PM Lee Hsien Loong’s Interview with CNA for “Singapore Reserves Revealed” (Aug 2023)

CNA: Our definition here in Singapore and how we protect our reserves is quite distinct from other countries. Is this something that you've been asked about? Is this a conversation you have with other world leaders?

PM Lee Hsien Loong: Yes, we often talk about it. There is interest in how we manage our reserves and also how we have been successful with them, particularly in Temasek because it is very unique. Many countries have what they call state-owned enterprises. We call them GLCs – Government-Linked Companies – and it is always a dilemma how to look after them properly. Our solution has been Temasek, it has worked well, is interesting to them. GIC is also interesting, but GIC is not quite so unique, because other countries like Norway, they also have some arrangement to manage sovereign wealth funds somewhat like GIC. Then there is the question of our Elected President and how we have a second key on the reserves. That is very unique to us, and they listen very carefully when I talk about it. But then they look at me and say, no, that is in Singapore, it cannot happen anywhere else.

CNA: Why can't it happen anywhere else?

PM Lee: Because it is unique to our circumstances, our history, how we built up the reserves, and how we were able to change our political system to create an Elected President specifically for this purpose. It is a long journey. It has taken us now 50 plus years since independence to get to this point and create the system which we did. In the 1970s, we made Temasek; in 1974, it was created; in 1981, we made GIC; then later in the 1980s, as the reserves started to build up, we talked about the Elected President, the second key and protecting the reserves, and then we implemented that around 1990. Since then, we have modified it, improved it, refined it, adjusted it, and brought it here, got people to understand the basic idea, which is that this is something precious, you lock it up twice and think twice before you unlock it. That is not a journey which any other country can just click their fingers and do, but we have and I am glad we are here.

CNA: When other countries ask you for advice, do you say do a Temasek, do a GIC, do an Elected Presidency? What's your advice to them?

PM Lee: My advice is nothing secret. We have published all our papers, our debates, and our considerations. We welcome you to come and see how we do it, and talk to the key persons in the different levels – in the Government, Temasek, GIC and the Government-linked companies which are under Temasek – to understand the spirit of this. Not just the rules which are in the Constitution and the laws, but how we operate this, and take back what is relevant to you and think how you would like to do it in your own circumstances.

CNA: Would you able to share any comments from world leaders – what they have said about us or who they are?

PM Lee: I think it is quite unusual what we have. Temasek, particularly. Because when it comes to companies linked to the Government, it is always a question. Is this part of the Government, you are doing things which the Government needs you to do? Or is this more of a commercial operation started by the Government, and you should do things which make commercial sense? And here I have Temasek, I want them to contribute to Singapore, the Singapore economy, the resilience of the economy, to have successful companies – SingTel, SIA, DBS and so many others – and yet I want them to operate commercially, rationally and without political interference. And they look somewhat quizzically at me and they wonder how can you square the circle? On the one hand, you want them to have a national perspective; on the other hand, you do not want to interfere. So I say, the answer is, you appoint people who know what this is about, put them in charge and trust them. If they are not doing the right job, change them, but do not go and meddle in what is their responsibility, which is to make sure that the companies grow and prosper.

CNA: But the Government’s made the point that it shouldn’t interfere and influence GIC. Why is that so critical?

PM Lee: Because GIC’s mandate, even more so than Temasek, is purely to manage our reserves, our financial foreign reserves, to make them grow and to protect them in downturns. You have to be invested all over the world, in America, Europe, China, India and in the emerging markets. There is no investment which is guaranteed to succeed, “sure win”. If you think you see one which is sure win, it may be a scam. So you have to exercise judgment and spread your bets, but you have to take risks. Sometimes the risks turn out well, sometimes the risks turn out badly. But if you have a competent and honest team, if you give them the right mandate and mission, and you have the right governance process to make sure that the GIC, the fund, the management of our reserves is properly done, then over a long period of time, you can be reasonably sure that the reserves will grow, and it is much better than putting it into the bank on a fixed deposit, and GIC has shown that. But that depends on the professionals being the right ones, that they can do their job properly and not have political interference, either because the political leaders have a view, you should do this instead of that, or because the public says, why is it that investment went wrong, better sack the person. And unless we can shield them from these pressures, they won’t be able to do their job properly, and our reserves will suffer.

