29
same period of 2.32 percent. In contrast, from 1999 to 2007 the
rate of return of fi scal reserve assets held by Hong Kong’s Exchange Fund averaged 6.8 percent, while the average infl ation rate there was 1.2 percent, ac- cording to a study by Jay W. Pao of the Statistics and Survey department at the Monetary Authority. Singapore’s fund also outperforms
infl ation. The Government Investment Corporation was established in 1981 to maintain the purchasing power of Singa- pore’s substantial reserves, including fi scal reserves and foreign exchange reserves. By the end of March last year, its 20-year nominal annual real rate of return above an international measure of infl ation was 2.6 percent, down from 4.5 percent a year earlier owing to the international fi nancial crisis. The corporation’s portfolio suffered a loss of more than 20 percent in Singa- pore dollar terms in that period.
One good year According to the Macau Monetary Au- thority’s annual report, “while offi cial interest
rates in the developed world
stayed at historically low levels through- out 2009 and consequently led to a min- imal money-market return in aggregate, the fi xed-income portfolio under man- agement ended up with a decent yearly performance as a result of a dynamic asset-allocating process,” boosting the reserve fund’s performance. Foreign exchange exposure also
Between 2001 and 2008 the reserve fund posted an average annual return of 2.06 percent, well below the average annual infl ation rate for the same period of 2.32 percent
contributed to the fund’s growth last year as the US dollar weakened against most other major currencies. Also performing well was the ex-
ternally managed portfolio; the author- ity invests part of the reserve fund in external funds. “Against a background of broad-based credit-spread tightening and generally low-interest-rate setting, the external fund managers succeeded in presenting an annual result above the benchmark and achieved a generous positive return in absolute terms,” the authority said in its report. “In the realm of management of ex-
change reserves and the MSAR reserve fund, and in view of the turbulent in- ternational markets, which affected the trends of major currencies, debts, equi- ties and interest rates, the Monetary Au- thority insisted on a prudent investment strategy in reserve management,” wrote in the report the authority’s chairman, Anselmo Teng.
Major revamp coming A
lthough the reserve fund is a form of fi scal reserve, no regular capital
injection into the fund has been made since the handover from Portuguese rule. The fund does not include either retained budget surpluses or the foreign exchange reserves, but this is set to change. The government has announced
that the long-awaited fi scal reserve system law proposal will be sent to the Legislative Assembly by the end of this year. The reserve fund and accumulated budget surpluses amounting to more than MOP100 billion (US$12.5 billion) at the end of last year (excluding those of public autonomous agencies) will be used to establish the system, to be managed by the Monetary Authority. According to Secretary for the
Economy and Finance Francis Tam Pak Yuen, the system will have two parts: a contingency reserve and an operational reserve. In the contingency reserve there will be enough money to support the government’s expenditure for no less than 12 months. The rest of the assets will be kept in the operational reserve. If there are “actual” budget
defi cits, as there were in the fi scal years of 1998 and 1999, the government will use the money in the operational reserve to fi nance the shortfall. However, the use of the assets of the fi scal reserve system will have to be approved by the Legislative Assembly. It has yet to be announced how
the Monetary Authority will manage the MOP112 billion-plus assets in the fi scal reserve system - for instance what kind of investment strategy will be followed and what kind of goals for returns will be set.
OCTOBER 2010
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