditure lightly. We decided to bid to host the meetings only after much deliberation and hard-headed assessment of the costs and benefits.

5. Let me just spell out briefly the benefits that these meetings would bring to Singapore. Firstly, strategic benefits. We aim to develop Singapore as a global knowledge hub - a place where people, businesses and non-profit organisations converge and exchange ideas. Hosting premier international events is an integral part of this strategy, as it will help establish the Singapore brand globally, which he does not deny. Hosting meetings like the IOC and the World Trade Organisation's Ministerial Conference provides a unique opportunity to present ourselves to the rest of the world as gracious host, meticulous planners and efficient organisers. Moreover, playing host to a meeting focused on promoting economic development, alleviating poverty and fostering macro economic and financial stability will also reinforce Singapore's reputation as a responsible global citizen.

6. Secondly, the economic benefits. In addition to the official annual meetings, there will be at least 300 other meetings and events held concurrently during that time. With the bulk of the expenses borne by the private sector and accruing to the local businesses, there are significant spillover effects on our economy. In terms of tangible economic output, practically all the $135 million that it would cost to organise the whole event would go to contracts for local businesses. In relative terms, I would like to assure Mr Chia that Singapore's expected expenditure is commensurate with that of previous hosts. The IMF/World Bank meetings in 2003, which was hosted by Dubai, incurred expenditures of over $360 million, though that included the construction of a brand new convention centre just to house the meetings.

7. With 16,000 foreign visitors converging in Singapore in September, the meetings would also generate at least $50 million in tourism receipts. As it is, almost all the hotels and functions rooms in downtown hotels and conference venues have already been booked.

8. We are mindful, Sir, of getting value for money and keeping costs down but without compromising on security or good organisation. Just to give a little example of the exercise of innovation. For example, to provide some 1,000 office premises for the delegates, the organising committee opted to build temporary offices within Suntec itself rather than to retrofit hotel rooms into office spaces. And this creative solution saved us over $4.5 million.

Ensuring Adequate Returns on Government's Investments

9. Sir, the second aspect of seeking value for money in Government is to ensure adequate returns on our investments. Mr Inderjit Singh has asked about performance benchmarking and risk management for GIC and Temasek. Our investment objective for Government's reserves managed by GIC and Temasek is to achieve good long-term risk adjusted returns on a sustainable basis. GIC is the Government's fund manager, managing a globally diversified portfolio of assets comprising a whole range from equities, bonds, real estate, private equity and other assets. Temasek is the Government's investment holding company with stakes in a broad range of companies, principally in Singapore and the region.

10. As fund owner and shareholder respectively, Government holds GIC and Temasek accountable for returns and overall performance. The Ministry of Finance regularly reviews the performance of GIC and Temasek with the boards and management. We are satisfied that GIC and Temasek have performed creditably against comparable benchmarks.

11. Sir, what are these benchmarks? In the case of GIC, the performance of each asset class is benchmarked against relevant international measures like the Morgan Stanley Capital International, or commonly referred to as MSCI, Equity Indices and the Lehman Brothers Aggregate Bond Index. Performance is also evaluated against other peers. On this basis, GIC has achieved good long-term returns.

12. In the case of Temasek, since inception, Temasek has delivered 18% total shareholder return by market value and 16% total shareholder return based on shareholder's funds.

13. Investments taken by GIC and Temasek are subject to rigorous risk management and internal control frameworks. These address all the major categories of investment risks, including market risk, credit risk, regulatory risk, operational risk and political risk.

14. The Ministry of Finance is involved in deciding the long-term return objectives, the risk tolerance levels and the asset mix for the Government's funds managed by GIC. As for Temasek, MOF endorses the overall strategic directions for its investments. However, the Government does not get involved in individual investments, leaving these to the respective boards and management. It is not for Government to approve each investment by GIC and Temasek, much less the Temasek companies, nor for us to second guess the risk assessments. Such micro management will ultimately be counter productive. What is important is that there is a good governance framework, regular performance evaluation, robust risk management and an effective system of checks and balances. These, I can assure Members, are in place.

15. Sir, Mr Steve Chia has also asked about the increase in investment expenses. Allow me to explain very briefly. The expenses on investments should not be viewed in isolation but within the context of the size and nature of the investments. The increase in EOI in recent years reflects really three things: first, the growth in the asset size; secondly, the investments in new markets and products; and, thirdly, accounting effects arising from changes in investment strategies.

16. The bulk of the increase was due to a greater use of investment instruments like interest rate swaps. Currently, the Government accounts treat the paying and receiving legs of the interest rate swaps separately as expense and income. But in substance, they are two related sides of the same investment transaction and viewing the net effect will give a better reflection of the return profile of the swap investment. Ultimately, what is important is that returns on our investments are monitored on a net basis, ie, after deducting expenses, and that the long-term performance of our investments remains consistently good over the years.

17. As for the exact size and returns of our investments, we have explained on numerous occasions that the disclosure of such information is not in Singapore's national interest. Our financial reserves help to maintain confidence in the Singapore dollar and the Singapore economy. Any revelation would make it easier for currency speculators to target the Singapore dollar.

18. Mr Chia can take comfort in the fact that there is full accountability for GIC and Temasek's overall performance and risk management.