CNA: Whose responsibility is it to shield them?

PM Lee: I think it is the elected political leaders’ responsibility to shield them – the Prime Minister, the Minister for Finance and the Cabinet. We are answerable to Singaporeans. We are answerable to Singaporeans for their Government and governance of Singapore. We are answerable for making sure that the reserves are well managed. Our response to that is, we do that by putting the right people in charge and making sure that they do the right job. We do not do that by second guessing them, by making decisions after the fact, or by telling them, do this, do not do that. We need to allow them to do their job properly. If we think they are not doing it, we change the oversight team. And if the Singaporeans think that this Government is not doing it properly, then by all means, take the Government to account, but we have to make sure that the reserves are well-managed.

CNA: Is that then a personal responsibility of yours as Chairman of GIC?

PM Lee: Yes, GIC works slightly differently from other fund management companies. In other companies, the board actually goes into individual investment decisions. In GIC’s case, the board does not go into individual investment decisions. The board sets the overall mandate, the risk limits and the strategy. It chooses the key people and the professionals, and there are other governance committees within GIC who then do the actual investments. But my job is to be there so that there is political accountability.

CNA: Has there ever been a time when you’re tempted to try to break that principle, that very correct principle of not interfering? Something has gone wrong and you wanted to try to influence them?

PM Lee: I think with GIC less so; because these are financial investments, you are more detached from them. You make a decision, it is a few billion dollars, but you just have to take your emotions out of it and make a judgment, and sometimes take a bet. With Temasek companies, such a situation is easier to imagine. Because if you have a bank, for example, it is easy for us to think, the bank should have a social purpose. Therefore, although this project does not break even commercially, or does not make a lot of financial returns, we should ask them to do it. It can be true of a bank; it can be true of airlines, for example, you could ask it to fly somewhere where the route is not viable, but you have some diplomatic reason, you want it to go to some place. So the temptation is always there. But I think that was a reason why, in 1974, the Ministers then, Dr Goh (Keng Swee), Hon Sui Sen, Lim Kim San, decided to take all these Government companies out of the ministries which were overseeing them, create Temasek Holdings, and put them in Temasek Holdings, separate from the ministries, one removed. So that, two things: one, we do not ask the companies for favours – you are a GLC, please do this, I have a ministry’s mission; two, the company does not ask the ministry for favours – I am a GLC, I have this problem, I need some government support, can you give me some special arrangements? Which happens in so many countries and is the reason why so many state-owned enterprises fail to work properly, because you lose that commercial and market discipline, because you can run to the Government for special arrangements, and we wanted to not have that, and that is why we created Temasek.

CNA: Can I take you back to that creation of the various entities – how did we end up having these different entities, and having them spun out at different times of our history?

PM Lee: It is historical, I talked a little bit about how Temasek came into being. The companies themselves started off in the early years of our independence. We created the shipyards when the British left – Keppel and Sembawang. We had the Malaysia-Singapore Airlines, when we were inside Malaysia. After we split from Malaysia, after some time, the airline also split up and then we formed SIA. DBS started off a financing piece of EDB, then that grew, and it split off and became a bank. So in the early years, the line between being a company and being the Government was not quite so sharp as now. And the Government had to go in and start many companies because otherwise there was nobody who was doing that.

Having done that over the years, with companies big and small all over the landscape, in 1974, we put them all together under Temasek Holdings for the reasons which I explained just now. But beyond wanting it to be in one place and at somewhat arm's length, Temasek had a role too, to manage the companies which came under them, to rationalise what they were holding. The companies which no longer made sense for the Government to own, you sold off; companies which are no longer viable, make sure that they were wound up and dealt with some way; companies with promise, grow them and nurture them; in new areas where you were not in and to go into, to choose those new areas and grow a portfolio, diversify Singapore in the Asian region and in the developed world. And that part of growing Temasek to what it is now really started in earnest in 1996 when I asked Mr Dhanabalan to become the Chairman of Temasek. He went in, he built up Temasek’s headquarters, holdings, the management at Temasek, and they started working on the portfolio. And you can see the records from 1996 until now, Temasek has done well. So there is a long history which brought us here.

