PM Lee Hsien Loong at the interview with US Television Journalist Charlie Rose (Apr 2010)

Mr Charlie Rose, US television journalist: Singapore Prime Minister Lee Hsien Loong is here. He is in the United States this week for the nuclear security summit and for meetings with American officials, including the Secretary of State. He’s been Prime Minister since 2004. He is only the city-state’s third Prime Minister. He is the son of Lee Kuan Yew,Singapore’s founding father. I am pleased to have him back on this broadcast with me while he is making this visit to Washington:

Tell me what you think was accomplished at this summit of 46 nations?

PM Lee Hsien Loong: I think President Obama did the world a service. This is an issue, nuclear security and nuclear terrorism which is important but not urgent. It is not something which we have to solve overnight but it’s a problem which is a real problem and if we don’t do something about it, sometime, some place, something disastrous will happen. He managed to get many leaders together, focus their minds, put on the table what they are able to do, what they are planning to do further to secure the nuclear materials, transit and trade and smuggling of these materials and commit to take further steps together to make the world a safer place.

Mr Rose: Over the next four years, the goal is to make sure that they know where all the nuclear weapons are, they can make sure that they’re safe and not likely to fall in the hands of terrorists?

PM Lee: The nuclear weapons, the loose nukes are the first problem because if I were a terrorist, that is the first thing I would look for. But even short of the loose nukes, if you can find highly enriched uranium, you might find some people smart enough to put that together into a bomb. That’s enough information on the Internet to make a good stab at it.

Mr Rose: How much of the topic here was about Iran or was it only among certain nations?

PM Lee: I am sure the key players the P5 plus 1, that means the permanent members of the UN Security Council plus Germany, were discussing it. I know they were. It is a sub text. We did not explicitly discussIran but obviously Iran is one of the concerns and they were not at the meeting. But if they have this capability, either to make the weapons or to make the materials, then there are implications for proliferation and for nuclear security.

Mr Rose: Give me your assessment if you will of President Obama’s global leadership at this time? He came here, had the healthcare success in America, he came here after a deal, he came to the summit, with the Russians and now this summit. Is he becoming beyond the fact that he represents America, an important player?

PM Lee: America is always an important player and the President is always a key person and right now President Obama has inherited a full plate globally, Iran, which was mentioned, Iraq which is sort of on the mend but I think it would be a concern for some time to come, Afghanistan which is a long way from being done, North Korea, relations with China, relations with Russia, Israel-Palestine and amidst all this busy programme, we hope that he has some mind share and some focus to pay attention to Southeast Asia and a little bit to Singapore.

Mr Rose: What do you feel? That he is doing that?

PM Lee: I think he is doing a good job of that. He came to the Apec meeting which we hosted in Singapore last year. He held the first ever meeting of the US President’s summit with all 10 of the Asean leaders, including Myanmar and it was a good meeting. All 10 welcomed the meeting and welcomed America’s engagement in the region and that’s saying something.

Mr Rose: China, especially today and its relevance to this certainly with respect to Iran, where do you see China and its role in the world and China in its relationship with the United States?

PM Lee: I think China’s relationship with the US is crucial. It’s the most important bilateral relation in the world now and both sides have a big stake in making sure it turns out right and not turn itself sour because you have trade, your interdependence, your mutual security interests. Of course there are issues where you rub against one another, human rights or Google or whatever. But both sides have a greater stake in keeping it right than letting it go wrong and in Asia we particularly don’t want to have to choose sides between China and the US. We want to be friends with both. There are a lot of opportunities in China. China is making a big effort to win friends all over the region and doing well at this but at the same time, all the countries in the region know that America plays an indispensable role and we’d like America to continue to do that.

Mr Rose: Are there things that America should be doing to make better its relationship with the region, China but also Singapore?

PM Lee: Attention is of course one thing. If your mind is focused, many possible good ideas will come along but one major area is trade. Our trade in Asia with China is growing rapidly, all your major allies in Asia except perhaps the Philippines have China as their number one or number two trading partner. So if you want to be at the table, you want to enhance this relationship and talk about security and political relations, you must have economic relations and you must take an active trade agenda and that means promoting free trade, that means pushing for America to be present in the region and your companies and opening American markets and enhancing the relationship.

Mr Rose: With respect to American companies, my impression is they have a huge presence in Asia and in Singapore?

PM Lee: But it’s an economy which is growing and there are many more possibilities.

Mr Rose: So they should do more?

PM Lee: I think there are many possibilities for them to do more, both to exploit the markets which are in Asia and also to be based in Asia to produce for the world. A lot of China’s trade surpluses with America are American companies based in China manufacturing and selling back to America.

