20140210 GIC reserves – government should return money in GIC to citizens

Despite repeated calls for the government to improve its transparency on the management of our reserves, only a handful of people know the actual amount invested by the Government of Singapore Investment Corporation Pte Ltd (GIC).

Decisions on a few hundred billion dollars of OUR money (I will term ‘our reserves’ as ‘our money’ as it means just that) must not continue to be shrouded in secrecy. Why do citizens have NO SAY in OUR money with our MPs remaining silent, playing along with the few in control? This is not how democracy works.

There is no definite figure but our money in GIC is estimated to be $360 billion, all invested in shares of foreign companies. link With a Singaporean population of 3.313 million and should the money be distributed, each citizen has slightly more than $100,000. Every family of four would be entitled to more than $400,000. Since the government has disregarded our welfare, it would be better for the money to be returned to citizens for taking care of themselves.

In other words, each citizen has been forced to entrust about $100,000 to the government to engage in overseas stock market activity. These investments generate some returns and we are effectively using our money for our welfare.

Why do we need to rely on income from stock market activities instead of tax revenues and budget surpluses? A government which relies on shares speculation for revenue, using our money, is simply masking its incompetence. Perpetually locking up an increasing amount of our money for the long term (in our CPF account) works against citizens’ interests because in the long run, we will all be dead before receiving our rightful share of entitlement.

(Besides using our reserves only once during the Global Financial Crisis in 2007/2008, our money is solely used for land reclamation. When the land has been sold, all the money goes back into the reserves which continue increasing regardless of citizens’ pressing needs. The lack of transparency and a government which prioritises money over our welfare ensure will perpetuate this cycle. Including our money with the MAS and Temasek Holdings link, all Singaporeans have a combined total of almost $1 TRILLION in the reserves. So why are there tens of thousands of elderly citizens who are doing menial work like cleaners, selling tissue paper, collecting cardboards and not able to afford health care or basic necessities?)

The government has continued to offer bits and pieces of irrelevant information on the MOF website. Unless the government lifts its veil of secrecy, the information on GIC should be taken with a pinch of salt.

That the GIC is a long term investor is only partly true ie. it can hold company shares perpetually because it is able to tap on a constant stream of money from our CPF account. It’s like dollar-cost averaging where an individual buys shares at regular intervals regardless of price. Every Tom, Dick or Harry is able to do this.

If indeed fund managers at GIC have performed remarkably well, where is the evidence? The government cannot demand trust from an educated electorate because trust has been almost completely eroded.

Our money is held by GIC for speculation. Its ‘investments’ in Citibank and UBS confirm this.

The graph below shows GIC’s entry point in UBS shares. It was merely an attempt at ‘bottom picking’ for the simple reason that the share price has collapsed and is unlikely to drop further. But not only did it drop but collapsed. After 5 years, our UBS shares are still underwater. Its share price reflects extremely weak fundamentals of the company in our historically low interest rate environment. Should long term interest rates normalise, our UBS shares may soon become worthless.

GIC’s investment ‘strategy’ in Citibank bears a lot of similarity. If not for the intervention of the US government, we would have lost billions more in Citibank alone.

Image credit: Yours Truly Singapore

GIC also made a total loss of US$575 million investment in a single US property at the height of the property cycle in 2006 link. (Temasek’s total loss of about the same amount in Australia’s ABC Learning in late 2008 mirrors that of GIC’s US property, a lesson which Temasek did not learn from its sister company. To confirm ‘bottom picking’ was also employed as investment strategy, Temasek “raised its stake to 14.7 per cent as the ABC stock plunged in early 2008”. link)

So what happened to ‘due diligence’?

Conclusion

The reserves in GIC belongs to citizens. The following are unacceptable to citizens:
– GIC’s opaque system of management where not a single ordinary citizen knows where our money is.
– CPF policies which are constantly tweaked to lock up increasing amounts of our money which could be used for risky investments in GIC.
– Using our money to speculate in the stock market to generate revenue for infrastructures and welfare programmes
– Paying us peanuts interest for the use of our money while claiming to have made very high returns.

We are deeply worried by the total lack of transparency. It would be better for the government to return us our money instead of using it for risky investments.

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