Debated in Parliament on 21 Jan 2014.
Mr Deputy Speaker, I beg to move, "That this Parliament, in accordance with section 7(3) of the Bretton Woods Agreements Act (Chapter 27 of the 2012 Revised Edition), resolves that the subscription of Singapore to
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the International Bank for Reconstruction and Development be increased to a sum not exceeding Six Hundred and Seventy-Two Million United States dollars (US$672 million)."
Mr Deputy Speaker, the Board of Governors of the International Bank for Reconstruction and Development, or IBRD, has adopted in March 2011, resolutions to increase the capital of the IBRD by US$86.2 billion. The IBRD is the main institution of the World Bank Group that lends to developing countries. The IBRD intends to use the capital to promote growth and sustainable development amongst its middle income and credit-worthy poorer member countries. It does this, for example, by supporting investments in infrastructure in those countries.
At present, Singapore's subscription to the capital of the IBRD totals US$38.6 million, of which we have paid US$3.86 million as paid-in capital. We propose to increase Singapore's capital subscription by US$633.2 million, bringing our total subscription to close to US$672 million. However, out of the total increase, we will be paying only 6% or US$38 million as paid-in capital.
This is our first increase in capital subscription to the IBRD since 1966. It will mean an increase in our voting power in the IBRD from 0.05% to 0.25%.
Let me explain why Singapore has to play its part in the global effort to supplement the World Bank's resources. Given our role as a major financial centre and the importance of a healthy global economy to our economic prospects, we should participate in this global effort. Our economic ties are also growing with developing countries in Asia and beyond. For example, Singapore-based companies stand to benefit from the World Bank's extensive network and resources through partnership projects in urban development within Asia and elsewhere.
In subscribing to the IBRD's capital increase, Singapore would also be playing its role in the region's contributions to the IBRD – the Southeast Asian region's contributions. Before this new subscription, Singapore is ranked eighth amongst ASEAN in terms of contribution, in fact, behind Brunei, Myanmar and Vietnam. With our increase, Singapore will be the fifth largest shareholder amongst the ASEAN countries, behind Indonesia, Thailand, Malaysia and the Philippines.
As I mentioned earlier, as part of our increased subscription, we will be paying 6%, or US$38 million, as paid-in capital. This amount will be met from
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the Government Budget, and was included in the estimated operating expenditures presented to Parliament as part of Budget 2013.
The remaining 94%, known as callable capital, will not be drawn by the IBRD except in extreme circumstances, when it cannot meet its obligations on borrowings or guarantees. To date, the IBRD has never had to call on the callable capital in its history. It is an AAA-rated institution with a sound balance sheet for over 50 years. Nevertheless, the full increase in Singapore's subscription to IBRD's capital will be charged to the Consolidated Fund, as the callable capital represents an increase in the Government's financial liabilities. Our subscriptions to the IBRD are, hence, unlike MAS' subscriptions to the IMF's capital, or what is called the "IMF quota subscriptions", or its loans to the IMF, which are neither expenditures nor liabilities, but assets that remain part of our Official Foreign Reserves.
With this new subscription to IBRD capital, Singapore's total subscription would be in excess of the current US$40 million cap prescribed in section 7(3) of the Bretton Woods Agreements Act. Parliament is, therefore, requested to approve that the subscription of Singapore to the International Bank for Reconstruction and Development be increased to a sum not exceeding US$672 million, thereby authorising the Government to take up the additional subscription proposed. Singapore's total paid-in capital will amount to US$41.86 million. That includes the paid-in capital that we had previously put in. Mr Deputy Speaker, I beg to move.
Question proposed.
Mr Gerald Giam, you would like to speak? Proceed.
Mr Deputy Speaker, the Deputy Prime Minister and Minister for Finance is seeking Parliament's approval to increase Singapore's membership subscription to the International Bank for Reconstruction and Development (IBRD) from the current US$40 million to US$672 million.
The IBRD, commonly referred to as the World Bank, is an important international development institution that focuses on uplifting poor and vulnerable communities in the developing world. It aims to promote global collective action on issues like health, trade, agriculture and climate change,
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strengthening governance and anti-corruption efforts, and prepare for crises. Singapore has been a member of the World Bank since 1966.
We had, in the past, benefited from World Bank loans for infrastructure development projects. Between 1963 and 1975, Singapore received 14 loans from the World Bank for port expansion, sewage, power, telecoms, education and environmental management. These included US$15 million for the Port of Singapore Authority and another US$15 million for Pasir Panjang Power Station.
Now that we are a developed economy, I think it is right for us to contribute back to the development of other countries by supporting the work of the World Bank. As a responsible member of the international community, we should play our part to help alleviate poverty in this world.
Our current subscription limit is US$40 million. This limit has not changed since 1966 when we were much poorer and smaller. Considering our economy has grown a lot since then, our current subscription appears relatively low. We have one of the lowest subscriptions among the 188 member countries in the World Bank.