Mr Rose: There is also the issue of currency. Everybody wants China to change its currency, let it rise. Do you, do you believe they should? Are you prepared to urge them to do that?

PM Lee: I think the position which they took before the crisis to let the currency float up, actually rise up gradually in a managed sort of way was the right thing to do in the circumstances. They are running a trade surplus, their exports are booming. If they allow their currency to rise, it may raise their costs some but it will at the same time diminish some of the inflationary pressures within their country and it’s part of the adjustment as you become more productive and as your standards of living go up. They shifted to a more conservative position over the last two years and fixed to the US dollar. It caused a lot of angst.”

Mr Rose: And helped their exports?

PM Lee: Yes, temporarily but after a while it causes overheating in the economy. I think in this situation really they should revert to where they were before the crisis and allow the yuan to go up gently again.

Mr Rose: New York Times has an editorial today reflecting I think what many people believe is that a number of nations ought to come to China and say that so that it doesn’t look like one nation is trying to pressure them?

PM Lee: I think many people have made the point to them and they have to make their own calculations and when they do it, they will do it for their own reasons.

Mr Rose: You know the Chinese mind, where do you think they see it because people say they do not want the West, especially, to pressure them.

PM Lee: I do not think it is just the Chinese. No country wants to be pressured. You ask Benjamin Netanyahu or any other leader whom you have had dealings with. You have to have a certain courtesy and respect and restraint. But countries have to make calculations in their own interests and America has many ways to influence their calculations.

Mr Rose: Has President Obama set the country on a new course as far as you observe because you have been Prime Minister since 2004?

PM Lee: I think he set a new tone. His instincts are different. His personal style and strengths are different set of strengths from President George W Bush’s.

Mr Rose: How is his instinct different?

PM Lee: I think he is much more prepared to start from talking with his allies rather than starting from deciding where America wants to go and then bring along a posse of the willing. It doesn’t solve all problems but it’s a refreshing new approach which I think has improved America’s image in a lot of the world, including the Muslim world.

Mr Rose: How does that make a difference to America’s image?

PM Lee: It doesn’t solve the Israel-Palestine problem but it’s one of the ingredients which America must deploy when you’re trying to tackle these very difficult issues. The issues will be there for a long time to come. You would not clear them all within even two presidential terms but you are now in a world where America is a superpower but you are interdependent and you have to work with other countries to make things happen, which is what I think Obama did with his nuclear security summit.

Mr Rose: And with Russia?

PM Lee: Indeed.

Mr Rose: Was the United States hurt in terms of its relationship with China because of the sale of aircraft toTaiwan and receiving the Dalai Lama?

PM Lee: You have to do what you have to do. These are not issues which you could expect to be received with acclaim in Beijing but you have to make your own calculations and decide what is in the long term interests and what your relationship with China can wear. You have a reputation to hold up, you must be seen as a reliable friend but at the same time you must also be a friend of your allies. But at the same time, you must know which are the issues which are red lines and if you want to cross them, do not do so without thinking about it.

Mr Rose: What the consequences are?

PM Lee: Yes.

Mr Rose: China came to the summit and people were pleased by that because there was a feeling right before that they were being more aggressive and in a sense less friendly to the United States?

PM Lee: I think they are trying to calibrate their position because having emerged in the world and become economically much more powerful than before and influential with friends and connections all over the world, Deng Xiaoping’s old dictum to hide your light under a bushel and go quietly into the world, it still applies but they are trying to figure out how to apply it.

Mr Rose: Because their light is so much brighter today?

PM Lee: Because now when they move they can no longer just move as a small country, it affects the whole system and you have to decide how to trade off your interests, maximizing for yourself versus the interests of the whole system and your long term requirement to be a constructive player in the world system, which is what America has done since the Second World War. You were at one time the enormously pre-eminent superpower but there was a restraint, there was a goodwill, there was a generosity of spirit and so after 60, 70 years in Asia, people still say America plays an indispensable role, please stay. I think that is something which if the Chinese could achieve, it would be quite something, if the Chinese could achieve that kind of acceptance of their place in the world.

Mr Rose: So that people around the world in Latin America and Africa …

PM Lee: They are going to be powerful right but they are not going to be this middle kingdom because the world is not like that anymore. However powerful you are, you need friends, you need allies, you need a peaceful world environment in which they can operate, and they can concentrate on growth and development and improving the lives of their people. That requires you to take a long-term perspective and not try to maximize on every single issue, however difficult it is.

Mr Rose: For China or the United States or both?

