Generosity Begets Goodwill – Speech by Jamus Lim on the Bretton Woods Agreements

Generosity Begets Goodwill

Mr Speaker, as in related motions prior, I am aware that the stipulations in this bill are of an essentially technical nature, and are designed to help us better realize our existing commitments to the international financial system. Nevertheless, I have some comments, both on the specific contents of the bill being considered, as well as one—on the use of SDRs—that is fully within the spirit of the bill, but isn’t directly taken up by it.

Why the Fund and not the Bank?

Clause 3(a) of the Bill was included to preclude the use of grants for funding of IMF offices hosted in Singapore. This sort of ringfencing strikes me as eminently sensible, since we do not want the Bretton Woods Agreements Act to inadvertently become a funnel for grants to the Fund via the MAS, without Parliamentary approval.

That said, it is curious to me why the amendment does not require associated changes to the International Development Association (IDA) Act, since IDA similarly provides grants, funded from subscriptions, even as the World Bank maintains offices here, too. If such language was already included in the most recent amendment to the IDA Act, tabled in October last year, I was unable to find it. Perhaps the Minister may clarify why this allied amendment is unnecessary?

After all, a cursory examination of the website for the IMF Singapore Regional Training Institute reveals just 16 staff members, compared to the World Bank’s Singapore Infrastructure and Urban Hub, which is the largest operational office collocating staff from the Bank’s, approximating some 200 or so professionals.

Making SDRs matter

I will move on to my main constructive suggestion, offered in the spirit of the bill: about how we can better use SDRs, for the purposes of foreign aid.

In August 2021, the IMF made a general SDR allocation to all member countries of the IMF. The amount came up to 456.5 billion SDRs, or $650 billion U.S. dollars, the largest in the institution’s history. It was meant to help countries get through the COVID-19 pandemic. To ensure the integrity of the process and encourage donations, the Fund established two trusts—the Poverty Reduction and Growth Trust (PRGT) and the Resilience and Sustainability Trust (RST)—where countries with excess SDRs could make transfers into.

While not meant to be a substitute for actual foreign aid, reallocating SDRs to countries that that have struggled with accessing financing after the COVID-19 crisis is very much meant to be complementary. Advanced economies already had an easier time tapping on financial resources as they rolled out their support packages, since many were able to easily issue debt at low cost in private markets. Yet by dint of the SDR quota formula, developed countries received two-thirds the share of the total SDR injection, despite having a fifth of the population. The crunch was the most acute for the least developed countries, since their SDR allocation only came up to 2.4 percent of the total. 

The proposed amendments to the language of the Bill—specifically, Clause 2, which replaces how the MAS is not just constrained to “buy or sell” SDRs alone, but to also “otherwise deal with” them, explicitly opens the door for SDRs to also be reallocated.

This is already being done

To be clear, this government has already taken steps in the direction of offering grants, as well as doing so specifically with SDRs.

In January this year, the government provided an additional subscription of up to $70 million to the World Bank Group’s International Development Association, which offers grants to the world’s poorest countries. And two years ago, the government proposed grants to three separate funds led by the IMF, using SDRs. 

For the latter grants, Minister Ong had moved that grants of $17.6 million be made to the Catastrophe Containment and Relief Trust, $2 million to the COVID-19 Crisis Capacity Development Initiative, and $0.97 million to a special debt relief program for Somalia. Together, these come up to a little less than $21 million dollars. Yet for the 2021 general allocation, Singapore received 3.7 billion new SDRs, which works out to $2.8 billion dollars. Put another way, what we chose to reallocate was more than one hundred times less than the amount we received in new SDR allocations that year.

If we think we should be prudent with reallocations, it is worth pointing out that the amounts we have transferred thus far are only a fifth of amounts we have already pledged (we offered a billion), and we have only supported one of the two recommended trust funds (the RST).

To be clear, transferring our SDR allocations are not costless. While the allocations we received in 2021 were, indeed, cost-free—they did not require contributions from our fiscal budget, nor add to our debt burden—they remain so only if they remain held as part of our foreign exchange reserves. Should we use our SDRs—by exchanging it for hard currencies, and giving the resulting amount away as a grant, or by directly transferring these SDRs to other needy nations—we will incur net charges.

Still, transferring an amount less than 100 times our quota allocation does not strike me as, in the words of Minister Ong, “commensurate with our size.” After all, while it is true that our quota and voting rights at the Fund are determined by a formula, how much of this we offer as a contribution is limited only by our desire. If, indeed, we are—again in Minister Ong’s words—“always struggling for relevance,” I can think of more difficult ways than to demonstrate our presence, despite our size, via our generosity.

Obtaining intangible goodwill with foreign aid

And this brings me back to a theme that I’ve repeatedly shared with this House: that the good-faith delivery of foreign aid helps not just the countries that we support, but can also rebound back to us.

One of the magical benefits of development is that it is decidedly not a zero-sum game. So, when today’s lower-income countries receive financial support that enables them to vault onto the next stage of their development journey, their improved incomes aren’t coming at the expense of any other country necessarily falling behind. And when these countries become richer, they are more able to afford the sorts of higher value-added goods and services economies such as our own produce.

Moreover, the moral impetus to support other economies is also strong. Singapore’s economy has largely recovered from the COVID-19, many others are still facing the repercussions of the shock, and are reporting GDP figures below their pre-pandemic levels.

Given how timely such support will be, we can also garner an immense amount of intangible goodwill by becoming a more active provider of foreign aid. Such goodwill can be very valuable when we hope for support from other nations, sometime in the future. As a small country, this sort of soft power can only be disproportionately obtained by building up a stock today, by being generous when they are needy.