GIC is a different history. GIC came about because MAS, the monetary authority managing our foreign reserves originally, managing our exchange rate, the economy was doing well, the Government was having surpluses, we were having balance of payments’ surpluses. MAS’ reserves built up, and MAS needs to keep some reserves to make sure that you can pay for your imports, and to make sure that if anybody wants to take a chance and play against the Singapore dollar, you have enough ammunition to stare him down and stabilise things. But beyond that, MAS has to be very cautious because it is not MAS’ main responsibility to be a fund manager. So Dr Goh thinking about this, decided that the fund management role should be separated from the central banking role. And we should set up a separate entity to be the Government's fund manager. The funds which MAS did not need, could be taken out from MAS, parked and managed by GIC. GIC could take a longer-term view, could take greater risks and therefore could earn much better returns than MAS would be able to do. So in 1981, GIC was formed. Over the years, GIC has grown, it invests money for MAS, it invests money on behalf of the Ministry of Finance directly, and it manages a major part of our foreign reserves, and manages a major part of the Government's financial reserves. So there is a different history – Temasek and GIC are quite different. MAS is still there. So that is how these three pieces are there.

CNA: Is this structure correct for us today? They were there for historical reasons, but is it useful for us that we have these structures today?

PM Lee: I think in principle, yes. From time to time, we have asked ourselves, should we have two GICs? Because you have a certain amount of funds now, it is not small. Conceivably, you could have two and they could compete with each other, then you would know who is doing well and who is not doing so well. Every few years we argue about this, but finally we will conclude that building one team is hard enough, let us concentrate on making that one team succeed. And I think we keep it like that.

CNA: What about the role of the Prime Minister of the day as Chairman of GIC – is that something we argue about?

PM Lee: That is not automatic. It has not always been so. After Mr Lee Kuan Yew stepped down as Prime Minister, he remained Chairman of GIC for many years, until 2011, when he stepped down from the Cabinet. He was Chairman for many years after he stepped down as PM. So it doesn't have to be the PM, but it must be somebody whom the PM will trust and who will carry enough weight, so that the markets and the GIC team will know that the GIC board makes decisions on behalf of the Government.

CNA: In your opinion, has there been a singular pivotal moment in the history of our reserves?

PM Lee: I think the key pivot was when we decided to recognise the reserves as being a lot of money and needing to have a second key. The idea was first floated by Mr Lee Kuan Yew in 1984 in his National Day Rally, I remember it because that was the year I came into politics and I attended the rally before I came into politics, and he talked about this. Then over the next few years, we worked out and implemented the scheme, and I was intimately involved in that with Professor Jayakumar particularly, also with Mr Goh Chok Tong, who was then Deputy Prime Minister. We worked on the white paper which we put out in 1988. It was a big issue in the General Election in 1988. We worked on the legislation to amend the Constitution to provide for the Elected President and I was particularly deeply involved in all the ins and outs of that with Prof Jaya, and implemented that around 1990. I think that was the key turning point because it crystallised people's focus. They knew that there is such a thing called the reserves, that it is quite a lot of money and that it needs to be protected. And of course there is the idea, but when can we use it when we need it? That is something we discuss every now and again. Since then, we have made many adjustments, refinements and modifications to the arrangements for the Elected President for the second key, but that fundamental turning point was the decision to crystallise the idea and to implement such a system.

CNA: You have been directly and closely involved in the development of the process around the reserves and the Government. Can I take you back to the earlier history – when were you first aware of just how significant the reserves were for Singapore? What made you aware of the importance of the reserves?