PM Lee: For both. I’m saying America has been able to do this by and large over a long time and China, now emerging, I think is having to recalibrate its position in order to take this hitherto totally alien considerations into account. They never had to think this because previously their share in world trade was small, their impact on world affairs was not significant. They could do whatever they wanted whilst it is a closed kingdom. But now you can not.

Mr Rose: What do you think they will do on Iran?

PM Lee: They are discussing that among the P5 now. I believe President Hu had a good discussion with Obama on Monday on that.

Mr Rose: Your impression of that is it was a very good meeting?

PM Lee: From what the administration people have told us, the US side was happy with it and felt there was progress. But their calculation will be a little different from your calculation. You are very seized with the issue of Iran becoming a nuclear power and the implications strategically in the Middle East and worldwide?

Mr Rose: Do you agree with that?

PM Lee: Yes I agree with that.

Mr Rose: Does China agree with that you think?

PM Lee: I think the Chinese intellectually agree with that but they will at the same time calculate firstly their reliance on Iranian oil, secondly their overall relationship with America and other critical issues to them, and then try and decide how this fits into the overall system of their foreign affairs.

Mr Rose: China is also experiencing at each leadership level, each time they have a next leadership decade, they seem to be different. Give us a sense because you represent that in Singapore, how the upcoming generation of Chinese leaders and other Asian leaders are different from those they succeeded?

PM Lee: This current generation, the generation before this, experienced the Second World War and the Japanese invasion and occupation of China. It was an indelible impression for them and they experienced the revolution as the communists took over China and the first really exhilarating years when they built the Great Hall of the People in 12 months and the whole Tiananmen in 18 months and just a tremendous sense of China standing up again. The current generation of leaders experienced the Cultural Revolution. They know what a mess China can be if it is mismanaged and how important it is that China gets its act together, what challenges China faces internally and how important it is for China to grow and improve the lives of its people and to continue to do this for another generation at least. The next group of leaders will be post Cultural Revolution. They will have grown up in 30 years of reform and opening up. They would have live in a China which is connected to the Internet, with people who are much better informed with what is going on in the world, where interests are expressed, where there will be tensions between different parts of China and they have to run this whole system not as a central system but with a market economy and with a coherent political framework on top of that and I think they’ll have a big challenge.

Mr Rose: What is it they see as a system that they would like to have? Is it evolving away from the system that Mao had, clearly it has in terms of its economy but overall is that an evolution you believe is inevitable for China?

PM Lee: I think it will evolve. I do not think they will ever have presidential elections every fourth year like you do. It will have to evolve and it is happening slowly, maybe slower than it ought to but they are extremely cautious about destabilizing the system.

Mr Rose: What are they worried about?

PM Lee: Instability. They have one Chinese word for it, ”Luan” (Mandarin) which is disorder. They have seen the Cultural Revolution and they do not want to go back and they have seen Tiananmen and they saw Falun Gong who appeared as a flash mob one day in front of their inner sanctum. That was the first they ever heard of Falun Gong and that scared the daylights out of them. That’s how they discovered it existed.

Mr Rose: Is that a threat to them?

PM Lee: When they discovered who was in the Falun Gong and how many of their senior officials had joined this secret group, they were really shaken. They are concerned about disorder but at the same time, I think they know that they have to allow for people to be engaged in this system and to make able Chinese feel that this is a system which reflects their interests and their aspirations and which they have some say over. You may not vote for the President but if you are a person with ideas and whose views are relevant, they ought to carry weight and should be expressed somewhere in your system, in your policies and outcomes. I think they know that. How to get there? I do not think they’ve worked it out and they are moving only quite slowly.

Mr Rose: Because they have not really worked it out. Do they want to be part of the existing international system?

PM Lee: Yes, but they would like to have their share of their sunshine which is reasonable but how do they get their share and compared to where they were and what is the transition like, that’s something which has to be managed quite subtly.

Mr Rose: How would you define their share of the sunshine?

PM Lee: They will tell you that they have 1,300 million people and each one is entitled to so many kilograms of carbon dioxide.

Mr Rose: Your are right. They do say. That is right. They say to you we have 1.3 billion and the world has six billion, figure it out.

PM Lee: They know they are not there because they will also tell you that their per capita income is very low, that there are many people below the poverty line, that their agriculture is abysmal by global standards of productivity and that they have to make major transformations even to get to a modest middle income level. Their thoughtful leaders have that prominently in their minds and therefore are quite cautious about over-asserting their arrival. But not all young people are quite as careful about it.

Mr Rose: Your father told me once that Deng Xiaoping came and was appreciative of what was happening inSingapore and he sent some people from China?

PM Lee: Many.

Mr Rose: To observe. He said we want to do that, how do we do that? Where are they, what are they looking at now to say we want to do that?

