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Like so many chapters in the Singapore Story, the tale of how Singapore managed its reserves begins with a singular man, Dr Goh Keng Swee. He shaped its evolution; the culture, people and institutions. The founding of GIC is a testament to his genius to propose unique solutions for Singapore, and to his relentless effort to safeguard and grow our reserves.

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”.

Straits Times: Pung How gets top govt job

Straits Times: Pung How gets top government job

Mr Yong Pung How was born in 1926 and is a former chief justice of Singapore. Prior to his judicial career, Mr Yong was the chairman and chief executive officer of OCBC Bank. He held numerous public appointments including those with GIC, Monetary Authority of Singapore and Singapore Broadcasting Corporation. As the country’s top judge, Mr Yong introduced a slew of reforms, transforming Singapore’s judiciary into a world-class legal system.

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.

Straits Times: Pung How gets top govt job

Business Times: Government forms investment arm

Indeed, the shell had come into existence only recently, three months after 27 February 1981, when Dr Goh, then also Chairman of MAS, had issued a statement announcing that the Government would set up an investment corporation. This corporation would invest the foreign reserves that were in excess to what the MAS, the country’s de facto central bank, needed to manage the exchange rate, the statement explained. While MAS would keep its own foreign reserves liquid, the new company would be free of liquidity constraints and would thus be able to invest in long-term assets with a view to capital appreciation.
While MAS would keep its own foreign reserves liquid, the new company would be free of liquidity constraints.

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.

Dr. Goh Keng Swee
Born in 1918, Dr Goh Keng Swee has often been referred to as the “economic architect” of Singapore for his contributions towards developing Singapore into a prosperous nation in his capacity as minister for finance and defence. Dr Goh held several other key appointments, including deputy prime minister, minister for education as well as chairman of the Monetary Authority of Singapore (MAS) and various government-led companies.
Letter of Appreciation from Prime Minister Lee Kuan Yew to Dr. Goh Keng Swee

Letter of Appreciation from Prime Minister Lee Kuan Yew to Dr Goh Keng Swee

“A whole generation of Singaporeans takes their present standard of living for granted because you had laid the foundations of the economy of modern Singapore”, wrote Lee Kuan Yew to his closest comrade and “alter ego” Dr Goh, when the latter stepped down from the Cabinet in 1984.

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.

Official opening of Jurong Bird Park

Photo: Official opening of Jurong Bird Park

Speech by Dr Goh Keng Swee at opening of Jurong Bird Park

Press Statement: Speech by Dr Goh Keng Swee at 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.

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.

Explore more BOLD stories:

Prologue: Bold is driven by purpose
Chapter 1: Bold writes its own stories
Chapter 2: Bold stands its ground
Chapter 3: Bold sees true value
Chapter 4: Bold resists external pressure
Chapter 5: Bold breaks convention
Chapter 6: Bold loves a blank canvas
Chapter 7: Bold walks the talk
Chapter 8: Bold makes something out of nothing
Epilogue: Bold stands the test of time
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