The transitive property in the study of logic defines how truths relates to each other. The simplest example is if A = B and B = C then by definition A must equal C. Taking a simple example, let’s assume that my friend tells me all cars are blue and that he has a car. By extension I can know that my friends car is blue because my friend has a car and all cars are blue. The transitive property provides us a way to reconcile truths against other things we know to be true.
Before proceeding to explain how this relates to Singaporean public finances, let me frame the transitive property in financial terms. Let’s assume that my friend tells me on January 1st that he has $10,000 in an investment account. I see my friend one year later and he tells me his investments made 10% last year. I can safely assume that my friend has around $11,000 in his investment account.
There are two important points about the transitive property as it relates to finance. First, if my friend tells me he starts off with $10,000 in an investment fund returns 10% in one year but then tells me he has $5,000 in his investment account, I know that my friend is leaving out important information. Maybe my friend is only counting the gains on investments that did not lose money or maybe my friend went and bought a new car, but a 10% return on $10,000 with no other changes should leave $11,000 in the bank. Second, while perfect information is always better, the transitive property allows us to work very logically with imperfect information. For instance, if my friend tells me that he started the year with $10,000 in an investment fund and finished the year with $9,000, unless he spent money, I can safely assume his investments lost 10%. I do not need perfect information to be able to figure out a lot about the finances of Singapore.
The Singapore government is trying its best to avoid the transitive property in defending its investment and public finance record. Let me give you three examples of how we can use the transitive property to study Singaporean public finances. First, Temasek claims that it has earned an annualized 17% since inception which gives us the ability to take the amount of money they currently have and calculate (estimate) backwards to how much they started with in 1974 or conversely calculate (estimate) how much they should have now based upon how much they claim to have started with. We don’t need the government to provide us every piece of data and every number.
Second, we can estimate how Singapore is allocating investment funds between GIC and Temasek. The reasoning is simple: if virtually any of the government surpluses and CPF funds after 1974 went to Temasek, it would have trillions of dollars given their claimed 17% return. That would imply that either Singapore is sitting on trillions of undisclosed dollars or virtually all surpluses and CPF funds went to GIC.
Third, despite the popular belief that Singapore has not disclosed the size of their reserves, we can use the transitive property to calculate the size of GIC. On the Singapore balance sheet published by the government they list their total assets. We know how their total assets, Temasek assets, and government assets. If the total amount of assets is the sum of the government , Temasek, and GIC, we can easily calculate the size of GIC. Put another way if 50 = 10 + 20 + x, we can calculate the value of x.
Let’s put this into practice. From 1974 through 2012, the sum of Singaporean debt and operational surpluses equaled $708 billion SGD. According to their 2012 public balance sheet, the government of Singapore list $765 billion SGD in assets. Please explain to me how Singapore saved and borrowed for investment purposes a total of $708 billion SGD between 1974 and 2012, claims to earn 17% and 7% over more than 30 years in Temasek and GIC, but only declares $765 billion SGD in assets. Either investments are not earning what is claimed or money is being spent that is not being accurately reported. There is no other explanation.
By definition Singapore cannot: a) invest $708 billion SGD b) claim a 17% and 7% return on investments over more than 30 years and c) only have $765 billion SGD. One of these must be false. We can see clearly that only two of these three assertions can be true.
This is not a cultural problem, debt cost, currency loss, accounting issue, or government secrecy that is causing this discrepancy. One of these claims has to be false.
If anyone wants to empirically point out where the error lies I will gladly listen. However, I will not be intimidated by anyone. Anyone.