PM Lee: I suppose working through the scheme with Prof Jaya. He made the drafts, I gave him inputs, I helped redraft, clarify, present differently, come up with ideas and try to understand what the problem was and how to pin down, so that you protect the reserves, but you do not paralyse the Government of the day. Because it is very easy to lock it all up, then you are not allowed to do anything with it. You can do that, but then it becomes useless to you. So what is the mechanism by which you can protect and lock it, without the risk that all of it will disappear when you need to unlock it?

CNA: Were you already in politics when you had that whole understanding?

PM Lee: Yes, of course before I was in politics, I never thought about this. But after 1984, when I listened to Mr Lee at the National Day Rally, I realised this was an issue. But we really started working on it in 1988 because we published a white paper a few weeks before the General Election was held. I think it was in August 1988, and Prof Jaya wrote the draft and I worked on it with him.

CNA: Was there a particular phrase Mr Lee Kuan Yew used or a particular presentation that he used that sort of crystallised in your mind as you're watching that National Day Rally?

PM Lee: The phrase which he used was that one day if you have a rogue Government, everything is finished. That was the way we explained and marketed it, that one day if you have a freak election, you have the wrong team in charge, you have a rogue Government who wants to raid the reserves, in one term all your life savings of generations of Singaporeans will be gone. And therefore, we must prevent that.

But as I worked this, and as I worked the scheme, and as we worked within this scheme in the Government all these decades since 1990, I have come to understand that this is a scheme which is helpful to us – not just if you have a rogue Government, but even for the proper operation of a good Government, you want to have guard rails, limits, a realisation that yes, these are all resources available to the Government, but some of it is daily spending money, some of it is budgeted for your short, medium-term annual needs. But some of it really, even as a working Government, you should not think of as just part of the same pot of money. You should put it as a separate pot, and this is something which you will only think of touching, if you really, really need to touch it, which is only once in a while.

CNA: How do you decide what goes into the reserves in the first place?

PM Lee: The answer is we wanted to put in all the things which mattered. And what is it, where is it? So, in terms of what is it, it is basically financial assets – cash, shares, bonds, maybe private equity, some other financial instruments you may own, companies – or if it is not financial assets, it is land, areas, meaning fixed assets, buildings, those are the big things which you could touch and convert and spend.

In Chinese, there's a phrase 变卖典当 – if you are desperate, what do you do? What you have, you convert it, you sell it, you pledge it, you pawn it. Whatever it is, you convert it, take cash and spend the cash. What we wanted to do was to cash all the things which could be converted, which could be sold, which could be pledged, which could be pawned, and it is basically financial assets, companies and land.

Then where are these things which can be pledged and sold? Financial items, MAS of course, has money. Temasek, of course, has got companies and that readily can be converted to money. GIC manages money. And then you have the CPF money, which is Singaporeans’ savings. It is not really the Government's money. But if the Government is not completely straight with you, they could do something there. And that money can be at risk, so those things have to be covered.

Then you have the land. Who has the land? JTC has the land, because you have big pieces of Singapore which are industrial estates. Land to be developed, land which has been reclaimed.

And then you have HDB, because HDB has also got factory land, HDB has got land which is people's houses, and that also is a valuable financial asset. Therefore, we ended up with six so-called “Fifth Schedule” entities, where the second key applies. The President has oversight and veto on the key names on the Board and the CEO. And we want to make sure that that money doesn't get spent lightly.

It does not quite cover 100% of what the Government has; there are other stat boards, there are other assets, other parts of other things. There is a national collection in the National Museum – the Farquhar collection of paintings. These are all valuable things but in the scheme of things, the big pieces, we have identified them, and we have covered them under this second key.

CNA: What do the reserves mean to you?

PM Lee: It is a great source of comfort and reassurance that if we run into a jam, in a tight spot, we will not be destitute. We will have one extra card to play.

We have had to play it a few times over the years during the Global Financial Crisis. We thought it was a lot of money, but it turned out compared to what could happen, it was relatively small beer. And then during COVID, (if) we didn't have this, we would have been in a much more difficult position.

