As trade collapsed towards the end of 2008 and into the first few months of this year, Asia’s export-reliant economies were hard-hit. Against this external backdrop, the Singapore economy contracted sharply, as our manufacturing, transport, logistics and wholesale trade industries were closely tied to global and regional trade flows. By the first quarter this year, the economy had posted an output loss of around 10% from its peak a year ago, the steepest decline in its history. The unprecedented global financial crisis has weighed heavily on financial markets worldwide, leading to severe declines in valuation across many asset classes amidst heightened market volatility. MAS’ investments were negatively affected by the crisis. As at the close of the financial year on 31 March 2009, MAS recorded a net loss of $ billion, about 3.5% of MAS’ average total assets. This compares with profits of $ billion in the previous year and $ billion in FY06. This severe crisis has therefore pared back about 80% of the gains in the preceding two years. The extent of loss has been mitigated as we raised the liquidity profile of our portfolio in the early part of 2008, in the face of greater uncertainties. With the broad based upturn in financial markets after the close of the financial year, the valuation of MAS’ foreign assets has improved and more than half of the losses have been recovered. Despite the severe global conditions, Singapore’s financial system has, by and large, weathered the crisis well.
To further enhance this facility, with immediate effect: a)  3  We will accept AAA-rated $ debt securities issued by sovereigns, supranationals and sovereign-backed corporates as collateral in the Standing Facility in addition to SGS. Given this change, we will also permit banks to treat these securities as Tier 2  Conducted US-based recruitment firm Hudson. BIS Review 91/2009  3  liquid assets, with the same zero risk weighting as SGS. This will help banks to better manage their risks and liquidity profiles. b)  We will also enter into cross-border collateral arrangements with other central banks to accept well-rated foreign currencies and government debt securities as collateral in the Standing Facility. Last month, I signed an MOU with the Governor of De Nederlandsche Bank N.V., the Dutch Central Bank. Discussions are ongoing with several other central banks. Globally, government bond issuance is rising while banks’ balance sheets which are typically used to underwrite these issuances are shrinking. We have seen in some jurisdictions several instances of poor or even failed auctions of government bonds due to unexpectedly weak sentiment or concerns about ballooning government debt and fiscal deficits. Singapore is different. The Government does not issue bonds to finance its budget deficit. Investors understand that the Government issues SGS for the sole purpose of building a risk-free yield curve for the corporate sector to price its debt. But the SGS market can be affected by contagion of weak sentiment spilling over from other markets.