Tharman Shanmugaratnam, deputy prime minister and minister of finance, Singapore, sees India as an important market and economic partner. Shanmugaratnam, in an interview with N Sundaresha Subramanian, talks about issues of global finance, challenges facing Singapore as it marches into the next level of progress and lessons it can offer fellow Asian societies. He defends the island nation's handling of Little India riots, explains the foreign labour policy and throws light on the speculation about his being in the running for top job at the International Monetary Fund. Edited Excerpts:
In Prime Minister Lee Hsien Loong 's speech in Japan this week on Asia's future, India just gets a passing mention. Where does India and South Asia as an economic unit figure in your scheme of things?
From a Singapore perspective, South Asia is very important. We view India and South Asia broadly as a very important economic partner for Singapore. If you look at the last 10 years, we have grown from a very low base but at tremendous pace. Trade, finance, funding of companies - in every aspect there is growth. Look at the air flights, they tell the story. They are packed. In fact, there is a shortage of flights generally because there is such traffic. South Asia is both an important market and economic partner for us. Whether South Asia within itself can achieve integration largely hinges on political relationships and resolution of some remaining conflicts.
What can the South Asian region learn from Asean's move towards an economic community?
One of the Asean approaches that you can look and study is that it helps to work on building blocks rather than work on destination. If you insist on working on destination nothing moves sometimes. But, you can start working on building blocks, one block at a time and let the building be built up from bottom. That is one of the approaches in Asean we have taken. If we started sometime ago saying we must do Asia Economic Community and achieve this and that, we may not have moved at all.
How prepared is Singapore for the move to AEC next year?
Singapore has been preparing for some years for the Asean Economic Community. We are more or less ready. We don't see 2015 as the end point. It is a continuing journey after that, in particular for services, still more work ahead. The services liberalisations and agreements, including financial services, have been slower than in other areas. There is a lot of work ahead to achieve better cross participation in each other's financials services, whether it is banks or other areas. There is more work ahead even beyond 2015. Even between now and January 1, there is more work that needs to be done on the services side. Singapore is very willing to play its part. We are positive on all the directions that are set up in the services sector, including financial services.
Globally, there is a movement against illegal money and tax evasion. Singapore has also taken several steps. These have been prospective. But, there are concerns that there is not much done on legacy accounts. What is the factual position and the direction of policy in this regard?
We are an open book on this issue. We joined the OECD's efforts to have a exchange of information procedures to allow multilateral exchange of information. We joined without even be pressured to join because we wanted to make clear what we thought all countries should do. We have emphasised two points. One, there has to be a level playing field. Everyone has to move together, especially the major financial centres such as Hong Kong, Switzerland and others have to move to the same rules at the same time. It is important for countries involved in exchange of information to practice rule of law. Otherwise we can't exchange confidential information. We have not been defensive on this issue at all. The legacy accounts issue is a very European issue, involving Switzerland in particular. We don't really have legacy accounts issue in Singapore. No one is talking to us about legacy accounts.
Very importantly, to combat money laundering, Singapore is among best in the world. You have the Financial Action Task Force, the multilateral effort. They scrutinise countries one by one, with multinational teams. Singapore's rating on FATF assessment ranking is among the best. There are still some areas we have to get tightening up laws and enforcement. But, it is relatively well regulated. On this score, it is well known the main conduit for illegal money is not large financial centres like Singapore.
On the Little India incident last year, there is a view among migrant workers that the government used a sledgehammer to kill a housefly. Can you explain what kind of thinking went into this decision?
There is nothing unusual about Singapore's handling of this riot. We have always placed a great premium on law and order, more than some other societies. When offences are committed, there is a process under the law which involves filing charges where the prosecutor feels there is basis to the charge, that involves taking people to court. I don't see anything unusual in this. I certainly don't see it as a sledge hammer to kill an insect. We do what is necessary to preserve law and order in Singapore. We are not embarrassed by it.
Is there any possibility of reviewing the foreign labour quota in the medium to long term?
