Q: What is your view on a possible Chinese renminbi revaluation?
A: First, I do not think China will revalue the renminbi. Its main consideration will be how a stronger renminbi will affect exports and therefore affect economic growth. The main concern then for China will be unemployment if it is unable to channel growth of 7%-8% a year.
In the event that the renminbi is revalued – at a time of China’s own choosing – then it means for us that things from China will be more expensive. There might be a slight impact on inflation in Singapore, but it will not have a great impact on the competitiveness of China. Wage costs are still very competitive there.
What is the current strategy for the Association of Southeast Asian Nations (Asean)?
We have been trying to integrate the economies of Asean through free trade agreements and [then] extend this to investments and trading in services. The agreement now is to forge an Asean economic community, somewhat like the EU, but we would not allow a free movement of labour for a long time.
At the same time, we are forging an East Asian economic community. China will be doing a free trade agreement with Asean, so will Japan and South Korea. So when these three countries have free trade agreements with Asean, the next step will be to link these up for an East Asian community 30 to 40 years down the road. But, again, we do not envision one that is similar to the EU, given the different stages of development. Loosely integrated, I call it, with flexibility.
Will the World Trade Organization (WTO) Doha Round be completed on deadline?
I am not optimistic that it can be done. My reason for saying that is that the countries that are more open to trade are now working through agreements among themselves – the bilateral approach. The compelling need for a WTO round is less for them.
My fear is that the world will be divided into three big regional economic blocs – the Free Trade Area of the Americas, the EU enlarging itself and Asia organised as an economic bloc – because from there you can leap forward to imagine the unthinkable: rivalry between three blocs, moving into political and security [issues], into trying to capture resources for the three blocks. So you need a WTO round.
Singapore is pursuing free trade agreements but we are, at the same time, emphasising the supremacy of a WTO round. We are now working with interested parties like the US to restart the round.
Prime Minister Abdullah Badawi of Malaysia has been talking about tackling corruption. Can any Asian leader succeed in dealing with the endemic corruption in the region?
I would not refer to what he wants to do. But, generally speaking, corruption is endemic in the system; how do you stop it from [going from the] top to the bottom? Bribery and corruption is a way of life.
To stop it you have to be able to collect enough taxes to pay your ministers, your civil servants, custom officers and police well. But how do you break the cycle? Many people would not want this [corrupt] system but the pay is too low to support their families. My view is it going to be very difficult to root out corruption in Asia.
In Singapore, we do not have a problem; we just make sure we will never have a problem. Ministers and public officials are paid a wage that is comparable to that of private sector people. We have a very strict Corrupt Practices Investigation Bureau, which reports to the prime minister and the president.
Japan is starting to recover, but some economists say it will never grow properly again. What is your view?
I would never write off Japan. I look at the people, the way they are organised, the impressive skills they have, the capacity to overcome crises in the past. Yes, Japan has some structural problems and has to reckon with a very competitive, huge economy next door. But the people have proven in the past that they could overcome big disasters.
Their technology is superior, [as is] their ability to produce for the mass market. I am confident that, given another four to five years, you will see good growth of about 2%-4% in Japan.
How serious is the South Korea/North Korea problem?
It is a serious problem because the North Koreans are fearful about two things: the collapse of the regime and the security of their country. Then they have got to find ways to feed their own people and, as it is not easy, they will try to get aid from outsiders [on the basis of dismantling nuclear weapons]. [They fear] the US may invade, especially after Iraq and after being named as a country in the ‘Axis of Evil’. The question is whether these two worries will lead them to have nuclear weapons. That is the danger. If North Korea did [have nuclear capability], that would have a consequential effect on Japan, which then would have to think about how to defend itself; then South Korea, too; then China, too, would have to build up more nuclear weapons. It would destabilise.
I am optimistic that the problem can be resolved because China has a vested interest in solving the problem. Those who have met [North Korea’s leader] Kim Jong Il were quite impressed by him. He is not a madman; he is able to hold a discussion for many hours. [But] when it came to human rights, he could not understand the concept – this was told to me by a European prime minister, and at least two other leaders have met him and given me the same feedback.
Is the other major potential source of conflict the relationship between Taiwan and China?
