The Wall Street Journal
21 Jun 07
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