In 2010 economic strategies committee report, we recommended we don't exceed one-third of labour force over the long term. Of course, year to year, you can go up and down. Construction has a strong cycle. Some years you need more labour and later on there is a correction. But, it is too early to revise the target of one third. It is something the society has to decide over a period of time- how many foreigners you can have in your midst. You can't predict the target well in advance. We had a very good debate on this... the population debate... over a year ago. The conclusion, the prime minister gave a concluding speech... was that we should continue with our policy for now of slowing down significantly the growth of the foreign labour force... not turning off that tap... Then decide later on what should happen after 2020. It is too early decide. It depends on economic structure and our society. We must move in a certain direction. The direction is to reduce significantly our dependence on foreign labour because we have already reached a high level. I think it is a practical approach.
In developing countries like India, the reforms kicked off 20 years ago have resulted in great inequality. The rich are now richer and more powerful and are in a position to disproportionately influence independent democratic institutions such as the executive, judiciary and media, often playing one against the other. How do you think developing societies should deal with this?
This is a very important issue in most societies. When we look at other Asian societies, we think of the problems of corruption that exist quite plainly in many societies, We have to not think it in terms of good societies, bad societies and criticise some for being a bad society. But, we should think of it in evolutionary terms. How can they evolve? Societies can evolve. Singapore evolved for that matter. There are Some lessons we can borrow from each other. Above all, we need political commitment at the highest level and it has to be an unwavering commitment. There are some ways in my opinion, in which the media can play a role by shining light on every possible interstice where you can have corruption taking place. There is a useful role for media.
Media itself is often a target...
Yes, I understand. I know why you are saying this and where you are coming from. But, it is an issue which requires transparency. And, it is an issue that requires political commitment as demonstrated by enforcement actions taken when corruption is discovered. And, enforcement actions cannot just be for minions or very junior officials. It has to apply to senior people It is quite fascinating to see what is happening in china at the scale of enforcement involving senior party figures.
Singapore had a good start in this regard with an incorruptible leadership... that probably helped?
Making it very clear at the start helps. Once you are off on the wrong path, peopLe just accept that this is life. And, it is not life. It should never be accepted. But, it is never too late to stop though.
But, there is too much vested interest on the other side to keep it going...
I understand. I need to study India and other societies much more deeply to give you a thoughtful answer. But, I refuse to abandon hope. I think societies can change because politics can change and everyone has to play a role.
Singapore has progressed significantly over the decades. Where do you see it going from here?
Indeed, Singapore is in a transition. Many Asian countries are going through transition. Even geopolitically , we are in a transition that could last many years. It is in transition in quite a few different dimensions. If you look at in economic terms, we reached a stage where we are upper middle income economy. In terms of skills, capabilities, we have gone beyond a middle income country. Next journey is to become a truly advanced country. In some areas, we are advanced.
In general, we are not fully advanced. That's why average or median wage still lower than some of the advanced countries. We have a truly important journey of becoming an advance country. It is not just about government policy. It has to be lot more intrinsic. There should be desire to be an expert in everything we do. Whatever your job you may be a chef, medical doctor, technician. It has to be a culture and desire to be excellent, even when no one is looking. This is a very important challenge for us. We may or may not succeed.
Countries do not automatically move from low income to middle income. Similarly, moving from upper middle income to advanced is a major task. It is not just economic it's also social. We are beginning to put as much resources as we could. It is not fundamentally about financial resources. It is about how companies are managed. What happens within companies how employees are treated, etc. It is about corporate culture. It is an important transformation worth achieving. It will allow people have higher income in a sustained manner. That's how i describe the broad economic challenge. It's also a social challenge.
Now, a bit on personal transition, are you in race for the IMF top post?
I am an elected politician in a constituency. In some countries the finance minister is appointed. We have British parliamentary system, where you have to be elected by a local constituency. I am a minister because I was elected. I cannot run away from my constituency. I have no intention of leaving my responsibilities in Singapore. I believe I can continue to contribute in our small country (Singapore) towards very important challenges of governance that we face in future. I believe I can play a role as a team member.
