User:Huilingxie/sandbox

The MAS as a separate vehicle
Jeyaretnam contended that the MAS was not a separate vehicle from the Government, given that it is a statutory corporation listed under the Fifth Schedule of the Constitution  and its shares are fully owned by the Government.

The Court of Appeal dismissed this , as s 3(1) of the MASA states otherwise:


 * Establishment of Authority


 * 3. —(1)  There shall be established an Authority to be called the Monetary Authority of Singapore which shall be a body corporate and shall have perpetual succession and may sue and be sued in its own name.

Contingent liability
Jeyaretnam contended that the loan should be classified as a contingent liability rather than an asset, based on the distinction Tan J drew between  the Government’s promissory note to the IDA and the facts at hand. Tan J had dismissed Jeyaretnam’s reference to the Report of the Auditor-General for the Financial Year 2011/12  and explained that the Government’s promissory note to the IDA was a liability, and hence it required presidential assent, whereas the Loan commitment constituted an asset. Jeyaretnam leveraged on this explanation to liken the Loan commitment to a share option, which is classified as a contingent liability.

The contingent loan gives the IMF the right to draw down on the sum committed through the loan when necessary. He argued that the IMF is likely to draw down on the Loan commitment only when there is widespread breakdown in the global financial system and no other countries are willing to make loans to the IMF. Should a drawdown be effected, Singapore’s exposure in relation to the Loan would be a lot riskier than it currently stands.

He further argued that such a loan could not be a commercial asset since it would be given to support the global financial system in times of financial crisis. In this context, it is unlikely that the IMF will be able to repay the loans extended to it by the contributing countries and hence, notwithstanding the general accounting classification of loans as assets, the loan to the IMF constitutes, in substance, a liability. He proceeded to use the US’ Federal Deposit Insurance Corporation’s Risk Management Manual of Examination Policies (“FDIC Manual”)’s  inclusion of loan commitments under customers’ liabilities in Section 3.8 to bolster his point.

The Court of Appeal dismissed the argument based on several reasons. It stated that accounting standards vary across countries and further explained that the amount of risk involved in holding an asset does not change its nature from an asset to a liability. Then, it also pointed out that Section 3.8 of the FDIC Manual refers specifically to the contingent liability of the customer, as financial institutions have to determine customers’ credit risks. That is hence distinguished from the present case, in which the IMF’s draw-downs would be a debt due from the IMF to the MAS and hence reflected as an asset of the MAS and not a liability.