The reserves are something which is precious, which we have inherited, because our forefathers who were not wealthier than us, but who in good years, felt that they should put some money aside, save for the future, provide for their children and grandchildren. And make sure that Singapore – who would not have oil, tin, gold, or diamonds – but we will have a little nest egg, something extra to see us through a very tough spot one day and that is what it is.

CNA: It is a source of confidence?

PM Lee: It gives us confidence. But at the same time, it is a reminder to us that we are the beneficiaries of what our forefathers did, and we have a responsibility to generations to come.

CNA: Do you have a sense of pride or a sense of fear you will lose it? What’s your emotional response?

PM Lee: I am proud that we have built it up and I am anxious that we keep it like this for as long as we can. Because it is one of those things – once it is gone, it will never come back again. It is finished.

CNA: You do not think we can build it up again?

PM Lee: You cannot build it up again. You are not in a situation where we were growing in the 1970s and the early 80s, growing 8%, 10%, 12% per year, running budget surpluses 5%, sometimes 10% of GDP, with salaries incomes going up every year, 7%, 8% and therefore, the possibility of putting aside some of this prosperity for a future rainy day.

Today, we are not as poor as we were before. Our incomes are higher; our standard of living is higher. But our expectations and our needs have also grown. So to say today you put aside systematically 2%, 3% of GDP and build up a sovereign fund from scratch, I think it is very hard. The economy will not be able to take it. But at that time, our economy could take it, and our forefathers had the prudence and the foresight to do it, and we are the beneficiaries.

I think we need to be very, very conscious that this is a Garden of Eden state. You are here, it is marvellous. You may not always feel great, but please be aware this is the Garden of Eden because if you come out from it, you cannot go back in again by the sweat of your brow.

CNA: How much do we have here? How large is the reserve?

PM Lee: I cannot answer that question. It is enough for most circumstances, it is enough to give us a substantial support in the Budget every year, contributing to the Government's revenues. In fact, one-fifth of our revenues come from the reserves. But it may or may not be enough if you have a catastrophe – who knows what the world will bring? So I do not ask whether it is enough; I ask, can we husband it and if possible, gradually grow it bit by bit year by year.

CNA: What about on the global stage? What do the reserves mean for us in terms of access or interactions with people outside?

PM Lee: There are two aspects to this. One is a good aspect, which is people look at us and say wow, you had nothing in the ground but through your toil and your effort and your resourcefulness, you built this. They have respect for us and regard for us, and therefore I think it helps us take our place in the world.

But on the other hand, there is also the other side of it, where people say wow, how much do you have? How about doing a little bit more for other countries who do not have quite as much? And we have to do our part to help other countries globally, but at the same time we have to husband what we have and make sure that we look after our future. So that is one of the reasons why when you asked me, “how much do we have?”, I say I hope what we have is enough.

CNA: On the first point, that sense that the international stage has about the success of Singapore. Does that translate to benefits for Singaporeans?

PM Lee: I think it makes a big difference to our standing in the world. You may not feel it in your day to day, going to-and-fro home and work, but when you travel, you know. Your red passport commands respect. You go somewhere, people say, “Ah you’re from Singapore”, and they recognise the name; they will say Lee Kuan Yew. And it is so whether you're going to Europe, Japan, China, India, Africa or Latin America.

I think that for a small country, that extra recognition and regard helps us a lot, because otherwise, there are any number of cities with five and a half million people in them in Asia, dozens, and in the world, probably more than a hundred. If we were just one of so many cities with five and a half million people in them, we would not stand out. Who would think of going to Singapore whether to invest, whether to start a business or whether to use it as a jumping off point for the region, for Asia?

But because people think of Singapore as different, that is why when you are in Singapore, you command wages which are quite a lot higher than anywhere else in the region. Yes, we are well educated. Yes, we are well organised. And perhaps yes, our levels of skills are higher than other countries. But there is a Singapore premium and Singaporeans, all of us enjoy that Singapore premium.

