Scrutinizing Singapore, Commentary, Wall Street Journal
by Garry Rodan
June 21, 2007

Singapore’s state-owned investment companies — Temasek and the Government of Singapore Investment Corporation (GIC) — have long been information black holes for outsiders. But that hasn’t stopped many governments, including those in China and Malaysia, from copying the Singaporean model. As these funds expand in size and scope, they may want to pay close attention to a lesson that Singapore is learning: You can’t export opacity even if you can maintain it at home.

Take the experience of Temasek, which for over three decades has acted as a holding company for Singapore’s state-owned companies. But as it expanded, Temasek started to invest heavily in neighboring countries, such as Indonesia and Malaysia. This process gathered momentum following the 1997-98 Asian financial crisis when there were bargains to be had in the region — often involving politically sensitive sectors such as telecommunications and finance, hitherto dominated by locals. However, until recently, poorly developed governance regimes in such countries meant little scrutiny of these investments.

No more. Last month, Indonesia’s Business Competition Supervisory Commission declared it had uncovered prima facie evidence of monopoly practices by Temasek in the telecom industry. Temasek owns 56% of the SingTel Group, which in turn holds a 35% stake in Telkomsel, an Indonesian cellular telecommunications company. Singapore Technologies Telemedia, wholly owned by Temasek, also has a 41% share in Indosat. Together, Telekomsel and Indosat account for around 80% of the GSM cellular phone market in Indonesia.

Commission chairman Muhammad Iqbal says the watchdog has already discovered “signs of a lack of competition between Telkomsel and Indosat,” including comparable prices for mobile phone products. The University of Indonesia’s Institute for Economic and Social Research reported findings in late May suggesting price fixing between Telkomsel and Indosat. Shortly afterward, the Post and Telecommunications Directorate General announced its own investigation. Responding to the announcement by Indonesian authorities earlier this month that the probe into Temasek would now enter an advanced stage — meaning a hearing and three months’ further investigation — Temasek’s lawyer, Todung Mulya Lubis, asserted that the “claims and complaint filed against Temasek are totally without merit.”

Temasek is not accustomed at home to critical attention by university research centers, let alone such work being followed up by regulatory authorities. Not only are Singapore universities less inclined to probe the inner workings of state companies, but regulation of anti-competitive practices is a work in progress in the city-state. The Competition Act didn’t come into effect until 2005, following the signing of the U.S.-Singapore Free Trade Agreement and American persistence on competition and transparency issues aimed squarely at monopolies and cartels.

Then there’s Temasek’s January 2006 deal with Shin Corp. — the family company of Thailand’s former Prime Minister Thaksin Shinawatra — which by most accounts has been a disaster. In addition to a current investigation by Thai authorities into alleged foreign investment law violations that Temasek rejects, the deal precipitated widespread anti-Temasek and anti-Singapore street protests in Thailand, soured relations between the two countries and prompted the post-Thaksin junta to announce that it would seek to regain control from Temasek of ShinSat’s satellites, which it regards as having national security implications. On top of that, the deal represents a paper loss of around $2 billion in the wake of the nosedive in Shin Corp. share prices following the coup. It remains to be seen whether Temasek can ride through the political and regulatory storms in Thailand to return a profit in the long term.

These international episodes are starting to succeed, at least a little, where domestic political pressures have failed in enhancing transparency. In 2004, Temasek voluntarily produced its first annual report since it was incorporated in 1974, and has continued doing so since. The International Monetary Fund applauded this improvement, but also called for the Singaporean government to provide more information about the activities of Temasek and GIC, whose assets and liabilities are audited but reported only to the President and the Ministry of Finance. GIC Chairman Minister Mentor Lee Kuan Yew has repeatedly scotched ideas to detail publicly the assets and financial returns of the GIC — established in 1981 to invest Singapore’s foreign exchange reserves abroad. Doing so, he’s said, is not in the national interest. The standard reply prescribed for Temasek officials in response to questions about government involvement in business is: “The Singapore government, as a shareholder, is not involved in our investment decisions, much less in the businesses of our portfolio companies.”

Behind the highly selective concessions to greater transparency reform lies a fundamental issue with wide implications, not least for what we can expect of China’s new investment fund, reported to be many times larger than Temasek. While the Singapore government can be pragmatic in providing information where it sees economic benefits, it rejects the notion that Singaporeans have intrinsic rights to detailed information about how public money is invested. Transparency to improve the economy is one thing. Transparency grounded in notions of Singaporeans’ right to know and as a way of holding political elites and those acting under their administration to account is another.

Yet the value of information that does get released on economic grounds will remain limited without other domestic institutional changes rooted in respect for the public’s right to know. In the absence of strong and independent domestic media, well-resourced civil society watchdog groups and opposition parties with a strong presence in parliament, there is no capacity by the public to scrutinize official information, let alone the chance of exerting pressure to enforce the release of further information than authorities originally intended.

Without mutually reinforcing institutions of economic and political transparency at home, then, there is a serious limit to what governance regimes abroad can achieve in opening up state-owned investment funds. Therefore, while China’s new fund will find that global expansion comes with new information pressures, this might only steel the resolve of Chinese authorities to keep domestic transparency reforms within tight limits. Certainly that is the Singapore experience thus far.

Mr. Rodan is director of the Asia Research Centre and professor of politics and international studies at Murdoch University in Perth, Australia.


The Singapore Model, Wall Street Journal
June 27, 2007

In “Scrutinizing Singapore” (oped page, June 21), Garry Rodan condemns Singapore’s model of state-owned companies as “information black holes.”