PM Lee: They look at many things. They came, they looked at our schools. They looked at our water conservation, they looked at the way we recycle waste water and turn that into Newater which we can use again for industrial and drinking purposes indirectly. They looked at the way we manage our financial system. They look at the way we manage our housing, they look at our healthcare system. They are interested in many of the pieces we are doing but most of all they want to know how do you run a system where the government can have legitimacy and there is order and there is continuity over a long period of time and the system works and it is incorrupt and there’s accountability and that is a secret which they think is a secret. In fact they can see how we do it but to be able to translate what we do, three million people in a tiny little island to 1,300 million people, one quarter of humanity, that is not so easy, which is not to say they have not learnt. But it means what we do in Singapore, it is a model they can look at and it is very interesting but they have to work it out how they make their own model in China.

Mr Rose: Are they becoming creative, innovative, lest as we used to have this image of China as being more sort of …?

PM Lee: They are not like that at all. If you visit you will see it is a very diverse, very vibrant place, many arguments and debates, very open discussion of many issues except for a few taboo areas, Communist Party, Taiwan, Tibet, now Xingjian.

Mr Rose: But politics, it is…?

PM Lee: Other aspects of politics would be discussable.

Mr Rose: What’s not discussable?

PM Lee: What’s not discussable is that the Communist Party is ruling China.

Mr Rose: Any dissent from that is not allowed?

PM Lee: That’s not allowed.

Mr Rose: That’s a giant insecurity, isn’t it?

PM Lee: Yes.

Mr Rose: How do you explain Google?

PM Lee: Google operated in China, then they decided to move. I mean one of the founders…

Mr Rose: They decided to move because they refused to censor any more?

PM Lee: Because one of the founders changed his mind. Brin to start off was not keen but allowed himself to be persuaded. After they got hacked, he persuaded the other people in Google and particularly Eric Schmidt and they moved to Hong Kong. Practically nothing has happened because you can still get Google in China except now it is censored by the Chinese rather than by Google. What is the difference? Google is still in China. Their web search is not in China but their R&D is still in China, their business interest is still in China, so in fact it is really from our point of view, it is not helpful to their image but it is not earth-shaking.

Mr Rose: On the other hand some people are applauding Google for standing up, for Sergey Brin saying I do not want to be a part of this but you do not agree with it?

PM Lee: He had to make a decision. These are decisions Google had to make. They were on an edge, a small thing happened which made them tip a different way.

Mr Rose: What should we learn from the Chinese experience, what should Singapore learn since the day you are learning from your experience and perhaps from other experiences?

PM Lee: I think firstly that sense of drive and desire that tomorrow must be much better. It is overwhelming. If you talk to the Chinese whether they are business people, whether they are bureaucrats, whether they are young people in schools, their drive to make tomorrow better is tremendous and that willingness to explore and examine alternatives, what should we change, what should our system be, how should we make our healthcare work, or our pensions, or even our anti-pollution measures and try and work a system which, if it does not work, well, we will change it again. I do not know that they can do this across the country but where they do do this, it is very impressive.

Mr Rose: They feel that way, their own self-esteem has grown and they really want to say we have been around for a long time and look at how good we are now?

PM Lee: Especially after the Olympics and now after the Shanghai Expo which is going to start...

Mr Rose: ..in May 1st.  Their symbol to the world that we have arrived?

PM Lee: Yes, or we are arriving.

Mr Rose: India, to focus on that region, where do you see India in all this?

PM Lee: We would like India to be a big part of the story in the region because from our point of view in Southeast Asia, if we have India as well as China, we will have two wings to fly with and it makes a big difference. The reality is India’s GDP is about a third China’s purchasing power parity. India’s foreign trade is about one-fifth China’s and India is growing rapidly but the transformation I think is not quite as deep and pervasive as China’s is. I don’t think it can take place in the same way as China has been able to...

Mr Rose: Because of their political system or something else?

PM Lee: It is because of their political system but their political system also reflects the diversity of this society, the castes, the religions, the differences between the different provinces are very deep.

Mr Rose: Is India an argument for democracy or not?

PM Lee: India is modelled onto itself. That is the way it works in India. You probably can not govern India the way China is governed. But if you say that is what you should do somewhere else, say in Singapore, I think that is too complicated for us.

Mr Rose: Could you say that China could not have become what it is without the system it had?

PM Lee: I think they could not have become what they did if they had not evolved their system and their incentives and their policies in order to get the whole country moving. There is a phrase in China that “the mountains are high and the emperor is far away”. You can give any orders you like out of Zhongnanhai, out of Beijing where the government is but far away in the provinces, your ..(Mandarin)… or your governor, he does what he wants and he will report to you what you want to hear. For them to have got the whole country moving in this way, not micromanage and centrally directed but all with its own centres of growth and dynamism, that is remarkable.

