This year marks the 40th anniversary of GIC. In celebration of this milestone, Made of Bold commemorates the founding leaders’ vision of forming an entity dedicated to managing Singapore’s reserves. These bold stories have laid the foundations of GIC’s values and purpose in securing Singapore’s financial future.
These bold stories are from the publication Bold Vision: The Untold Story of Singapore’s Reserves and Its Sovereign Wealth Fund.
A Singular Man
As the economic architect of modern Singapore, Dr Goh Keng Swee wrote many budget speeches and policies. But unbeknownst to many, he was largely responsible for the first chapter of the nation’s bold reserves management story.
After separation, Singapore was keen on establishing a Common Currency arrangement with Malaysia. However, the status of a piece of land at Robinson Road in Singapore became the focal point for dispute, leading the island nation to stand its ground and inevitably resulting in a currency split.
Donning A Straitjacket
Amidst challenging social, political and economic uncertainties, a young nation stood against conventional wisdom and established a currency board system. This decision built confidence in the Singapore dollar in the early days of nation-building.
The Sterling Raj
Singapore was at the mercy of sterling’s fate – it was obliged to hold its reserves in sterling but a devaluation of the pound would mean substantial foreign exchange losses for the small nation. The Sterling episode saw a heated exchange of letters between then-British Chancellor of the Exchequer Roy Jenkins and Dr Goh Keng Swee.
Dr Goh Keng Swee and his team circumvented a US-led embargo to buy gold with an ingenious and clandestine idea of using two halves of a torn dollar bill to verify the identity of the officials involved.
A Productive Interregnum
When MAS was formed in 1971, it started off with a blank canvas – an unheard-of mix of a quasi-central bank and a currency board. The institution was not just permitted to, but tasked to invest for returns and profit, which was a pioneering approach to investing reserves for returns at the time.
Genesis of an Idea
GIC was conceived in just 7 months – from a mere idea in Dr Goh’s mind to the day he issued the press statement to announce the establishment of a new investment company.
Today, GIC may be recognized as one of the top sovereign wealth funds in the world, but its story has a very humble beginning – the company’s first Managing Director began his tenure with only a desk. There was not even a chair, until he found one in an unused room.
Yong Pung How had a dilemma on his hands. He had checked in at the Hyde Park Hotel in London together with his boss, Dr Goh Keng Swee, then First Deputy Prime Minister and Education Minister. Yong, only recently appointed the Managing Director of a new investment company established to manage Singapore’s external reserves, knew Dr Goh as a man with “a formidable reputation for scolding and firing people”.
The hotel gave them adjacent rooms, Dr Goh a large spacious room, the “biggest in the hotel” , and Yong a smaller room, a “tiny, tiny room” by comparison. After the porters had brought their bags up and placed them in the respective rooms, Yong took a walk around the hotel to get his bearings.
When he returned, he found Dr Goh’s bag in his room, while his bags were missing. Wondering what had happened, he walked into Dr Goh’s room, and found his own bags there.
The great man was at the desk working on his papers. He looked up as Yong came in and announced that he would be taking over Yong’s room, and Yong could have his grander quarters. Yong protested but to no avail. The frugal Dr Goh – he famously washed his own undergarments when travelling – said he preferred smaller rooms.
Scrambling to avert an awkward breach in protocol, Yong, a future Chief Justice of Singapore, told Dr Goh that the rooms had been assigned on the advice of the British security service. While Dr Goh’s room was positioned such that security officers could keep it under surveillance, Yong’s overlooked a park adjoining the hotel and the security service could not vouch for its safety. Yong’s explanation was probably apocryphal but it worked. Mumbling under his breath, Dr Goh reluctantly agreed to return to his own room.
The incident over, the two men began discussing the business schedule ahead. They were on the first leg of a mission to recruit experienced fund managers for their new investment company. As it turned out, they did not find any suitable candidates in London.
They were more successful in New York, where they found three American fund managers willing to leave established investment houses to join a company in Southeast Asia that was then little more than a shell.
The statement was matter-of-fact, even prosaic, but the idea it expressed was far-sighted, original and bold-far-sighted because it foresaw that Singapore would have chronic balance of payments surpluses for years to come; original because it broke with the convention of vesting reserves management solely in the central bank; and bold because it conveyed confidence that Singapore would be able to overcome the then-lack of local expertise in global investment management.
The far-sighted, original and bold shell was soon named the Government of Singapore Investment Corporation, or GIC, as everyone soon learned to call it. Nobody could have predicted then, when the very concept of a Sovereign Wealth Fund (SWF) did not exist, that GIC would one day grow into one of the world’s largest SWFs.
The genesis and development of GIC, however, is but part of a larger narrative of how Singapore has managed its reserves since it gained its independence in 1965.
This book is the story of how Singapore’s foreign reserves have been managed for the benefit of Singaporeans over the decades. And as with so many other chapters in the Singapore Story, this story too begins with a singular man: Dr Goh Keng Swee.
Today, those foundations are still firm – testimony, if any is needed, that this was a colossus built by Singapore's founding fathers, meant to last the ages.