Potentially, that is the most likely flash point that can destabilise the region. That is the big worry for us and the worry comes from the potential of a miscalculation by all sides involved. One can misread the intention of the other. China could misread the intention of Taiwan, thinking that Taiwan will go for independence, then you mount an attack to stop it. Or Taiwan misreads the intention of the US, that the US will come to its aid even if it takes steps towards independence.
The key is that the US provides a clear signal – and President George W Bush has done that, [saying] don’t take steps to upset the status quo, to both Beijing and Taipei.
What is your view on the pressure for democracy in Hong Kong?
The last demonstration was smaller than before, and 100,000 is not a huge number because Hong Kong has a population of six million. The desire for democracy is accruing, there is no doubt. But Hong Kong people are realistic; they live close to China and their future lies with China. And China’s worry is not Hong Kong, or Hong Kong’s democracy, it is the impact [of pressure for democracy] on other provinces and cities.
There are worries that China is drawing in so much foreign direct investment (FDI) that other countries in the region are suffering.
I think that will be a short-term problem, two to 10 years. China has a competitive advantage but not for FDI because companies must also bear in mind that things could go wrong with their investments in China: the political situation could change, [or there could be] an outbreak of severe acute respiratory syndrome (Sars) whereby the production base in China would be completely shut. So they are looking for a fallback position. Most companies would have production facilities in China but also outside China. Over time, as China grows, wages will go up.
But we are not just facing a challenge from China. India has now decided to open up. India has tremendous advantages. It believes it can also be competitive in manufacturing.
India has never realised its potential. What is different now?
I have been an optimist on India. I am one of the few prime ministers that have visited India repeatedly. This time, I can sense a bigger, stronger impulse to open up [than in 1992]. India is exploring a free trade agreement with Singapore and has suggested a free trade area with Asean.
Government in Singapore has suggested the need to teach people to take more risks. How?
We start with the civil service. There are funds available for innovation. Basically, in the civil service you want them to understand that the growth in future must come from the creation of ideas. Once we understand that, the civil service changes. Where rules impede enterprise in the private sector, we would then cut the rules.
For the present generation, it is difficult to change. Future generations must be more innovative, more enterprising. So in schools we are teaching students now to do project work, to question their teachers. We are very Asian, we never question our teachers. If they do that, then the future generation of Singaporeans will be more self-dependent in acquiring knowledge. This is a long-term programme.
But what comes with that is questioning of authority, of politicians. Might the Singaporean consensus evaporate?
No, if you manage this well, the consensus will come from questioning authority. The authority will not say: ‘I am right and, therefore, you follow me.’ It will say: ‘I believe I am right and here are my reasons.’ So, you question; let’s have a debate – which has already happened in Singapore for many years. When we did all these in the past – and we are still doing it now – we know that politics will become a little more uncomfortable.
Will you allow more press freedom?
There is press freedom but the press understand that we are not the size of the UK. This is Singapore, just a tiny little red dot of about 600 square kilometres in a region that can be very unstable. Practise press freedom but understand the vulnerabilities of Singapore. Can we practise the kind of liberal democracy they have in the US? I think it is difficult because the individuals come first, whereas in our case it is a multi-racial society living in a competitive place. We must make sure society’s interest comes first: there is always the possibility of racial misunderstanding.
Lee Kwan Yew governed Singapore for decades and his son Lee Hsieng Long is due to take over after you. Is this a Lee dynasty?
I have never heard anyone in the world use the phrase “Bush dynasty”. [Deputy Prime Minister] Lee Hsieng Long is an obvious choice, but he has to be elected by party members and he will have to be formally elected by members of Parliament and then he has to win the general election. [When I was appointed ] they used the term “seat warmer”. People believe that, that is a perception, but in the mind of Lee Kwan Yew, myself and his son, I was not a seat warmer. I was elected by my peers. Yes, I am a seat warmer, but I am going to be in this seat until it is so hot that the next person will have difficulty occupying it! [Prime Minister Goh has been in office for more than 13 years].
You have said you are “likely” to step down this year. What next?
I will remain in government. The new prime minister would like me to remain in government. The reason he would like me to remain – the way it was put to me – is I am an asset, so if I stop completely the asset is lost to thegovernment. How many years will it take to amortise you? Depends on the value of the asset! [chuckles]