CNA: Can I change subject a little bit. We have been running a budget deficit for years. We have used the NIRC to cover the spending needs. Can you talk us through some of the issues if we were worried about the extent to which the NIRC covers the deficits?

PM Lee: Well, every year the NIRC accounts for one-fifth of Government revenues. It is 3.5% of GDP. It is a lot of money. If you ask what can you do with 3.5% of GDP, it is more money than we spend on any ministry – more money than we spend on defence, more money than we spend on education, more money than we spend on health. In fact, we are projecting health, as the population ages and as our health spending goes up, gradually, eventually, to reach 3.5 % of GDP spending, but today it is less than that – it is two point something percent. So 3.5% is a lot of money; it is equal to getting more than one ministry for free.

Now, if you look at it from the revenue side, 3.5%, it is about the same as corporate income tax revenues. It is 1.4 times personal income tax revenues. It is 1.3 times GST revenues. Think about it. Supposing you did not have NIRC contribution from the reserves, you can make it up – double your corporate income tax or more than double your personal income tax. So instead of 21%, you will be charging maybe 42% at the top. Or you can push up your GST, by how much? By 10 percentage points – instead of 9% next year, it will have to be 19% next year, so it's huge. It is an important contribution, I think is a sustainable contribution. You can carry on doing this. And it is also a fair contribution. Because the way we make the formula, half of the investment returns can be spent, the other half goes back, and is reinvested for the future.

I think that we are pursuing the right policy and getting the right results. When people say why don't we use the reserves in order to benefit the current generation? The answer – we are, to a very big degree. But you may not realise because we have gotten used to it.

CNA: Do you think Singaporeans appreciate the size of this impact of the NIRC?

PM Lee: No, I do not think people appreciate it. It is very difficult to explain this. We do this repeatedly. The Finance Minister explained this every Budget and more in repeated grassroots sessions, community dialogues, public forums, TV programmes, we talked about it, and we explained it, but it is very hard for people to appreciate the degree to which we are benefiting from the reserves which we have.

CNA: You mentioned about the framework that we have in terms of the NIRC. In 2000, the Government began to protect half of the net income; previously all of it could be spent. In 2008, you played a key role in further including capital gains. Talk us through on the decisions that led to these two events in 2000 and 2008.

PM Lee: When we first decided to lock away the reserves and introduced the Elected President, we had not given a lot of thought to how to treat the income from the reserves, and we did not really have a very clear distinction between income from the reserves and investment returns. Because when you buy a share, you get dividends every year if that company is profitable, and that is part of the return from buying the share. But actually, if you buy the share, you also hope the share price will go up. So if you had bought Microsoft when they were small, you would today be looking at hundreds of times of capital appreciation. If you had bought Apple, the same, and so, the share appreciation is also part of the return.

But we did not understand all this intensely because in those days, we did not invest our portfolio in a systematic and comprehensive manner as we do now. And so we just said, well, alright, we lock up the principal sum and the income from the reserves, you can spend. All of the income.

But when we said income, what we meant was interest and dividends. There is the traditional bookkeeping account, and we did not think of what happens when you have capital gains for example. So that was how the legislation was originally drafted. When Mr Ong Teng Cheong became President, he looked into this and he says, “why are you spending all of the income? You should think about the future and some of this should be put aside for the future”. Then, the question is what is the formula for now, between now and the future? Mr Ong said, “why not we just split it half, 50-50, half for now, half for the future. And therefore, you spend half of the net investment income”. So fair enough, we accepted that, and we amended the Constitution. But later we studied how other entities which had built up endowment funds like this managed it. In particular, we studied the US Ivy League colleges, places like Yale, places like Harvard, which had much smaller sums compared to ours, but have put a lot of thought into it and think, what is a right approach to having the right spending rule to spend that money?

Because one of the things we are talking about, just dividends and interest payments, apart from the fact that they do not account for capital gains, is that if you are only interested in dividend and interest payments, then instead of going for Microsoft, which the value of the share appreciates but the dividends may not be much, you will go for a stock which pays you dividends, but the value never goes up – e.g. utilities. And that is a wrong way to manage your reserves. It will not grow, you want it to grow. You want to give the managers the incentive to manage the reserves in an optimal way. So we should look at returns instead of income.