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Hi Prof,
Given the Singapore govt’s latest information at
http://www.gic.com.sg/en/faqs/search/201-gic-and-the-reserves-of-singapore#46
and
http://www.ifaq.gov.sg/mof/apps/fcd_faqmain.aspx#TOPIC_177
I think the public figures and your estimates with regards to GIC’s asset size should more or less reconciled within realms of reasonableness, given the very rough nature of the estimates that you could possibily manage without the actual accounting information. Please note the Singapore govt’s stated GIC asset size is as follows:
“It is the size of the Government’s funds managed by GIC that are not published. What has been revealed is that GIC manages well over US$100 billion. Revealing the exact size of assets that GIC manages will, taken together with the published assets of MAS and Temasek, amount to publishing the full size of Singapore’s financial reserves.”
Thank you for not reading what I wrote and then critiquing it. As I noted, we do not need to know what GIC officially states to be able to calculate how much GIC has. If x +10 = 15 and x=GIC…..what is the value of x? If you cannot answer these simple questions, you probably shouldn’t be commenting.
Hi Prof,
I observed that the Singapore govt b/s linked above has not got the following information:
No notes to accounts; accounting policies; what accounting entities are considered and consolidation policies,..etc.
This means you could not be sure whether some assets are valued at historical cost, market valuations or which entities’s b/s are consolidated. Also, there could be SPVs and off balance sheet items not included in the above b/s statements.
So if I understand you correctly, the reason Singapore’s claims of earning 17% and the discrepancy between their claimed assets is accounting policies? Accounting policies do not make 17% into less than 1%.
As I understood, the Singapore govt seems to be sticking to the policy of not disclosing the size of its overall reserve, rather than trying to reconcile to your estimates. Again, valuation at historical costs and market valuations could make a great deal of difference. Also, the b/s you linked to has not explained which accounting entities it has included it is consolidation and the methods of consolidation.
The Singapore government is not disclosing but we can calculate it and accounting differences do not reduce a claim of 17% to less than 1%.
Again we would not know for sure with your estimate. If the assets were stated based on historical, the revaluation gain could account for the difference. I noticed the 17% is for temasek, while for GIC I noted the gain was given as 6-7%. For MAS, I have no idea.
You keep believing the only source of knowledge is whatever the Singaporean government tells you to believe and I will let children believe in Santa Claus and the Easter Bunny. Deal?
I am raising legitimate questions about your assumptions and presumptions in your calculations.
The asset liability statement that you used as a basis of your calculation does not explain:
What accounting entities are included in the asset and liability statement;
From what source of accounting statements is this asset and liability statement prepared;
The methods or accounting policies under which the assets and liabilities of underlying entities are consolidated;
whether the asset costs are historical costs or market valuations;
An annual report of a public listed company would consist of dozens of pages of reports including a balance sheet, p/l and fund flow statements which are required to be prepared in accordance with all applicable accounting standards and laws. Many temasek companies are listed entities many of which are audited by Big-Four accounting firms and also constantly scrutinized by a great number of professional investors and analysts. Do you have a better basis to form your opinion than these professional auditors, investors and analysts?
Further, Singapore is given top ratings by the world’s top rating agencies.
My suggestion for anyone who doubts the soundness of Singapore government financial position is to buy a Put on Singapore government.
It would be nice if you posted a collection of data of estimated inflows to the Singapore “reserves”. It would be good for scrutiny and also for people to “add on” to the list of transactions should something be missing.
I have posted it on previous posts as a very detailed Excel spreadsheet. I will post a new version soon.
Alwyn Young arrived at the same conclusion as you did 20 years ago, but via the economic growth figures. So I guess that’s independent confirmation that you’re right.
http://www.singapore-window.org/sw02/020518nz.htm
In Singapore: Government squanders savings
“Singapore’s economic growth, which has not been systematically greater than Hong Kong’s, has come at much greater cost. While Hong Kong’s investment rate has been fairly constant over the period at 20 percent of GDP, Singapore’s rose from 11 percent of GDP in 1960 to 42 percent in 1984; in 1992 it was approximately 36 percent. Since Singaporean growth rates were no higher for all the compulsory investment required of its citizens, it is fair to say that the government effectively dissipated all the forced savings.”
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