SINGAPORE - Prime Minister Lee Hsien Loong spoke to CNA on June 8, for a documentary on Singapore’s reserves. The transcript of the interview was released by the Prime Minister’s Office on Wednesday. Here is an edited excerpt.

Q: In your opinion, has there been a singular pivotal moment in the history of our reserves?

PM: I think the key pivot was when we decided to recognise the reserves as being a lot of money and needing to have a second key. The idea was first floated by Mr Lee Kuan Yew in 1984 in his National Day Rally; I remember it because that was the year I came into politics and I attended the rally before I came into politics. Then over the next few years, we worked out and implemented the scheme, and I was intimately involved in that with Professor S. Jayakumar particularly, also with Mr Goh Chok Tong, who was then Deputy Prime Minister. We worked on the White Paper which we put out in 1988. It was a big issue in the general election in 1988. We worked on the legislation to amend the Constitution to provide for the Elected President and I was particularly deeply involved in all the ins and outs of that with Prof Jaya, and implemented that around 1990. I think that was the key turning point because it crystallised people’s focus. They knew that there is such a thing called the reserves, that it is quite a lot of money and that it needs to be protected. And of course there is the idea, but when can we use it when we need it? That is something we discuss every now and again.

Q: How do you decide what goes into the reserves in the first place?

PM: The answer is we wanted to put in all the things which mattered. And what is it, where is it? So, in terms of what is it, it is basically financial assets – cash, shares, bonds, maybe private equity, some other financial instruments you may own, companies – or if it is not financial assets, it is land, areas, meaning fixed assets, buildings; those are the big things which you could touch and convert and spend. What we wanted to do was to cash all the things which could be converted, which could be sold, which could be pledged, which could be pawned, and it is basically financial assets, companies and land.

Then where are these things which can be pledged and sold? Financial items, MAS (Monetary Authority of Singapore), of course, has money. Temasek, of course, has got companies and that readily can be converted to money. GIC manages money. And then you have the CPF (Central Provident Fund) money, which is Singaporeans’ savings. It is not really the Government’s money. But if the Government is not completely straight with you, they could do something there. And that money can be at risk, so those things have to be covered.

Then you have the land. Who has the land? JTC has the land, because you have big pieces of Singapore which are industrial estates. Land to be developed, land which has been reclaimed. 

And then you have HDB, because HDB has also got factory land, HDB has got land which is people’s houses, and that also is a valuable financial asset. Therefore, we ended up with six so-called “Fifth Schedule” entities, where the second key applies. The President has oversight and veto on the key names on the Board and the CEO. And we want to make sure that that money doesn’t get spent lightly.

It does not quite cover 100 per cent of what the Government has; there are other stat boards, there are other assets, other parts of other things. There is a national collection in the National Museum – the Farquhar collection of paintings. These are all valuable things but in the scheme of things, the big pieces, we have identified them, and we have covered them under this second key.

Q: How much do we have here? How large is the reserve?

PM: I cannot answer that question. It is enough for most circumstances, it is enough to give us a substantial support in the Budget every year, contributing to the Government’s revenues. In fact, one-fifth of our revenues come from the reserves. But it may or may not be enough if you have a catastrophe – who knows what the world will bring? So I do not ask whether it is enough; I ask, can we husband it and if possible, gradually grow it bit by bit year by year.

Q: What about on the global stage? What do the reserves mean for us in terms of access or interactions with people outside? Does that translate to benefits for Singaporeans?

PM: I think it makes a big difference to our standing in the world. When you travel, your red passport commands respect. You go somewhere, people say, “Ah, you’re from Singapore”, and they recognise the name; they will say Lee Kuan Yew.

I think that for a small country, that extra recognition and regard helps us a lot, because otherwise, there are any number of cities with 5½ million people in them in Asia, dozens, and in the world, probably more than a hundred. If we were just one of so many cities with 5½ million people in them, we would not stand out. Who would think of going to Singapore whether to invest, whether to start a business or whether to use it as a jumping-off point for the region, for Asia?

But because people think of Singapore as different, that is why when you are in Singapore, you command wages which are quite a lot higher than anywhere else in the region. Yes, we are well educated. Yes, we are well organised. And perhaps yes, our levels of skills are higher than other countries. But there is a Singapore premium and Singaporeans, all of us, enjoy that Singapore premium.

Q: You mentioned about the framework that we have in terms of the NIRC (Net Investment Returns Contribution). In 2000, the Government began to protect half of the net income; previously all of it could be spent. In 2008, you played a key role in further including capital gains. Talk us through the decisions that led to these two events in 2000 and 2008.

PM: When we first decided to lock away the reserves and introduced the Elected President, we had not given a lot of thought to how to treat the income from the reserves, and we did not really have a very clear distinction between income from the reserves and investment returns. Because when you buy a share, you get dividends every year if that company is profitable, and that is part of the return from buying the share. But actually, if you buy the share, you also hope the share price will go up. So if you had bought Microsoft when they were small, you would today be looking at hundreds of times of capital appreciation. If you had bought Apple, the same, and so, the share appreciation is also part of the return.

But we did not understand all this intensely because in those days, we did not invest our portfolio in a systematic and comprehensive manner as we do now. And so we just said, well, all right, we lock up the principal sum and the income from the reserves, you can spend. All of the income.

