A tough 30-minute interview for GIC's first consulting team with then-PM Lee Kuan Yew

Dr Goh Keng Swee (second from left) and Government Investment Corporation managing director, Mr Yong Pung How (first on the left) meeting New South Wales Premier Neville Wran (second on the right) and his team in 1982. The Singapore Government is loo
Dr Goh Keng Swee (second from left) and Government Investment Corporation managing director, Mr Yong Pung How (first on the left) meeting New South Wales Premier Neville Wran (second on the right) and his team in 1982. The Singapore Government is looking into investing its reserves in the Australian state of New South Wales.PHOTO: ST FILE

The Government of Singapore Investment Corporation (GIC) was conceived within a time span of just seven months: between 1 August 1980, when Dr Goh Keng Swee was appointed Chairman of the Monetary Authority of Singapore (MAS), and Feb 27, 1981, when he issued a press statement announcing the Government's intention to establish an investment company.

Although he had been away from the world of finance for 10 years, having been at Defence and Education in the 1970s, Dr Goh had kept himself apprised of developments in the financial field.

More importantly, he had not lost that unerring "feel" of the Singapore economy, that intuition for what made it tick and how Singapore differed from other economies.

Among the first steps Dr Goh took on arriving at MAS was to commission a team from the Management Services Department of the Finance Ministry to "review the objectives, functions, organisation and operations of MAS and BCCS". One of the areas Dr Goh had asked the team to focus on was how "MAS' investment expertise could be improved".

Another step Dr Goh took was to travel to Europe in September 1980 to meet central bankers and commercial bankers on the issues that had been raised in his interviews of MAS staff and by the MSD team.

One meeting in particular was especially productive: Dr Goh's reunion with his former London School of Economics tutor, Sir Claus Moser, then with Rothschild Bank in London.

In December 1980, the MSD team issued its report on MAS. Though Dr Goh endorsed the bulk of the MSD report, Mr Herman Hochstadt, then MAS Deputy Managing Director, recalls him commenting that the report had "missed a very essential point", namely, that "there must be a separate body to manage the reserves". Having come to that conclusion, Dr Goh set the wheels in motion for the formation of such a company.

In February 1981, the Rothschild team of Sir Claus, Mr Richard Katz and Ms Kate Mortimer arrived in Singapore to vie for a consultancy.

There were two rounds of interviews, the first conducted by a panel chaired by Dr Goh and including ministers who were to be directors of the new company, among them Mr Hon Sui Sen, Mr Goh Chok Tong, Dr Tony Tan and Mr S Dhanabalan.

The interview was searching and thorough, Sir Claus recalled. Dr Goh and he had become "rather close personal friends over the years", according to Sir Claus. They shared common interests like music and they would go to the opera together at the Royal Opera House in London whenever Dr Goh was in town.

But "there was no sign of friendship" at the interview; "it was bloody tough". Dr Goh led the questioning, quizzing the team as to how an investment company could be structured and organised.

After the interview, Dr Goh informed them that the panel had decided to appoint them as consultants but the decision had to be confirmed by the Prime Minister. Dr Goh emphasised that it would be the Prime Minister who would have the final say on the appointment. The Rothschild team was scheduled to meet Mr Lee that same evening, at 5pm.

It would be an interview that each of the three would recall vividly. Ms Mortimer, in reminiscing about the interview with her friends, was reported to have said she felt "like a rabbit transfixed by a snake". Mr Katz recalled that he was already a senior director at Rothschild by 1981 and had met an enormous range of people in authority by then. Yet, he too had been unprepared for the "very direct, very testing questions and the sheer incisiveness and ferocious intelligence" of the Prime Minister.

For Sir Claus, the interview would become inextricably linked in his memory with a boast that he had uttered in order to soothe the nerves of his colleagues as they entered the Prime Minister's office.

 

"I'm used to dealing with Prime Ministers", he had said breezily. He was to discover that his experience of British Prime Ministers Harold Wilson, Edward Heath and James Callaghan was no preparation for Mr Lee.

The interview took about 30 minutes and ended with Mr Lee telling the Rothschild team he had decided to appoint them for a six-month trial period. The team had no doubt that it was Mr Lee who made the decisions. The three left the room "sweating" and "shaken". Both Sir Claus and Mr Katz acknowledged, though, that Mr Lee had been fair and civil. It was "absolutely right" that he had asked them these searching questions, Sir Claus was to recall 30 years later. Lee had impressed them "as a Prime Minister of a power and directness which (they) had never experienced".

On Feb 27, 1981, Dr Goh released a press statement. Embedded in the short statement were four profound insights, insights that would mould how Singapore has managed its reserves.

 

First was Dr Goh's allusion to the "regular" financial surpluses that resulted in balance of payments surpluses. Dr Goh would on other occasions use the term "chronic surplus" to describe Singapore's situation.

As Dr Goh saw it, Singapore would continue to have a high savings rate because of its tradition of prudent fiscal policy and the mandatory contributions all working Singaporeans made to their Central Provident Fund (CPF) accounts.

History has proven him right. The national savings rate in Singapore has ranged between 45 and 50 per cent of GDP over the last 30 years.

Second was Dr Goh's recommendation that the reserves be allocated to two "pots", or portfolios: one, to manage the Singapore dollar exchange rate and to back the Singapore dollar; the other, to be invested in long-term assets for capital appreciation. This distinction gave reserves management an extra degree of freedom.

Third was the decision to set up an investment corporation to manage the second pot, the "non-monetary reserves".

Singapore did not originate the idea of having an investment entity separate from the central bank, but it was nevertheless still regarded as an unconventional practice.

And fourth was Dr Goh's recommendation that the Prime Minister himself chair the Board of the new company. The company would have the distinction of being the only one in Singapore with ministers as its directors and the Prime Minister as its Chairman. That alone would signal the importance the Government attached to the endeavour.

As a result, over the years, ministers have acquired an appreciation of global financial markets and the returns and risks arising from investing. This was precisely as Dr Goh had intended.