Reply to Parliamentary Question on Developments in Greece
QUESTION NO 708
NOTICE PAPER 205 OF 2015
FOR ORAL ANSWER
Date: For Parliament Sitting on 14 July 2015
Name and Constituency of Member of Parliament
Ms Irene Ng Phek Hoong, MP, Tampines GRC
To ask the Prime Minister how will the default by Greece on its debt owed to the International Monetary Fund (IMF) impact Singapore, the region and the rest of the global economy and whether there are lessons to be drawn from this crisis which sees Greece becoming the first developed country to default on an IMF debt.
Answer by Mr Lawrence Wong, Minister for Culture, Community and Youth on behalf of Mr Tharman Shanmugaratnam, Deputy Prime Minister and Minister in Charge of MAS:
1 The direct impact of the crisis in Greece should not be significant. While it adds uncertainty in the European economic recovery, the European Central Bank and European Union will likely take the steps necessary to safeguard the Eurozone financial system.
2 The direct impact of Greece on Singapore is also small. Greece accounts for just under 0.2% of our total trade and 0.1% of banking system assets. Singapore's financial markets continue to function in an orderly fashion.
3 Nonetheless, the situation could unravel. If Greece exits the Eurozone, now or later, it could trigger a broader loss of investor confidence in European integration. There could be some knock-on effects on the rest of the world. Overall, while there is no reason for alarm, we are closely monitoring developments in Greece and the Eurozone.
4 Ms Irene Ng also asked about Greece and the International Monetary Fund (IMF). When Greece missed a USD1.7 billion repayment to the IMF on 30 June 2015, the Fund declared Greece to be in arrears. When a member country misses a payment to the IMF, the IMF continues to work with that member to help it clear its arrears. This has been the case in previous instances of arrears. It is also pertinent that the IMF has preferred creditor status, which means that loans granted by the IMF to a member must be repaid ahead of all other creditors.
5 The IMF has the scope to take a series of progressively stronger measures against a member in arrears. As an immediate step, the IMF will not permit the member further access to IMF resources. Where the arrears persist, the IMF could initiate procedures to withdraw that country’s membership in the Fund and realise the loss. So far, no country has had to face what is in effect expulsion from the IMF due to persistent arrears, and no losses have been realised on IMF loans.
6 Greece’s debts owing to the IMF are significant. However, the IMF has sizeable reserves that it can use to protect its members and lenders, should any loss arising from its loans to Greece eventually be realised. When member countries contribute resources to the IMF, our financial exposure is to the IMF and not the countries that the IMF lends to. The IMF, with the advantage it has from its preferred creditor status, has in turn always repaid its own creditors. Neither has the IMF ever had to use members’ capital funds in the IMF to cover losses. On 1 July 2015, the IMF reaffirmed that member countries’ claims on the IMF are fully secure, and that it will continue to meet its obligations to its members and lenders.
7 Singapore has hence not suffered any financial impact arising from Greece missing its repayment to the IMF. To reiterate, this is because, when Singapore as a member of IMF contributes to its resources, our financial exposure is to the IMF and not the countries that the IMF lends to. I should also mention that Singapore’s loan commitment under the IMF’s 2012 Borrowing Arrangements have not been activated, as the IMF has sufficient financial resources for its current lending programmes.
8 There are lessons every country can draw from the Greek crisis. There is much reflection within Europe on the incomplete design of the Euro project, and what further reforms are necessary in the Eurozone. However, there are also more fundamental lessons coming out of the problems in Greece, problems that some other countries share from time to time. To be brief, I will just highlight two lessons.
9 First, living within one’s means, and ensuring that budget policies are sustainable. This means avoiding populist spending promises or benefits that can only be financed by accumulating debts indefinitely.
10 Second, avoiding a prolonged loss of competitiveness. Greece saw growth in wages and benefits that was much higher than productivity increases, and a severe loss of its economic competitiveness, including against its Eurozone partners like Germany. This has weakened its growth prospects, and compounded its build-up of debt.