Should Singapore panic over its $4 billion pledge to IMF?

The Parliament was reassured that extending the credit to the International Monetary Fund poses far less default risk than imagined.

The IMF is a preferred creditor, according to Deputy Prime Minister and Monetary Authority of Singapore Chairman Mr Tharman Shanmugaratnam in an address to Parliament, and has had a sterling track record in recovering debt even in defaulting countries.

Parilament has raised concerns that repayment of the conditional line of credit will be at risk if used to bail out Eurozone countries.

"Should Singapore’s loan be called on, we would be taking on the credit risk of the IMF rather than the direct credit risk of countries that the IMF lends to. The IMF also has safeguards in place to reduce the risks that it takes in lending to countries. First, the IMF has preferred creditor status - which means that loans granted by the IMF must be repaid ahead of all other creditors. Countries which have historically defaulted on the rest of their debts have in most instances repaid the IMF on time and in full," said DPM Shanmugaratnam.

"Second, all funds disbursed by the IMF to a country that applies for financial assistance will be accompanied by access limits and strict conditionality. Access limits cap the exposure of the IMF to the country. Conditions put in place typically require the country to adjust its economic policies over both short and medium term adjustments. Loans are disbursed in tranches, and the IMF reviews a country’s progress in its adjustment programmes before releasing each tranche of a loan," he added.

"Singapore has a clear interest in the IMF retaining its ability to ensure the stability of the international economy and monetary system. Given our role as a international financial centre and our heavy dependence on trade, the stability and well-being of the global system is of critical importance to us,' he said further.