How to do that? Because it is not so easy to define what the returns are. Some years will be high, some years will be low, some years will be negative, because the stock market goes down then, well, what do you do? Does the Government tax Singaporeans to top up their reserves? You cannot, right? It is ridiculous. So how do you make a formula which can smooth all these ups and downs and stabilise it, and yet, overtime, is at about the right level.

What you want is not just what did I earn last year or the last three or five years, but what do I expect to earn over the next five, ten years, because that is what counts. Last year I did brilliantly, but I am going into a recession. Should I count on it being just as good and spend the money? I should not.

We studied this carefully. We talked to some of the people in the US particularly the Yale people. Len Baker, who was supervising their fund, Yale endowment, was particularly helpful with his advice. And I talked to him and after thinking it over for quite some time, discussing it with MOF and with the Ministers, we decided that we should be able to do something like the way the US university endowments do it and that is, I look at my cash reserves, I smooth it so that it does not jump up and down from year to year because of short-term fluctuations in the market. I make a judgment what the expected returns will be over the next so many years or long term, and I act on that judgment.

But then I need to have a process for that judgment to be made by people who have integrity, who have knowledge and who will not just pluck a number out so that the Government can spend the money, and that has to be fitted into the system of the CPA of the President. And therefore they vet that number and they have to approve, that this is a reasonable estimate of what we are going to spend. So, we knew that was what we wanted to do. But it was a very big change. First, we did MAS and GIC and later on, we brought in Temasek into this framework as well. But what we did not change was the rule that 50% is spent for now, 50% is put back for the future. I think that is the basis on which we said, split between the present and the future, still holds. So, we kept that number, we kept that split. I think it is simple to explain. It is easy to understand. And it so turns out, it is about the right number because if we do it like this, what we have is sustainable. And as time goes by, our portfolio, we should be able to keep it more or less in proportion to the GDP as the GDP grows.

CNA: At the time when the 50% was decided, there was an arbitrariness to it?

PM Lee: Yes, there was an arbitrariness to it. But when you do deals, 50% is not an arbitrary number. 50% has a certain psychological resonance to it. It is like the musical ‘Ji Lang Ji Pua’（一人一半）, each one takes half, and it is a very reasonable way to say, ‘I take half for this generation, I put aside half for the future’. And later on, when we did the sums, I think as the Finance Minister has explained, it was about right because it means that every year the reserves, if everything goes well and barring accidents, we will be able to grow by about 2%. My GDP, if everything goes well and there is no war, should also be able to grow at about 2% for some time to come. So basically, I am able to keep on maintaining the contribution to my budget every year for spending on the Government's ministries and needs. So it is about the right thing to do. And I think it is something which we should keep. You could say nothing is forever, that is true. But when you have made a commitment, I will not come back and reopen the subject the next day at the first hint that I need to apply this rule.

CNA: What are the scenarios under which you would consider changing?

PM Lee: If the world completely changed and I would say several successors from me, from now. We are not in a position where we are desperate. If you look at the Government, the whole of the Government, we are spending 18 and a bit percent of the GDP per year. It is a very low proportion of GDP compared to any other developed country. Of that 18.2%, only 14.2% come from taxes and fees. So, your GST, your income tax, your property tax, your car COEs, and so on. And 14.2% is again, a very low tax level compared to any developed country. Then you have 3.5%, which comes from the return on reserves, which as I explained is enough for more than one ministry. And then we have a small piece which comes from borrowing, half a percent. What is this? This is borrowing for projects which we are building now but which have a very long lifetime and where a lot of the benefit is going to be for future generations. So, I have to invest now for future generations. But I think it is fair that the future generations bear some of the costs of this. And the way to do that is to have the SINGA bonds so that when you are building an airport for example, a new airport or you are building a new port, well, we borrow now, in due course when the system is operating, and the economy is prospering, that generation will generate the revenue and payback these bonds. So, I think that where we are does not give me any reason to need to reconsider this 50-50 NIRC rule.