But when we said income, what we meant was interest and dividends. There is the traditional bookkeeping account, and we did not think of what happens when you have capital gains for example. When Mr Ong Teng Cheong became president, he looked into this and he said, “Why are you spending all of the income? You should think about the future and some of this should be put aside for the future”. Then, the question is what is the formula for now, between now and the future? Mr Ong said, “Why not we just split it half, 50-50, half for now, half for the future. And therefore, you spend half of the net investment income”. So fair enough, we accepted that, and we amended the Constitution. But later, we studied how other entities which had built up endowment funds like this managed it. In particular, we studied the US Ivy League colleges, places like Yale, places like Harvard, which had much smaller sums compared to ours, but have put a lot of thought into what is a right approach to having the right spending rule to spend that money.

After thinking it over for quite some time, discussing it with MOF (Ministry of Finance) and with the ministers, we decided that we should be able to do something like the way the US university endowments do it, and that is, I look at my cash reserves, I smooth it so that it does not jump up and down from year to year because of short-term fluctuations in the market. I make a judgment what the expected returns will be over the next so many years or long term, and I act on that judgment.

But then I need to have a process for that judgment to be made by people who have integrity, who have knowledge and who will not just pluck a number out so that the Government can spend the money, and that has to be fitted into the system of the CPA (Council of Presidential Advisers) of the President. And therefore, they vet that number and they have to approve, that this is a reasonable estimate of what we are going to spend. So, we knew that was what we wanted to do. First, we did MAS and GIC and later on, we brought Temasek into this framework as well.

Q: What do you think is the biggest misconception that Singaporeans have about the reserves.

PM: The biggest misconception which people have is that there is such a thing as enough. When the PAP government was first elected in 1959 and Dr Goh Keng Swee became the finance minister, he discovered that there was a hole in the government budget. How big was the hole? $14 million. In those days, not such a small amount of money, but today $14 million is nothing to the Government, in terms of the government budget. So, at that time, if we had had $100 million in the bank, Dr Goh would have reported that we were feeling very rich. But that was then; today with a $500 billion GDP, how much is enough? Before the global financial crisis, we did not think we would need anything. When the global financial crisis came, it turned out we needed four, five billion dollars. When the Covid-19 crisis came, in the end we needed $40-plus billion. So, you have no idea how much you will need because Covid-19 is far from the worst thing that can happen to us.

So, what is the more productive way to think about this? I think the way we should look at it is, this is something which I have put aside, and I think about it as “rainy day money”. If it is not raining, I do not touch it. If it is a sunny day and I can afford to, I put a little bit more into it. However much there is, I keep on having this attitude that I would like to build it up a little bit more when I can so that the next generation will be in a more secure position than I am today. And that is how I am here today and benefiting because my forefathers did that. And I think if we do this, our children and our grandchildren will benefit from that, and I hope they will be grateful to us for that.

Q: You talked about the slowing returns on our investments and yet our spending needs continue to increase. Do you think the 4G (fourth-generation leaders) is prepared to deal with this confliction?

PM: I think that the 4G is very conscious that our returns are not going to grow sharply, and our spending needs are growing sharply. That is one of the reasons why we have been talking about the GST increase for so many Budgets before finally we did it in January this year and the next step in January next year. But it will not be the last call because our spending needs will continue to grow. And we have to make sure that we provide for ourselves and in a sustainable way. And I think that 4G leaders understand this, our challenge is to make sure that we get Singaporeans also to understand it and to take actions early enough so that we can be financially secure when the time comes. If you look at the countries which have not provided for this, where they have got debts which are 80 per cent of GDP, sometimes more than 100 per cent of GDP. You can know about it, but what can you do about it? But here I think we know about it, and we have not just the time, but I think we also have the political determination to do what we need to do about it.

Q: During the Covid-19 pandemic, we used our reserves. As you were doing this, did you have any anxiety that we were underdoing it or overdoing it or whether we were doing the right thing?

PM: I had no doubt we were doing the right thing. I was relieved that we were not held back because of the lack of resources, at least not lack of dollars, to do what we needed to do. It could have been overdone, but in such situations, it is not worth trying to fine-tune. You make the major decision, make the big move. If you have overdone it, well, I have bought more insurance than I needed, but no great harm done. If it is not enough, better make another decisive move. Which is what happened, the first budget turned out not enough, we had to make further decisive moves.

But overall, in the end, we did not spend all of the money we expected (to spend). I think (the Ministry of) Finance told us, we overall spent about $40 billion, somewhat less than we had expected but still a very, very substantial sum.

Q: One of the moves that we made was around vaccines. We were one of the first in Asia to get vaccines. Do you think having that resource available to us, having the reserves, played a part in this type of decision-making and this outcome to be able to get vaccines?

PM: The vaccine cost us I think $1 billion or $2 billion, something like that. So compared to the $40 billion spending, it was not a big part. But certainly, just to be able to say, “I want it. I want to order it. I am going early and if I have to order three times over, I will do that”. I think if we did not have the reserves, we would not have that mindset to take such a robust approach. Then you will be like (what) some other countries were doing, you will be bargaining, you will be trying to argy-bargy, can I have it slightly cheaper, can I trade off earlier, later? And by then somebody else will have gone in and it will be left in the dust, which is what happened to the countries which went for this haggling, bargaining approach.