Singaporeans have jobs today in part because Dr Goh laid the foundations for industrial development in the early 1960s. Their savings are secure and the purchasing power of the Singapore dollar has risen over the decades in part because Dr Goh eschewed deficit financing, refused to allow the central bank to issue currency and insisted on a well-regulated financial sector. They enjoy security in part because Dr Goh helped build up the Singapore Armed Forces into the formidable fighting force that it is today. And Singapore is an independent, sovereign state in part because Dr Goh was the first among the founding fathers to realise that merger with Malaysia was a tragic error, and proceeded to negotiate a separation agreement with the Malaysian government.
Economic development, finance, defence and towards the end of his years in public office, education: there was hardly a field in government that Dr Goh did not touch and transform. Just a brief list of the alphabet soup of agencies and institutions he either founded or inspired would give one an idea of how much Singaporeans owe to him: SAF, EDB, MAS, Temasek, DBS, JTC, Sembawang Corp, Keppel Corp, Singapore Technologies, NTUC Income – not to mention the SSO, Sentosa, East Asia Institute, ISEAS and, of course, Jurong Bird Park.
Photo: Official opening of Jurong Bird Park
He founded the last in part because “birds, unlike predator animals like tigers and leopards, do not eat much and impose no strain on the nation’s food supply” , he explained sardonically.
GIC was another among the institutions Dr Goh founded – the result, like the bird park, of his diligent husbandry, only this time of the public purse. In fact, Dr Goh’s management of the reserves began long before the creation of GIC and spanned almost his entire career in public office.
In 1959, when he became self-governing Singapore’s first Finance Minister, he turned a projected budget deficit of $14 million into a surplus of $1 million by slashing spending, including the pay of civil servants and ministers. Thus began a regime of fiscal rectitude that has characterised Singapore’s fiscal policy to this day.
In August 1965, when Singapore separated from Malaysia, Dr Goh became the country’s first minister of the interior and defence ministry But in August 1967, he returned to finance and again took an active role in reserves management, creating in the finance ministry a new unit – the Department of Overseas Investments (DOI), which was in many ways the prototype of GIC.
Before he returned to Defence in August 1970, Dr Goh also laid the foundation for the formation of MAS, which began operations in 1971, when Hon Sui Sen was finance minister . The DOI was subsumed into MAS, forming the nucleus of what eventually came to be known as the central bank’s International Department.
MAS had the challenging task of managing the reserves in the 1970s, a tumultuous era that witnessed the collapse of the Bretton Woods system of fixed exchange rates, two oil price shocks and global stagflation. Its International Department developed expertise in currency and gold management and the shorter end of the fixed income markets.
But central banking and reserves management make for uncomfortable bedfellows. While central banks seek macroeconomic and financial stability, investment management entities strive to exploit the opportunities arising from economic and financial volatility. Moreover, the international central banking community is a secretive, exclusive club, which tends to frown upon any central bank that makes trading gains in international financial markets. Then, there is the inherent tension between keeping reserves liquid so as to manage the exchange rate, and using the reserves to generate higher returns. For all these reasons, it became apparent by the end of the 1970s that MAS was not the best entity to manage the country’s foreign reserves to achieve long-term returns.
And again, it was Dr Goh who was instrumental in arriving at that recognition. Appointed chairman of MAS in 1980, he was charged by then-prime minister Lee Kuan Yew to assess how the institution he had helped found had developed over the past 10 years. That assignment had two far-reaching consequences: one, a revamped MAS, more sharply focused on the two essential functions of central banking monetary policy and bank supervision; the other, the creation of GIC.
Dr Goh persuaded Lee to become GIC’s Chairman, while he himself became its deputy chairman. In 1985, after he retired from politics and relinquished the chairmanship of MAS, which by law had to be held by a cabinet minister, he was appointed deputy chairman of MAS. He relinquished his MAS position in 1992 and his GIC post in 1994.
It has been decades since Dr Goh ceased playing a role in reserves management, but his influence on its philosophy and practice in Singapore continues. To begin with, there is the profound impact he had on a number of individuals who played or continue to play critical roles in reserves management, from the pioneer batch of senior civil servants like Chua Kim Yeow, Sim Kee Boon, J. Y. Pillay and Ngiam Tong Dow, to the next generation of officers like Elizabeth Sam at MAS, and Ng Kok Song and Teh Kok Peng at GIC, to an even younger generation of officers, many of whom now occupy senior management positions at MAS and GIC.
In addition, a number of senior politicians who are still involved in reserves management – from S. Dhanabalan, former cabinet minister, to Lee Hsien Loong, now prime minister, and Tharman Shanmugaratnam, now senior minister and coordinating minister for social policies – worked with Dr Goh in their formative years in public service. There is in effect a Goh Keng Swee school among officials who served in government from 1959 to the mid-1990s, and they in turn have transmitted his legacy to others.
Finally, Dr Goh’s indelible imprint on reserves management in Singapore is encapsulated in GIC itself, the product in many respects of his search through the years for more professional, focused and dedicated ways of managing the reserves.