While kaypohing elsewhere, the KTM was asked the following questions by one Family Man:Kway Teow Man,Please advise me. When I was a kid, I understand we need to store a big reserve to help Singaporeans in times of emergency. As it is now, inflation and the price of rice has increased tremendously.However, our govt has indicated the subsidy of rice is the start of a slippery road. So our govt decides to buy more citibank and UBS shares, leaving our singaporeans without a cent of subsidy.What is your take on this?Should our govt spend some billions to subsidise the price of rice? When do you think the reserves will EVER be used to help Singaporeans? Or should only be kept in GIC to grow and grow and grow (hopefully)When a meteor hits us?When an earthquake hit us?When the sea overflow the banks?The KTM thought that these were really good questions and they deserved a considered response.First, a disclaimer: this is the blogosphere where the norm is to pretend one is an expert and spout nonsense. The KTM really is no expert and is not pretending to be one - but he does like to spout nonsense. :-) The KTM's response below is by no means authoritative and Family Man is encouraged to write to his MP, to the Finance Minister, to the PM or Forum Page to seek the authoritative answer from the horse's mouth. To begin, there is a need to be clear that there are two separate issues in these questions: (i) whether we should invest in UBS/Citigroup; and (ii) whether reserves should be used to subsidize the price of rice. The former is GIC's problem, while the latter is the Finance Ministry's business. GIC's responsibility is clear and that's to maximize returns on the reserves. On the UBS/Citigroup deal, the KTM is of the opinion that most bloggers dunno jack about that they are saying - but since in Rome, you do as the Roman's do, so the KTM will join the fray and kay poh with his two cents worth. Notwithstanding the paper losses, the KTM is of the opinion that it is too early to say whether the deal is a good or bad one. First, the KTM's understanding is that these deals are actually interest-bearing convertibles with relatively high coupon rates and not actual stock. Is there a difference? Yeah, but this is probably not the forum for a discussion on the differences. Next, given the nature of the deals and the premiums that have to be paid (and the bankers that get involved) of course there will be some paper loss. In fact, given the looming recession, it's probably going to get even worse, so people brace yourselves. :-P What people fail to remember is that as a Sovereign Wealth Fund, GIC has a significantly longer investment horizon than what most people can appreciate.Third, you dun get to buy into UBS and Citigroup everyday and on such a scale. Hopefully, the US financial markets don't have meltdowns too often lah - doesn't do us much good also. If we win, there's the potential to win big (but of course in such gambles, there's always a downside also). But even if we win and say in 15 years, GIC makes an effective annualized rate of return of 10% (20%?), will it make them heroes you think? People will still bring up the Shin Corp deal. :-) Indeed, GIC has a pretty shitty job (but they apparently pay their people well to make up for it). :-PNext, we come to the question of when and how to spend the reserves. Frankly, this is not a question for the KTM to answer. The elected Government of the day has the responsibility of explaining this to the electorate. The following are some issues that people might want to understand so that even when (and if) the Government explains, the explanation is hopefully less cryptic.One, it is the KTM's understanding that something like 50% (someone can check this figure) of the Net Investment Income from the reserves is already being spent by the Government even as we speak. What seems to be happening is that the money is just added to the state coffers just like your regular tax revenue - but then again, money is money what. Does it matter what source (as long as it's not illegal or immoral)? The KTM is lazy lah, so he didn't go and check the figures (so someone can help do it), but his understanding is that even this 50% is substantial and in the order of billions. Definitely more than enough to subsidize rice. So really, the question really isn't a matter of whether reserves should be used to subsidize rice, but a question of whether to subsidize rice to begin with. Just look across the causeway and see what happens when you subsidize necessities. Essentially, you distort the market and cause people to hoard or export your commodities for profit, leading to increased enforcement/policing costs - and for what?Dunno about you lah, but the KTM received a couple of cheques in the mail in recent weeks for dunno what GST rebates, Singapore shares,.... Aiyah, it's all very confusing and the KTM isn't quite keen to rack his brains to understand what's going on also. Government give money, the KTM take loh. How often does one get free money in the mail right? :-) Actually, the KTM sometimes thinks that it wouldn't be too bad if every year also election year ..... :-PAs it turns out, the KTM probably got a thousand plus - really cannot keep track, but definitely more than enough to buy rice for the next three to five years probably. Of course, people will then say that it's not only rice lah, the cost of living is going up. Even the PAP kindergartens are going to charge more... and that's correct but what this shows is that the price of rice really isn't a problem (or more precisely isn't THE problem). Perhaps it is in the surrounding countries, but not in Singapore. Even the price of pork, chicken or duck isn't really a crisis. In short, to respond to Family Man's point about an "emergency", the KTM is actually of the opinion that we're aren't quite in an "emergency" just yet -- but the "emergency" might just be lurking around the corner under the present global climate. For how long can the US hold back a recession? Our problems are significantly more complex and endemic - and with the looming recession, the Government will have an even more serious problem to grapple with and that's the problem of jobs. Yes, jobs are being created at a phenomenal rate over the last few years and this will continue for a short while more before the job market starts to shrink - but the jobs are not the jobs that the Government needs!! Maybe the Government will bring forward the IR projects? Whatever. Structural unemployment is still an issue and it will not go away. But imposing high tariffs and quotas on foreign workers is also not the solution because this will slow down economic growth and probably reduce corporate taxes. Also, businesses will complain (people think that businesses dun pay taxes huh?) and allowing foreign-labour-dependent businesses to grow will at the very least stimulate the creation of some jobs for the locals. However, at this rate, the proportion of foreigners in the workforce will continue to grow and fuel xenophobic sentiments. So how?Dunno leh. If the Ministers cannot take it, maybe they can quit and fry KT? Definitely much more fun and stress-free frying KT than running a country. And the best part, can anyhow open gap to spout nonsense with impunity on the side. That said, fry KT dun need 4 A's one. Must just be able to take the heat and the grease. After the latest MSK incident, they are probably used to the heat already lah, so maybe just the grease is new. :-P