BY ZAKIR HUSSAIN

FOR the first time ever, the Government is dipping into its past reserves to help pay for Budget expenditure.

It has gone to the President for approval to draw $4.9 billion from reserves accumulated before its current term of office, and the President has given his in-principle approval.

The money is to fund two measures aimed at saving jobs and keeping businesses afloat in this downturn.

It is doing so even though it has built up sufficient savings during its current term, which began in 2006, in order to have 'full flexibility' to respond to the current economic crisis, Finance Minister Tharman Shanmugaratnam said in his Budget Statement yesterday.

Also, the two 'extraordinary' measures the draw will pay for are temporary and will not be built into longer-term government programmes, and should therefore be separately funded, he said.

The two measures are the Jobs Credit scheme which subsidises employers' wage bills to the tune of some $4.5 billion, and the Special Risk-Sharing Initiative which will help viable mid-sized companies get access to credit.

Mr Tharman noted that Singapore's past reserves were 'substantial' and 'well in excess of our liabilities'.

The Government has never disclosed the full extent of these reserves. Past estimates by analysts have ranged from $300 billion to $600 billion.

'Tapping on past reserves now gives us the resources that we need to deal decisively with the current economic crisis and also ensures that we have all the resources we need to respond to the considerable uncertainties that lie ahead,' Mr Tharman said.

In October last year, the Government sought President S R Nathan's approval for a $150 billion guarantee on all bank deposits here to be backed by past reserves.

But this remains a potential draw, with the probability of an actual payout low, Mr Tharman said.

He also noted that the new measures could be funded either by relying on accumulated savings or by borrowing, as other governments had done to help their economies ride out this downturn.

However, these governments would have to raise taxes later to repay loans.

Borrowing also put at risk a government's sovereign credit rating, he noted, citing Spain, Greece and Russia, which saw recent downgrades to their credit ratings, and Taiwan, which had been 'placed on negative outlook'.

By not borrowing to fund the current Budget, the Singapore Government 'will not have to burden either current or future generations with the need to repay our spending in this Package', he noted.

'It is only by practising fiscal prudence in normal times that we are able, in rare circumstances like today's crisis, to draw on our past reserves,' he said.

MP Inderjit Singh, chairman of the Government Parliamentary Committee for Finance and Trade and Industry, noted that the move was 'extraordinary', but so was this present crisis.

'Dipping into the reserves now is necessary, but this is also done for very specific, one-off, items, like Jobs Credit which lasts for one year. If we had used them for general spending, we would have difficulty scaling it back,' he said.

This article was first published in The Straits Times on January 23, 2009.