How to Borrow Money From Yourself

A letter from Tan Kin Lian to the Straits Times:

ST March 4, 2009
Consider a relief loan scheme for needy workers

MANY businesses are suffering from a severe drop in consumer spending. They are not able to earn enough revenue to pay their wages and other expenses.

These businesses are not able to get the bank credit needed to tide them over until the economy recovers. The banks are reluctant to take the credit risk, even though the Government has agreed to underwrite 80 per cent of any loss.

The Jobs Credit scheme may help these businesses to reduce their operating costs by 5 per cent to 10 per cent, but will not be sufficient to stem the losses. These businesses will then have to retrench their employees.

Many thousands of employees face the prospect of losing their jobs in the near future. The $20.5 billion resilience package will not help them. Job fairs will also not help.

I suggest that a relief loan scheme be introduced. This scheme is to be administered by a government agency and will allow a worker who has suffered a loss or drop in earnings to apply for a loan to cover the shortfall (subject to a monthly cap).

This loan will be subject to an interest rate of 2.5 per cent and can be drawn for a period of up to 24 months. The loan has to be repaid from future earnings or withdrawal from CPF savings.

This is a loan, not an unemployment benefit. It will provide financial relief to affected people who will then not need to rely on credit cards or loan sharks and bear a high interest burden. It will also reduce the bad debt burden from the banking system.

The idea doesn't really make sense to me. Instead of giving the jobless man a loan, charging him 2.5% interest, and having him make repayments later with his own CPF money .... you might as well let him use his own CPF money straightaway.

Among other things, this way he would save on the interest. It's not nice to charge desperate people interest.

Of course, from past experience, we already know how the government feels, about letting needy people use their own CPF money to support themselves (even during indisputably difficult times).

The government is very concerned that you must save enough money to support yourself in your old age. So concerned that it doesn't care if you die of poverty-induced starvation, long before you grow old.

Oh well.

I actually have an idea which modifies Kin Lian's loan scheme, such that it might be more palatable to our pig-headed government.

Instead of the government lending money to the unemployed, it could allow the unemployed person to borrow a (limited) sum of money from his own CPF account. This would be on an interest-free basis (why would you make a person charge interest to himself).

Later on, if/when the chap does find a job, you could make him contribute more money per month, to his own CPF account, to repay the "loan". For example, instead of contributing 20% per month, the person might be required to contribute 30% per month.

The extra 10% goes towards repaying the "loan". After the "loan" is repaid, the person's contribution rate then reverts to the usual 20%.

A neat, elegant idea, isn't it? And our ministers couldn't think of it. Hrrrmph. How very "world-class" they are.