Having said that, the quantum of the proposed increase in our subscription limit is not small. It is going up from US$40 million to US$672 million, an increase of almost 17 times. Can I ask the Deputy Prime Minister how the Government arrived at this quantum? I understand that voting power at the World Bank is allocated based on the capital stock held by each member. Is the increase in our subscription intended to strengthen our voting power or increase our influence at the Bank? If so, can the Deputy Prime Minister explain what are the tangible benefits that this translates to for Singaporeans? Does it make much of a difference if we raised our vote share from the current 0.05% to 0.25%, and is it worth the full US$672 million? What will be the frequency of the payments of our subscriptions and under what extreme circumstances that the Deputy Prime Minister mentioned will Singapore have to make a full subscription? Will we be obliged to contribute the full subscription whenever the Bank calls for it?
Sir, I support Singapore playing a bigger role in international organisations like the World Bank. However, I would like more clarity on why our subscription needs to be increased by such a large amount and how Singaporeans will benefit from this change.
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Mr Gerald Giam has asked valid questions. Perhaps, the best way I can answer them is to state in a different way what I mentioned in my speech. There are essentially two propositions which shape our commitments to organisations like the World Bank. It is a key international organisation.
First, having strong and effective multilateral institutions is in Singapore's interests. We are small, we are dependent on the rest of the world. We are dependent on a stable and growing world for our people's livelihoods. So, we have a vested interest in strong multilateral institutions. At our current stage of development, quite different from 1966 or even different from 10 or 15 years ago, and given our growing links with developing Asia and the developing world at large, we have to play a responsible role in the multilateral institutions. We cannot be a free rider. We cannot be a free rider expecting to reap the benefits, directly or indirectly, without paying our membership fees. So, that is a basic proposition.
But the second proposition is equally important, which is, that we should only commit to what we can afford and in proportion to our size and role in the global economy. That is something which we study very carefully: how does it fit within our overall budgetary commitments, each year and over the long term? Secondly, how do we compare with other countries: our neighbours, those in the region, as well as those further afield? We should commit in proportion to our size and role in the global economy, and not beyond what we can afford. That is what instructs our calculation of how much we should contribute.
How much have we contributed? The amount that we are contributing will give us a share in the World Bank's capital of about 0.24%, slightly lower than the voting share but that is technicality. So, 0.24%. In fact, that is still significantly lower than our share of the global economy in GDP, for instance. Our share in global GDP is about 0.4% and our share in global trade is significantly more than that. So, our share in the World Bank, an institution responsible for supporting sustainable growth in the developing world, is, in fact, much lower than our share in global GDP and in global trade or in global cross-border investments. So, we are not over-committing.
The reason why we are still below our share, as dictated by GDP or trade or cross-border investments, is because we were a developing country. Our starting point was one of a very small contribution. And we are still not an
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advanced economy. So, we are increasing our share, increasing our contributions, but we are doing it in the right proportion. We are not over-committing. Playing our responsible role, making a significant increase, but we are not over-committing. I am satisfied with that.
The amount looks large because we have included the callable capital. In the nature of our contributions to these organisations, the callable capital is significant but it has never been called. In the history of IBRD, it has never been called because the purpose of callable capital is merely to allow the IBRD to issue bonds to finance its operations, and to maintain its AAA rating. The true budgetary cost is what we will pay in, that is, the paid-in capital. And that is the US$38 million increase.
That is not an annual figure. That is US$38 million that I expect to last for quite a while because the IBRD only raises capital once every 10 to 20 years. The last time it raised capital before this round – this was the 2011 round – and the last time before that was 1988. So, even conservatively, let us, say, 10 years, that is US$38 million, or about S$50 million, over 10 years, which is about S$5 million a year. So, it is S$5 million a year which, I think, is not an inordinate amount to contribute to the World Bank, an institution whose effectiveness we have a clear and vested interest in sustaining.
On the secondary question, the Member asked about whether we are obliged to cough up callable capital when asked, this is an interesting question because there has been no precedent for it. They have never called on the callable capital. There has been no precedent for it and, in fact, no one expects it to ever become necessary.
In theory, a country can pull out of its membership if it could not meet its obligations but I think that is the last thing we will want to do because our credibility in the world is extremely important, it is an extremely important asset. The main point I am making though is that you do not expect the callable capital to be called; that is not the way the IBRD is run. The whole purpose of callable capital is for it to maintain its AAA rating. The budgetary cost for us is the paid-in capital. That is something which was reflected in this fiscal year's budgetary estimates and that is the true charge on us. As I mentioned, it really amounts to – when you look at it amortised over 10 years – about S$5 million a year, which is not an inordinate sum.
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Any other clarifications for the Deputy Prime Minister?
Hon Members indicated none.
Question put, and agreed to.
Resolved, "That this Parliament, in accordance with section 7(3) of the Bretton Woods Agreements Act (Chapter 27 of the 2012 Revised Edition), resolves that the subscription of Singapore to the International Bank for Reconstruction and Development be increased to a sum not exceeding Six Hundred and Seventy-Two Million United States dollars (US$672 million)." – [Mr Tharman Shanmugaratnam].
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