Mr Rose: Why does the world speak out more against human rights not just in China but around the world, inMyanmar, everywhere else?

PM Lee: In China it is reality if you go by de jure human rights and ask whether they have the same legal protection as you do in America with the Miranda rule and first amendments, they don’t. But if you ask whether the real rights which they enjoy, freedom of association, expression, information, movement, travel, have improved tremendously compared to where it was, I think the answer has to be in fact they enjoy de facto many rights. Myanmar is a problem. They have a system, the military is in charge. The world has limited influence over them and you can not change them, short of going there and providing them a government which the British did for a couple of centuries but eventually they can not carry on. They have to move forward because I think many people in Myanmar know that this is not a solution for Myanmar. Many of their people know that the government is doing badly by them and they resent it deeply.  I think many people in the government know that this is leading nowhere and needs to change. I suspect…

Mr Rose: People in the military?

PM Lee: Including but I suspect the few key people who make the decisions, they have decided this is an existential thing for them. If they are out, it is not that the country and the government have changed but where do I go and which jail would I be in and my children and my jewels and my billions. They are not likely to be persuaded by lectures. You have to wait. I think there will be a change over time as the generations change and they are holding elections this year. May or may not be perfect but it is a step forward and if you look at Indonesia under President Suharto, he came to power in a coup, military backed but over 30 years he acquired legitimacy. He developed some kind of ideology to legitimize the rule.  He had some kind of elections, he had some sort of a political process. At the end of the day, he did a lot of good for Indonesia but unfortunately towards the end their rapacity became intolerable and he did not deserve the end he came to.

Mr Rose: If he had given up power?

PM Lee: If he had given up power, even in the last election which he contested or better still the one before that and there had been three, four years for a new government to settle in and grasp the reins before the Asian crisis had come, I think Indonesia might not have gone through the traumatic times which it did and Suharto would be remembered today as a great patriot.

Mr Rose: What can be done about North Korea and nuclear weapons?

PM Lee: You have got the six party talks, you have got to keep on talking and engaging them. The saving grace is that the Chinese do not want the North Koreans to have nuclear weapons. They already have them but the Chinese disapprove and this is something which the Koreans have to take into account but again for the regime it is an existential thing. The regime is not going to give it up lightly.

Mr Rose: Because they think it is the only way they can get any kind of attention from the rest of the world?

PM Lee: Yes but also because this is the way they make sure nobody is going to cause regime change inNorth Korea. Of course regime change can come in other ways. You have to keep on talking to them and making sure, first, they do not destabilize the Korean Peninsula, secondly that they do not proliferate these nuclear weapons and cause problems elsewhere in the world and you can not have a final solution but you can do a certain number of things which visit punishment for behaviour which is harmful to the global society.

Mr Rose: Tell me what your philosophy is for the relevance and future of Singapore?

PM Lee: If we want to make a living for ourselves, we have got to be extraordinary. There are any number of cities with a million, two million people in them, hundreds in Asia, hundreds more worldwide. Why is Singapore different? It is because the people make it so and the people, meaning our own people and the talent we have within Singapore and the talent we can attract to Singapore and make members of our extended family who can help us to prosper and help us to make a living.

Mr Rose: Who do you consider members of the extended family?

PM Lee: People who come to Singapore and work, people who come to Singapore and strike roots, people who come and eventually become citizens.

Mr Rose: Is Singapore’s future as bright or brighter today than it was five years ago?

PM Lee: I would say so. I would say so. Over the last five years, we have weathered SARS, a little bit longer than five years, we have weathered the global financial crisis, we have come through, bounced back. We have just had our first quarter growth, 13 per cent over last year. For 2010 we’re expecting seven to nine per cent. We are on a good platform not to cruise ahead but to build for the future and this is a platform on which we can say now we have got the growth, let us get the transformation moving.

Mr Rose: How did this happen?

PM Lee: I think firstly we were lucky. The world picked up better than we expected. I think the American team, Paulson and Bernanke, Geithner did a good job and we are beneficiaries. Secondly we have programmes which we have launched which are coming on stream now like the casinos and the integrated resorts which you mentioned and they are creating 20,000, 30000 jobs for us and it’s coming on at a time just when the economy is picking up and generating a tremendous amount of buzz and a tremendous number of tourists and visitors who are paying attention to Singapore and writing about Singapore. Thirdly I think we were lucky we did the right thing in the downturn last year. We decided to focus on saving jobs and keeping companies viable. We had resources, the government helped to bear the social security expenses for workers, companies worked with unions to keep workers employed. Firstly we kept social cohesion and secondly when the moment came to pick up, we were ready to pick up and increase production and go again. So this year we are booming again.

