Singapore dipped into a short recession during the Asian financial crisis. In 1999, then President Ong Teng Cheong said that he would approve the government's request to draw on past reserves to finance recession measures if asked. Fortunately there was no need to as then Prime Minister Goh Chok Tong said there was enough fund accumulated in the current reserves.
The global financial meltdown of 2008 shows how crucial financial reserves are to a small nation without natural resources like Singapore that is heavily dependent on international trade and finance.
The first time the government had to dip into the past reserves was during this crisis.
To shore up confidence in Singapore's financial institutions in the midst of a deepening credit crisis that was worldwide, the government announced in October 2008 that they would guarantee all bank deposits from October 2008 till the end of 2010.
The guarantee covered all Singapore dollar and foreign currency deposits of individuals and non-bank customers in banks, finance companies and merchant banks licensed by the Monetary Authority of Singapore (MAS). The government backed this guarantee with $150 billion from our financial reserves.
Without a strong reserves position, would the government have been able to do that? So our national reserves ARE a vital strategic resource for the country.
This move by the government was not an actual draw on the reserves. The funds would be used only if a depository financial institution failed. Fortunately that did not happen.
Then in January 2009, because of a fast deteriorating global economic environment and facing the prospect of a deep and prolonged recession, the government finally sought the President's approval to take out S$4.9 billion from past reserves to fund two one-off measures to boost the economy, namely, the Jobs Credit scheme and the Special Risk-Sharing Initiative (SRI).
The Jobs Credit scheme was designed to encourage employers to retain their workers by giving them a cash grant for every local employee on their payroll and the he bulk of the S$4.5 billion went into this. The remainder was for the SRI, which was aimed at encouraging banks to lend to companies by bearing a larger share of the risks. As a result unemployment did not rise very high.
By 2011, the Government had put back into the reserves the amounts drawn down to fund the extraordinary measures taken during the economic crisis.