By Jeremy Au Yong

ONE of the country's sacred cows could be slaughtered during the Budget this Thursday as the Government mulls over a move to dip into Singapore's rainy-day savings: the national reserves.

The leaders are now considering the unprecedented step of drawing from the reserves to fund the aggressive pain-relief measures needed in this downturn, Senior Minister Goh Chok Tong disclosed yesterday.

'The issue which the Prime Minister and the Minister of Finance are now thinking over, is whether we should go to the President and ask him for approval to use the reserves for extraordinary measures,' he told reporters after giving out $100 hongbao and goodies to the poor in his Marine Parade constituency.

But he also cautioned: 'It's a difficult decision because once you do that, you may open the reserves for future demands, which may not justify the use of reserves.'

On Friday, Prime Minister Lee Hsien Loong had said the Budget will run into a deficit this year and if necessary the Government will dip into the reserves.

He told reporters: 'The Government's job is not to do everything which is asked for but to see which are the items which will be most effective and then how do I raise the money to fund all the things which I need to do, either from the Budget revenues this year or from the reserves.'

Last year, the Government had modified the rules to allow it to spend a larger chunk of investment returns from the reserves.

In 1999, in the aftermath of the Asian financial crisis, the Government had shied away from dipping into reserves, even in the face of a $5 billion Budget deficit. Mr Goh was the prime minister then.

Yesterday, however, he pointed out that a 'muscular response' in the upcoming Budget is needed as these are exceptional times - and the key issue is to save jobs.

'There must be exceptional measures for exceptional times,' he said.

He gave a sampling of the dire economic news coming in, noting the sharp dive in export figures last month. Singapore's exports plunged 21 per cent in December, the biggest fall in almost seven years. At PSA, 30 per cent of the cranes are sitting idle.

'The weather is so bad, and we've always said the reserves are for a rainy day. If this is not a rainy day, I don't know what is a rainy day,' he said.

Asked how much money the Government may take out of the reserves, he said the amount did not matter. What was important was that the measures justified the use of reserves.

The Government has a hefty war chest to turn to. The reserves include assets managed by the Government of Singapore Investment Corporation (GIC), as well as those owned by the Monetary Authority of Singapore (MAS) and Temasek Holdings.

As of September last year (08), the MAS' foreign exchange reserves were valued at about $240 billion. GIC's portfolio is valued at well over US$100 billion (S$148 billion). Temasek Holdings' portfolio is worth $185 billion but its assets are not covered by the constitutional amendment on net investment returns.

MPs contacted gave mixed responses to unlocking the reserves.

Dr Muhammad Faishal Ibrahim (Marine Parade GRC) and Mr Liang Eng Hwa (Holland-Bukit Timah GRC) said they were in favour if the money was well spent. Mr Liang said using the money to build up the economy and workforce is akin to investing in a different asset.

Mrs Josephine Teo (Bishan-Toa Payoh GRC) however said she would rather wait first to see how bad the crisis gets.

'The conservative part of me says we really do not know how long this crisis is going to last. Will we risk running out of ammunition when we most need it?'

Financial analysts contacted backed any move to open up the war chest. That, they said, would spur a more aggressive Budget.

Said Dr Chua Hak Bin, Citigroup's head of Singapore equity research: 'We were concerned that the Budget was not going to be aggressive enough because of the constraint of having a balanced Budget.'

Nanyang Technological University economist Tan Khee Giap said that factoring in expenditure at the beginning was better than introducing off-Budget measures later. 'We should budget for the worst and hope for the best,' he said.

This article was first published in The Straits Times on January 19, 2009.