Q&A: "It's Not a Good Market in Which to Sell" (extended)

Singapore's Deputy Prime Minister Lee talks about divesting state companies

Singapore Deputy Prime Minister Lee Hsien Loong is the point man in the city-state's drive to open its economy and prepare its government-linked corporations for an uncertain future. Known to Singaporeans as B.G. Lee, the former brigadier general is the eldest son of Singapore's founding Prime Minister, Lee Kuan Yew, and is widely expected to follow in his father's footsteps. Lee spoke with Singapore Bureau Chief Michael Shari at his offices at the Monetary Authority of Singapore, of which he serves as chairman.

Note: This is an expanded, online-only version of the interview that appears in the Apr. 23 issue of BusinessWeek.

Q: At the outset of Asia's economic crisis, what goals did you set to take advantage of the situation?

A: We saw it as an opportunity to do things that needed to be done for the medium term -- invest in infrastructure, invest in education, training for workers, promoting entrepreneurship, promoting new sectors of the economy, particularly life sciences. And also liberalize several of the services industries, such as telecoms and the financial sector. We've made progress on all these areas, although these are not things that show results over one or two years. It takes time.

Q: Are you saying Singapore hasn't seen the results yet?

A: No, I think, in the case of telecom, you've seen very dramatic changes since we went for the big bang in April last year. In finance, I think the landscape is considerably changed since we began to open up. It's not so easy for us to do because, if anything, it's an even more difficult environment for us in finance now than three years ago.

Q: Two years ago, the plan was to divest government-linked corporations and have them expand abroad. Has progress been satisfactory?

A: Oh, yes. It's not as fast as we would like because, first, it's not a good market in which to sell companies, although we've sold a few smaller ones. Second, it's not that easy to make acquisitions overseas, because you're not just buying little things. You need to make major moves. So you have to be very careful not to make a mistake. [But] there has been some progress.

Q: Two years ago, you said that there should be only two banks in Singapore.

A: I said that the market is big enough for two big banks to play, and that you can't have five big banks. It's just not possible. Unfortunately, that hasn't happened yet.

Q: How much time do you think they should take before consolidating?

A: I can't say. It's not within our power to compel them to hitch up because it has to be on a willing basis, or else it won't work. Although on the surface nothing has happened, I don't think the situation is totally static. I'm sure they must be making their calculations and soundings and contacts.

Q: Now that the economy is slowing, is there a sense that the window of opportunity has expired for reeingineering Singapore?

A: No. We had a very good year last year. We had 10% growth. So if we can get something positive this year, I think we'll make the best of it, and hopefully next year will be better. The restructuring has been quite rapid. Look at the impact on the industries and the retrenchments that have taken place. People who went out of work in the crisis have taken a while to find jobs again. And I don't think it's over yet. It's a foretaste of what a knowledge economy will be like, where you regularly have to learn something, your job regularly expires and you have to find a new one.

Q: If you look back at the past few years, what would you have done differently?

A: I think we might have moved faster on liberalization in some of the sectors. In telecoms, in hindsight, it would have been better if we had opened up completely at least two or three years earlier. But we tried to do it in a graduated way, and every time we thought we had caught up with the market, the market moved ahead of us.

Q: How about divesting government-linked corporations?

A: I suppose so. But what is our motivation for wanting to sell them? It is to free them in order [for them] to grow. We would like to say, "You take wing. But take wing at the right price." Why should we do a fire sale? These are public monies. We will sell at the right terms.

Q: There was a window there during which investors might have been a lot more bullish than they are now.

A: That's true. But there's also a certain process that we ourselves have to go through, from holding the company, and operating it in a fairly traditional way, to getting the company progressively transformed. If we had said, "Off you go," and the company wasn't quite ready, then it would have gone and fallen with a thud.

Q: Was there anything else that Singapore should have done differently?

A: In retrospect, we should have prepared the people more for problems

beyond the crisis. We tried to explain that after the crisis things would not go back to where they were before, that we are undergoing a phase change and not a temporary problem. But I'm not sure how far that message sank in.

Q: Are you talking about people at the lowest level of society or CEOs of corporations?

A: The whole population. I think many CEOs know that they are running for their lives. They're not under siege but under pressure. But some part of the population feels, "Why can't we go back to where we were before the crisis?" Because it went swimmingly well every year then. Wages were going up. Jobs were no problem at all. You didn't have to worry about being retrenched because you take the benefits and get a job just across the road immediately. But that's not the situation anymore.

But looking over the long term we have to deal with the problem of structural unemployment. And we have to deal with this early before it becomes a serious issue.

Q: Is there another basic issue for the Singapore economy?

A: I think our own ability to continue to restructure, upgrade, and maintain momentum and drive. This is crucial. It is also not easy because when you're starting off poor, there's tremendous verve and drive and desire to get ahead and do better. That's what China is experiencing now. People are studying, reading, improving themselves, taking night classes.

But to have a second or third generation carry on that spirit and be willing to make those sacrifices and commitments, that's not easy to do. You need a certain missionary zeal. If you just make a cost-benefit calculation and say, "Let's sit back and enjoy life," that's disastrous.

Q: Do you see yourself as the next Prime Minister?

A: That's an old question.

Q: And what's the latest answer?

A: It's not for me to decide, it depends on whom the electorate votes for and whom the Members of Parliament have confidence in.

Q: Do you hope that it might be you?

A: To be seen.

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