Mr Rose: If you look back even further to what might be called the Singapore Miracle or the Singapore Way, what was the essence of that?

PM Lee: Being put in a position where you have no choice but to do well and then you get together and you work at it. We had no oil, no gas.

Mr Rose: No natural resources to sell?

PM Lee: No immigration but we had to make a living for ourselves.

Mr Rose: What did you do?

PM Lee: What did we do? We invested in education, we invested in public housing so that people would have a home to own and to defend. We built up our armed forces so we could be secure in an uncertain world. We built up our institutions so that you have a government which people can trust and is competent and can protect our interests in the international community and the people supported the government and worked with the government. That reservoir of trust is one of our most valuable and sustainable competitive advantages.

Mr Rose: Reservoir of trust?

PM Lee: Yes.

Mr Rose: Your father said to me we have to stay relevant, you have to stay relevant to the world?

PM Lee: Yes.

Mr Rose: There are people today when they talk about the Middle East specifically, they will say this place could become the Singapore of the Middle East, meaning that if they concentrated, even if they do not have oil resources, they say this about the Palestinians, the Palestinians because of the human resources talent there.

PM Lee: We are happy to be a metaphor but we remind ourselves that we have no safety net and we can always fail if we get it wrong.

Mr Rose: What would get it wrong be?

PM Lee: If you don’t have the right government, if you have the wrong policies, if you cause a loss of confidence. Supposing we were in the situation of Iceland or of Greece, where would we be? Iceland is a friend of the EU, Greece is in the EU, so the Germans come riding to the rescue some way but in Singapore, how would you ever come back?

Mr Rose: Who would come to the rescue of Singapore?

PM Lee: Exactly.

Mr Rose: If you had a huge debt problem?

PM Lee: It would be just another broken back country, permanently.

Mr Rose: You can not afford to have that kind of financial crisis because you are not sure?

PM Lee: We can not afford to have a disastrous bump in the night, whether it is a financial crisis, whether it is government misbehaviour, whether it is a security problem but we only have one chance to make a go of it. You can succeed in many battles. You fail once, it is finished.

Mr Rose: It was not that long ago we had an Asian economic crisis, 10 years ago, there was also a Mexican crisis. We see the debt crisis in Greece. When you look at all the sovereign debt around the world, your father said to me the thing he worries most about is America’s debt?

PM Lee: We all depend on America. You are the anchor for the whole system. You are the way people define triple A. If the triple A is defaultable, what happens to the whole system, where do you go?

Mr Rose: America has to get its economic house in order as a number one priority?

PM Lee: For the long term, you have to get your economy stable. You have a huge budget deficit. You have to do it because you need it to get out of the crisis last year but in the long term you have to balance your budget and I was talking to Alice Rivland yesterday who is chairing the congressional budget committee or deficit committee and she said it is a very serious problem. These are political decisions. They have to put forward proposals.

Mr Rose: Do you think the American public has the political will, political leaders have the political will to meet the crisis?

PM Lee: It is never easy to close the budget deficit but when George W Bush became President, he inherited a surplus from Bill Clinton, so you have been there before and it is possible to get back there if there is the will and there is bipartisanship.

Mr Rose: What is your opinion of value added tax?

PM Lee: We have one. Whether you have one, I would not comment. I think politically you have a lot of difficulty introducing it.

Mr Rose: You also have a sovereign wealth fund.

PM Lee: Well, it’s not really a sovereign wealth fund. They have companies.

Mr Rose: I don’t understand the model. What is it then?

PM Lee: Asking about Temasek? Temasek owns a stable of companies.

Mr Rose: Most sovereign wealth funds own a stable of companies.

PM Lee: Sovereign wealth funds own a portfolio of financial assets.

Mr Rose: Sometimes they go out and buy entire companies. You are different in what way?

PM Lee: First of all, Temasek operates completely on commercial basis. We appoint their board but their board makes all the decision and the board does not decide for the boards of the subsidiaries and associate companies because each of the companies, many of which are listed, have their own boards and each one is accountable to all of their shareholders.

Mr Rose: It is more like a giant sovereign private equity firm except that it is owned by the government?

PM Lee: Except that Temasek is owned by the government, yes.

Mr Rose: Do you have less confidence in American financial?

PM Lee: Not at all. You are asking me where I am going to put my portfolio. These are decisions I leave to the portfolio managers.

Mr Rose: You are the Prime Minister and it is owned by the government and you have a responsibility to the people of Singapore to make sure that they do well.

