S'pore's US$4b pledge to IMF will not come from Govt Budget

SINGAPORE: Deputy Prime Minister (DPM) and the Monetary Authority of Singapore (MAS) Chairman, Mr Tharman Shanmugaratnam, has given the assurance that if Singapore is needed to commit its pledge of US$4 billion to the International Monetary Fund (IMF), the money will not come from the Government Budget.

Last month, Singapore made the contribution to bolster the International Monetary Fund's war chest, as emerging economies responded to a request by IMF chief Christine Lagarde for at least US$400 billion in new money to draw a line under the euro zone debt crisis.

In Mr Tharman's written reply to parliament on Monday, he said the loan will be part of the Official Foreign Reserves (OFR) held by the MAS.

However, there will be no change in OFR if the loan is drawn on by the IMF; what would happen is a conversion from a foreign investment asset to a loan to the IMF, which will still count towards OFR.

Loans which are drawn upon by the IMF will also be repaid to contributors with interest.

MP for Jurong GRC Desmond Lee had asked what measures will the Government put in place to ensure accountable use of this loan, if called upon by the IMF, and safeguard its repayment.

Mr Tharman explained that should Singapore's loan be called on, the country would be taking on the credit risk of the IMF, rather than the direct credit risk of countries that the IMF lends to.

The IMF also has safeguards in place to reduce the risks that it takes in lending to countries.

First, the IMF has preferred creditor status - which means that loans granted by the IMF must be repaid ahead of all other creditors.

Countries which have historically defaulted on the rest of their debts have in most instances repaid the IMF on time and in full.

Second, all funds disbursed by the IMF to a country that applies for financial assistance will be accompanied by access limits and strict conditionality.

Access limits cap the exposure of the IMF to the country.

Conditions put in place typically require the country to adjust its economic policies over both short and medium term adjustments.

Loans are disbursed in tranches, and the IMF reviews a country's progress in its adjustment programmes before releasing each tranche of a loan.

Mr Tharman said Singapore has a clear interest in the IMF retaining its ability to ensure the stability of the international economy and monetary system.

Given Singapore's role as a international financial centre and its heavy dependence on trade, the stability and well-being of the global system is of critical importance to the country.