LONDON: Booms and busts are in the nature of a free market economy and the current financial crisis is not the end of the world, said Mr Lee Kuan Yew.

What is important in such a meltdown is to restore confidence, said the Minister Mentor during a dialogue at the International Institute for Strategic Studies yesterday.

London conference room named for MM Lee THE Lee Kuan Yew Conference Room at a leading London think-tank was opened yesterday by the Minister Mentor himself - who then walked into its elegant rectangular space to speak on global issues. The International Institute for Strategic Studies (IISS) had named the room in his honour. ... more

Acknowledging that there is 'no clean solution' to the problem, he also made it clear that the end is not in sight.

'I don't know how long it will take,' Mr Lee said in reply to a question seeking his perspective on the Wall Street turmoil that is threatening to slow global growth.

For an hour, he fielded questions from an audience of 200, mostly academics, former diplomats and military officers, corporate figures and journalists.

Topics ranged from climate change to China's soft power to Islamic extremism.

The financial turmoil was a highlight of the session yesterday, the final day of his three-day official visit to Britain.

Pointing to the need to restore confidence, MM Lee said one extreme view was to nationalise bad debts and assets and let the banks restart.

'What will that cost? Many trillions of dollars.'

However, in the United States, the government is proposing a US$700 billion (S$1 trillion) plan to buy up the toxic mortgage-related debt that started the financial firestorm.

Even then, it appears to be an uphill task. Mr Lee noted that the bailout plan was facing trouble with Congress.

'Let's say there is a complete collapse. Does that mean the end of the world...the free market economy? No.'

The Minister Mentor does not foresee this mother of all bailouts preventing a crash from ever happening again. 'From time to time you are going to get this kind of a problem.'

This time, the blame is on the 'derivatives mania', which he said has been so cleverly packaged that it spread into reputable companies like AIG, the largest American insurance company.

The US government saved it from bankruptcy with a US$85 billion loan.

As an insurer, AIG was supposed to be a 'firewall' against the collapse of the financial system.

'But they also went into derivatives. Why not? Everyone was making money. This was a mania,' he noted.

Can such mania be tamed? Not likely, he said, adding: 'Human nature, greed, fear will always be there.'

Mr Lee was also asked about the pay of Singapore ministers.

Citing new Law Minister K. Shanmugam, he said the former top lawyer was making $4 million a year but is now making substantially less.

Ministerial pay is a perpetual election issue the Government does not dodge or fudge, he said.

But as long as this is a clean, honest, effective leadership, the pay can be justified, he said and added: 'The day we become dishonest, or ineffective, or incapable, we're out.'

Dr John Chipman, the IISS director-general and chief executive, asked if South-east Asian countries understand the nature and weight of Chinese demands enough that they will 'begin bending to China's will'.

Mr Lee's reply focused more on the magnitude of Chinese soft power.

From the Olympics in Beijing to a summit of Asean and Chinese in Guangxi province, the Chinese laid out splendid shows, he observed.

He said a leader of a big Asean country went away from the 2006 event in Nanning, which was to mark 15 years of Asean-China ties, convinced it was not democracy, but peace and stability, that was behind China's 'unstoppable rise'.

Only China can stop itself, the Minister Mentor said.

Mr Lee is now in Paris, where he will meet political and business leaders.

He will also attend a meeting of the international advisory panel of French oil company Total International, of which he is a member.

siewhua@sph.com.sg

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