PM Lee: My responsibility is to make sure that we have the right people managing the portfolio, that they make the right long term decisions, taking into account the risks. It will maximize our returns over the long term, not every year but on the whole portfolio basis and my job is to provide them the political environment in which they can do their job without being distracted by the political flak.

Mr Rose: Have you changed your philosophy about that since the economic crisis?

PM Lee: We review our strategic asset allocation from time to time. We make incremental adjustments but we are long term players and we do not make major switches overnight.

Mr Rose: How do you measure your commitment to democracy?

PM Lee: I think we measure it by the legitimacy of the government and by the results, how Singapore works and whether Singaporeans are able to have a better life.

Mr Rose: Is it Jeffersonian democracy?

PM Lee: We do not measure ourselves by an American model to what extent we approximate you. The countries which approximate you most closely in Asia, probably the Philippines, operates very differently from American democracy, so we are not trying to approximate you. We are trying to find a formula which works for Singapore.

Mr Rose: Suppose the President calls you in before you leave and says what we have to do is what? What does the United States have to do?

PM Lee: Be engaged in the region. You have a lot of interest, a lot of friends, a lot of investments and a lot of people who want you to be part of the region and helping it to prosper in peace.

Mr Rose: What mistakes do we have to watch out and make sure we do not make?

PM Lee: Manage a good relationship with China but do not make that your only relationship in Asia. India,Southeast Asia, Japan.

Mr Rose: Where is Japan?

PM Lee: Japan is northeast Asia.

Mr Rose: Where is their economy? Why can not they get back on track?

PM Lee: I think they have a very serious demographic problem. Their population is already shrinking, has been for several years and ageing is very advanced and they have just changed to a new government which is still finding its footing.

Mr Rose: You have a demographic problem too?

PM Lee: I have one coming. It is one of the reasons why we emphasize babies as well as immigration.

Mr Rose: How do you do that?

PM Lee: How do I do what?

Mr Rose: Emphasize babies as well as immigration? You say you come to our country if you have a bunch of brood of kids?

PM Lee: No, we have incentives for Singaporeans to have babies.

Mr Rose: What is an incentive to have a baby? If you have babies, you give them tax advantages?

PM Lee: No, there is a cash bonus. I can not remember the numbers now but the first, second and third, fourth, you have $5,000 or $10,000 or $15,000 and if you co pay into a savings account, the government will match that for the child up to a certain amount. Because the more well off people are the more they feel the opportunity cost of having a child is exorbitant which is true because if I am a lawyer, it is very expensive to stay at home and have a baby. Here is a small gesture to help defray your child care, your tuition, your kindergarten, your school expenses and it is just a gesture to show that we recognize you are carrying a burden and you are helping us to generate the next generation.

Mr Rose: Your father is enormously respected around the globe, you know that and you are his son. Your wife is important in Singapore as a business person, correct?

PM Lee: I am not sure you can call her a business person. I think she is an employee.

Mr Rose: She is known around the world as a business person, correct?

PM Lee: She is an employee, you can call her what you want.

Mr Rose: You seem to be sensitive to the issue of what is called nepotism?

PM Lee: We are very sensitive.

Mr Rose: Tell me about this sensitivity?

PM Lee: The whole of our system is founded on the basic concept of meritocracy. You are where you are because you are the best man for the job and not because of your connections or your parents or your relatives. If anybody doubts that I as Prime Minister am here not because I am the best man for the job but because my father fixed it or my wife runs Temasek because I put her there, not because she is the best woman for the job, then my entire credibility and moral authority is destroyed. I am not fit to be where I am and it is a fundamental issue of fitness to govern. First you must have the moral right, then you can make the right decisions. It is a basic Confucian precept.

Mr Rose: Only when you have the moral right?

PM Lee: Then can you govern and make the country right and in Singapore people expect that. If there is any doubt that this is so and people believe that I am there because my father fixed it or the whole system really is just a make believe, then the system will come down. It is not tenable. If it is true, it better be proven and I better be kicked out. If it is not true, it better also proven to be not true and the matter put to rest.

Mr Rose: So if some journalist writes about nepotism and you think it is not true?

PM Lee: Then we sue him as we did recently.

Mr Rose: And won. You sued the International Herald Tribune.

PM Lee: We raised the matter with the International Herald Tribune and they paid damages and apologized, they did not go to court. They could have gone to court.

Mr Rose: I would consider that winning if they paid damages and apologized.

PM Lee: All right.

Mr Rose: But you thought what was written in the International Herald Tribune would somehow attack the moral fiber of your trust with the people you govern because?

PM Lee: Yes, of course, they compared me, they put us on the same list as Kim Jong Il.