Mr. Rodan criticizes the investments in Indosat and Shin Corp, and claims that international regulatory scrutiny of them has put pressure on Temasek Holdings to be more open. But these are commercial transactions, like all investments by Temasek Holdings and its subsidiaries, made after weighing the risk-return trade-offs, in compliance with the laws of the host countries and the disclosure requirements of the relevant stock exchanges. Temasek Holdings itself publishes an annual review of its performance, as Mr. Rodan admitted, maintains AAA/Aaa ratings from credit rating agencies like Standard & Poor’s and Moody’s, and has issued an international bond. It did not do so by being inefficient and non-transparent.

As for funds managed by the Government of Singapore Investment Corporation (GIC), it is not in Singapore’s interest to publish the details or reveal their size, as this would make it easier for would-be currency speculators to attack the Singapore dollar. However, GIC has published its average annual return over 25 years — 8.2% in Singapore dollars or 5.3% in real terms (discounting for G3 inflation), a creditable performance by any standard.

More fundamentally, Mr. Rodan argues that information released on economic grounds is of limited value, and that Singapore needs independent media, strong civil society watchdog groups and opposition parties to hold the government accountable, as does China. How Singapore is governed is for Singaporeans to decide. Our model has consistently delivered results, and been repeatedly endorsed by Singapore voters, to whom the government is fully accountable. Each country is different and has to work out institutions adapted to its own circumstances and needs. Singapore has found successful solutions for itself, and so must China. Mr. Rodan’s ill-founded criticisms of the Singapore model will not cause China to develop one more to his liking.

Chen Hwai Liang
Press Secretary to the
Prime Minister

Mr. Rodan’s right to express his opinion should not be at the expense of accuracy and completeness, specifically his insinuations that ST Telemedia bought Indosat shares at a bargain price during the Asian financial crisis, and Indosat and Telkomsel’s combined market share represents evidence of monopolistic practices by their respective shareholders. As a company that holds itself to the highest standard of business ethics and integrity, we take such fallacious statements seriously and our clarifications are as follows:

The Indosat divestment happened in 2002 amidst a bleak economic outlook and low investor confidence in Indonesia. Indosat was faced with heavy debt and mediocre credit rating with restricted fund raising capability. Investor confidence was worsened by the Bali bombing in October 2002. Despite this, ST Telemedia continued to demonstrate confidence in the Indonesian economy. Our Indosat acquisition, which took place under the close scrutiny of Indonesia’s Secretary-General of the Ministry of Finance, the Director-General of the Ministry of Posts and Telecommunications, and representatives of the International Monetary Fund and World Bank, was the largest investment in Indonesia since the Asian financial crisis. The acquisition was approved by the relevant government authorities, including the Minister for Law and Human Rights, and the Indonesian People’s Representative Council (DPR), and Indosat’s shareholders (including the Indonesian government) at its EGM. ST Telemedia paid more than 50% premium over the market price at that time. In the immediate 6-month period following the divestment, Indosat’s share price plunged and our purchase price of 12,950 rupiah per share was not attained until almost 12 months later.

ST Telemedia and SingTel are separate companies. Although Temasek is a shareholder of the two companies, it does not direct nor involve themselves in the business or operational decisions of ST Telemedia or Indosat. ST Telemedia has our own management team and Board members, of which seven out of nine are independent Board members who are highly respected individuals from the international business community. They include Sir Michael Perry, Unilever’s former CEO and Chairman and UK Centrica’s Chairman; Justin Lilley, a prominent U.S. lawyer; and Vincent Perez, a businessman and former cabinet minister in the Philippines. None of ST Telemedia’s board of directors and management are directors or employees of SingTel, Telkom or Telkomsel.

StarHub, an ST Telemedia company, and SingTel compete fiercely and publicly on many fronts in the Singapore market. The two companies were also embroiled in numerous disputes and litigations on issues such as network testing support, interconnection and pay TV cabling.

Indosat and Telkomsel are separate companies. The Indonesian market is increasingly competitive with the entry of numerous new operators. ST Telemedia is a firm advocate of open competition and good corporate governance. Indosat has its own board of commissioners and board of directors who are responsible and accountable to all its shareholders.

Mr. Rodan failed to point out that publicly listed SingTel owns 35% of Telkomsel and the majority shares of 65% are held by publicly listed Telkom, which is in turn majority held by the Indonesian government. It is therefore inconceivable that the largest shareholder of Telkomsel, ie. Telkom, would abdicate its responsibilities by allowing Telkomsel to violate the regulations on fair competition.

Asia Mobile Holdings (AMH) owns about 40% of Indosat shares. AMH is held 75% by ST Telemedia and 25% by Qatar Telecom, one of the largest telecom operators in the Middle East. The remaining 60% of Indosat shares are held by the Indonesian government (with about 14%) and retail and global institutional investors (with about 46%). As a company that operates in Indonesia and is listed on the Jakarta, Surabaya and New York Stock Exchanges, Indosat must comply with Indonesia’s company laws and the exchanges’ strict regulations, including corporate governance and transparency, especially with regards to minority shareholders rights. The management of Indosat’s operation is through the Board of Commissioners and the Board of Directors. ST Telemedia is not involved in Indosat’s operational matters. Indosat’s regulatory obligations and board compositions provide sufficient checks and controls to ensure that the company adheres to strict corporate governance.

Thus, the fact that the two telecoms companies’ combined mobile market share of around 80% is an unfounded correlation to Indonesia’s Business Competition Supervisory Commission (KPPU) allegation, as Indosat’s internal and external safeguards would not allow collusive activities, including price fixing and monopoly of the GSM market, to occur with Telkomsel.

Melinda Tan
Director, Corporate Communications
Singapore Technologies Telemedia