Monday January 19, 08:32 AM
Recession-hit Singapore could tap sovereign wealth funds: report
SINGAPORE (AFP) - Singapore's sovereign wealth funds, which have helped bail out troubled global financial institutions, could for the first time be tapped to help the ailing domestic economy, a report said Monday.
The city-state's leaders are considering the unprecedented step of drawing on its reserves to fund aggressive measures needed to fight an economic downturn, Senior Minister Goh Chok Tong was quoted as saying in The Straits Times.
Goh, a former prime minister, said the reserves were for a rainy day, and now the weather had turned bad.
"If this is not a rainy day, I don't know what is a rainy day," Goh was quoted as saying ahead of the government's budget statement on Thursday.
The reserves include assets managed by the Government of Singapore Investment Corp (GIC) and Temasek Holdings, the newspaper said.
GIC and Temasek are both sovereign wealth funds -- a form of government-created investment vehicle that has emerged as a potent force on global financial markets.
Late last year and early this year GIC injected billions of dollars into Swiss bank UBS (Virt-X: UBSN.VX - news) as well as US banking giant Citigroup (NYSE: C - news) . Temasek pumped billions into the former US investment bank Merrill Lynch (NYSE: MER - news) .
All three financial institutions suffered massive losses from US subprime, or higher-risk, mortgage investments. The US mortgage crisis evolved into a global economic slowdown which, late last year, made Singapore the first Asian economy to enter recession.
A 2007 report by Citigroup Global Markets (CEIS.PK - news) listed both Temasek and GIC as among the largest sovereign wealth funds in the world.
"The issue which the prime minister and the minister of finance are now thinking over, is whether we should go to the president and ask him for approval to use the reserves for extraordinary measures," Goh was quoted as saying.
GIC in September said its nominal rate of return over the past 20 years was 7.8 percent in US dollar terms. It said it managed well over 100 billion US dollars in investments.
Temasek, which has stakes in well-known regional firms including Singapore Airlines (C6U.SI - news) , in August reported a record annual profit of 18.2 billion Singapore dollars (12.25 billion US).
The country's official foreign reserves were 234.5 billion dollars in 2007.
"There must be exceptional measures for exceptional times," Goh said, without revealing a figure for how much the government might take from the reserves.
Finance Minister Tharman Shanmugaratnam has said that the "significantly expansionary" budget would emphasise help for businesses.
Singapore is Southeast Asia's wealthiest economy in terms of gross domestic product per capita but its heavy dependence on trade makes it sensitive to problems in developed economies, particularly the key export markets of the United States and Europe, which are in recession.
Just a little more than two weeks ago the government forecast that the economy could range between a contraction of 2.0 percent and expansion of 1.0 percent this year.
But Prime Minister Lee Hsien Loong was quoted Saturday as saying Singapore would scale down its economic forecast for 2009 because the global situation had worsened.
"It's a situation which is already gloomier now than it was on New Year," Lee was quoted as saying in The Straits Times.
Singapore's key exports fell a sharper-than-expected 20.8 percent in December from a year ago.
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