Mr Rose: Because he inherited his power from his father?

PM Lee: Yes, indeed and in a similar way.

Mr Rose: You say we will not stand for that because it goes to the essence of our moral authority to govern?

PM Lee: In this case, in fact the same journalist and the same newspaper had made the same allegation and apologized and paid damages and promised never to do it again and they did it again.

Mr Rose: They promised one time and they did it again and so you went back?  Are you anxious to send a signal that you don’t dare write about nepotism in Singapore because the Singaporeans will sue you?

PM Lee: No, the signal we want to send is if you want to make an allegation, make sure it is true and be prepared to prove it. We were prepared when we sued them to go into court, give evidence, enter the witness box and be cross examined under oath and they can bring their lawyer and demolish us and prove that what they said is true. What more can you ask?

Mr Rose: Has anybody else written anything?

PM Lee: From time to time, including Bloomberg, they have apologized.

Mr Rose: Bloomberg apologized, what did they say?

PM Lee: Something similar, I can not remember.

Mr Rose: About nepotism and you went to them and they apologized. They said we are sorry, we were wrong?

PM Lee: Yes.

Mr Rose: Finally what is the legacy of our dad, somebody I admire as you know from many conversations he and I have had together?

PM Lee: He made a state where there was none, a country, a nation which would become a nation which nobody believed could succeed and he has made a system which can run without him and will endure beyond him.

Mr Rose: But he remains as Senior Mentor?

PM Lee: He calls himself a mascot and he does not have time to worry about all these...

Mr Rose: What’s the most important lesson he taught you?

PM Lee: Never say die, however desperate the situation, if you think hard enough you will find a resource and you will find a way out of it.

Mr Rose: Never say die, never give up, never forget the goal.

PM Lee: And don’t forget where you came from. It could all be very different.

Mr Rose: And the world today, are we in a good place, are we moving out of this economic recovery, are we accepting new realities about where we are?

PM Lee: You have to accept new realities, you have no choice. I think you have come out from the crisis much better than we had any right to expect, the whole world, I think largely because of the United States because you reacted more decisively and promptly than the Europeans have done for example.

Mr Rose: Their potential growth rate suggests that too?

PM Lee: They have other problems which need them to be different. We are in a much better position than we have a right to expect but there are still issues which we have to deal with. You have to figure out how to do, too big to fail and things like that and there are other imbalances in the world which have to be managed like your imbalance with China.

Mr Rose: How would you manage that?

PM Lee: Part of it is change of policy and change of economic structure in both countries.

Mr Rose: They should do more consuming and less saving, we have to do more saving and less consuming?

PM Lee: That is to put it very simply but it is also a political thing to get people to understand that you can change the exchange rate but it is not going to solve deeper underlying problems which we have to address and recognize and that is very difficult because the temptation when people get agitated and unemployment is 9.7 per cent, do you say it is the Chinese fault, let us fix them.

Mr Rose: Or let us engage in protectionism?

PM Lee: You would never say that of course, let us make sure we look after American jobs.

Mr Rose: You look after Singapore jobs do not you?

PM Lee: But we do it in a way which must be sustainable, which is that you have to be globally competitive, otherwise you are out of work. Because I can not make things selling to myself, I have to make things selling to the world.

Mr Rose: That is exactly what the Chinese are trying to do, they are trying to make things to sell to their own 1.3 billion and if they can create an internal demand it will be better place, that is their opinion.

PM Lee: I think they are selling to America, they are selling to China, they are selling to the world.

Mr Rose: But they want to create a demand internally?

PM Lee: They need to create demand internally, some of it can be consumption, some of it can be investment, some of it can be environmental to clean up the environment. There are many ways to do this.

Mr Rose: Do we need an new international structure of any kind, a new Bretton Woods, a new reserve currency, a new United Nations, a new Asean, whatever?

PM Lee: Ideally we would redesign humankind. You can not, so we have got IMF, we have got the World Bank, we have got the UN and we will work on that and improvise and improve. You have got the G20 emerge after the financial crisis as a useful grouping and I am sure over time more such groupings will emerge.

Mr Rose: The idea of G2 is simply ..?

PM Lee: I think it is an extrapolation beyond the facts. We are not there and the Chinese know that, they are not there.

Mr Rose: And do not want to be there right now?

PM Lee: I think they would feel much more comfortable to be in a less exposed position.

Mr Rose: This has been a wonderful conversation from our standpoint. Thank you for being candid. Thank you for coming here. It’s a pleasure to see you again.

PM Lee: Thank you very much.

Mr Rose: The Prime Minister of Singapore. Thank you for joining us for this hour.  We’ll see you next time.