Goh Chok Tong is about as central to Singaporean political life as one can be without being Lee Kuan Yew. He was Singapore’s second prime minister after Lee himself, a post he held for 14 years until 2004. He is now a senior minister in the cabinet of his successor, Lee Hsien Loong, and is chairman of Singapore’s central bank, the Monetary Authority of Singapore (MAS).
In his time in office, he has seen the role and power of China and India change beyond measure. China was barely open to foreign participation when he took power in 1990; India has seen eight changes of prime minister since then. So, viewed from a small island in south-east Asia, are those towering economies a challenge or a threat?
“China and India are altering global patterns of trade, investment, production and travel,” he says. “Singapore is making adjustments to their huge presence on the world stage.” With their growth, Singapore has shed uncompetitive industries like textiles and replaced them with cutting-edge processes like the bio-medical industry, he says, and with efforts to become a financial centre and a medical and education hub.
“We see India’s and China’s growth as opportunities. We do not see them as a threat,” he says. “That is why we have a free trade agreement with India and are negotiating one with China. But of course, we have to keep running to stay ahead, and are always looking for niches where we can make a living.”
Singaporean business leaders tend to speak glowingly of trade agreements, perhaps seeing more significance in them than larger countries would, and Goh too is keen to mention the agreements already struck with India, Japan and Korea, and the one in train with China. “In Asean [Association of South-east Asian Nations], members are working hard to integrate their economies,” he says – indeed, the formation of the Asean Economic Community has been brought forward to 2015 – and “these arrangements will make us a valuable hub for MNCs to base their operations here.”
Hub or microchip?
If there’s a word designed for Singapore, it is hub. Not blessed by scale or natural resources, everything about the city state’s prosperity has been built on being an intermediary for something else, or leveraging a bigger neighbour’s growth by offering it efficiency and reach. Singapore officials speak frequently of linkages, networks, partnerships, connections.
Goh has another word for it:
“To borrow an IT term, Singapore should strive to become the microchip of Asia. By this, I mean we should be an essential component of the larger Asian economy, with the capacity to add value and make things happen.”
He adds: “Singapore is well-positioned to do this. We are already a regional hub” – that word again – “for companies to manage their operations in Asia. We have strong economic linkages with most of the Asian countries and a good understanding of business practices in these countries.”
There are risks, though, to the nation, the region and the globe. Goh cites high oil prices, instability in the Middle East, terrorism and a bird flu epidemic as the big risks to the world economy, and it’s the last of them that troubles him most. “There are already several cases of human infection,” he says. “If the flu virus mutates and becomes easily transmitted between human beings, then a world pandemic could occur. That would be a nightmare. There would be harsh restrictions placed on the movement of people and animals. The global economy could be crippled.”
Comparatively, a high oil price is less of a worry. “If oil prices stay at the elevated level of about $80 per barrel, I believe the world economy can still cope,” he says. The danger to Singapore is how the world reacts to anything higher, with a brake on global growth a severe worry for a country reliant on external flows. “For Singapore, we will have to continue to depend on oil and gas as our primary sources of energy. We will have to be even more efficient users of energy.”
Some have begun to see echoes in Asia’s recent economic momentum with the period in the mid-90s leading up to the Asian financial crisis. It’s not a view Goh shares. “No, the Asian nations have not forgotten the harsh lessons of the Asian financial crisis,” he says. “The average growth rate of east Asian countries was around 5% between 2002 and 2005, not a dizzying rate of growth.” Goh ought to know the signs: as prime minister he saw Asia’s boom, the financial crisis, the tech stock crash, 9/11 and Sars, and then Asia’s recovery.
He says growth is now more balanced, supported by a strong export performance and, increasingly, domestic demand. He also believes there is plenty of evidence to suggest that the region has become more resilient to external shocks: external debt as a percentage of GDP is heading down, not up, and there has been a steady build-up of foreign exchange reserves, meaning that the reserve adequacy ratio, a key indicator comparing reserves to short-term debt, has risen. “More central banks have moved towards inflation targeting as the monetary policy regime” – among them the MAS itself. “Monetary policy is also conducted with greater transparency. This has allowed a greater degree of exchange rate flexibility, thereby improving the capacity to adjust to external stocks.”
Security
If economics and oil are no concern, there is one other thing well beyond Singapore’s control: security. Singapore is a small country in a changing and uncertain world. Does he have concerns about security, or about political instability in surrounding countries?
“Alas, we are indeed a little red dot, but we are determined to make it a shining little red dot, whatever the uncertainties around us,” he says. “We are concerned about the threat of terrorism. We take our security seriously. There are terrorist cells in some countries in the region, and we work very closely with the governments in the region to fight terrorism.”
Goh has good reason to feel strongly about this issue: the disruption of the Jemaah Islamiyah-Al Qaeda plots against Singapore and the arrests of JI alleged terrorists in December 2001 are likely to be remembered as among the most significant moments of his administration. The footage recovered from raids on suspects, in which an area of Napier Road was being scouted out where the US, UK and Australian embassies rub shoulders, was chillingly played around the world. Besides, Singapore is an interesting study: a peaceful, multi-racial and multi-religious society, linked by two road causeways to one of the most populous Muslim countries in the world (Malaysia) and a short ferry ride away from the most populous of all (Indonesia).
“We will be affected if the surrounding countries are politically unstable,” Goh says, though he paints it chiefly as an economic concern. “They are our major economic partners. If they do not grow, our investments and trade with them will be affected. Also, confidence in the region will diminish, affecting Singapore, since we are a regional hub.”
One of the keystones of Singapore’s recent economic growth has been its aspiration to become the region’s leading financial hub, a battle it consistently engages in with Hong Kong. Much has been done: the finance sector contributes 11% to Singapore’s GDP despite employing only 5% of the national workforce. Goh credits the fact that the financial sector was opened to greater competition, and a regulatory stance that has shifted from “a prescriptive one-size-fits-all approach to a more risk-focused supervisory approach … We will continue to move in this direction and encourage greater innovation.”
What else needs to be done to make it the centre it aspires to be? “We are constantly reviewing and adjusting our regulatory framework to facilitate new products, services and businesses while maintaining high standards,” he says. Next comes greater integration with Asean. “And finally, we will make greater effort to groom local talent for the financial sector as well as attract foreign talent to Singapore. Talent drives financial innovation. That is why we welcome it.” As a hub, you might say.