CNA: What do you think is the biggest misconception that Singaporeans have about the reserves?

PM Lee: The biggest misconception which people have is that there is such a thing as enough. And how much is enough? If I have more than that, I can spend it. If I have less than that, well, maybe I hope to get there. I do not know how much is enough. There is no such idea of how much is enough. When the PAP Government was first elected in 1959 and Dr Goh Keng Swee became the Finance Minister, he discovered that there was a hole in the Government budget. How big was the hole? $14 million. In those days, not such a small amount of money, but today $14 million is nothing to the Government, in terms of the Government budget. So, at that time, if we had had $100 million in the bank, Dr Goh would have reported that we were feeling very rich. But that was then, today with a $500 billion GDP, how much is enough? It depends how the reserves, how GIC will be able to perform. Can I predict whether the stock market will go up or go down next year? Will there be a war next year? I do not know. I can make a guess. But bad things can happen. How much will I need? I also do not know. Before the Global Financial Crisis, we did not think we would need anything. When the Global Financial Crisis came, it turned out we needed four, five billion dollars. When the COVID crisis came, in the end we needed $40 plus billion. So, you have no idea how much you will need because COVID is far from the worst thing that can happen to us.

So, what is the more productive way to think about this? I think the way we should look at it is, this is something which I have put aside, and I think about it as ‘rainy day money’. If it is not raining, I do not touch it. If it is a sunny day and I can afford to, I put a little bit more into it. However much there is I keep on having this attitude that I would like to build it up a little bit more when I can so that the next generation will be in a more secure position than I am today. And that is how I am here today and benefiting because my forefathers did that. And I think if we do this, our children and our grandchildren will benefit from that, and I hope they will be grateful to us for that.

CNA: You talked about the slowing returns on our investments and yet our spending needs continue to increase. Do you think the 4G is prepared to deal with this confliction?

PM Lee: I think that the 4G is very conscious that our returns are not going to grow sharply, and our spending needs are growing sharply. That is one of the reasons why we have been talking about the GST increase for so many Budgets before finally we did it January this year and the next step January next year. But it will not be the last call because our spending needs will continue to grow. We are going to be a super-aged society by 2030 as Minister Ong Ye Kung reminds us. And we have to make sure that we provide for ourselves and in a sustainable way. And I think that 4G leaders understand this, our challenge is to make sure that we get Singaporeans also to understand it and to take actions early enough so that we can be financially secure when the time comes. And we have the time, we can do it. We are able to secure ourselves. If you look at the countries which have not provided for this, where they have got debts which are 80% of GDP, sometimes more than 100% of GDP. You can know about it, but what can you do about it? But here I think we know about it, and we have not just the time, but I think we also have the political determination to do what we need to do about it.

CNA: When it comes to the reserves, do you have some advice for the 4G?

PM Lee: I think they know my thoughts, what I have said to you is also what I tell them. And not just tell the leaders but tell Singaporeans that “please hold this, treasure this, it is a great resource to you, it is a very valuable asset to you, you can use it when you need to but do not fritter it away, because when it is gone, it is gone".

CNA: In January 2009, you discussed with President the Government’s need to use the past reserves to support the Budget. What was your sense at that time when you realised that you needed to dip into past reserves the first time? That was a pivotal moment?

PM Lee: It was a pivotal moment but there was a build up to it. Bear Stearns had happened in March 2008. Lehman Brothers had collapsed in September 2008. And after Lehman Brothers, other banks started to run into trouble and confidence started to be shaken. And then in October, with confidence being shaken not just in America but even in Europe and elsewhere in the world, Governments in Europe, starting in Ireland and then on the continent, started to worry that their banking systems may collapse and began to give Government guarantees on the deposits in those banking systems. There have been various understanding of Government support but for the Government to guarantee all the deposits, meaning even if the bank dies, do not worry, the Government will stand there. It is a big thing. So, when one country does that, the country who has not done that, his banks may be fine, but anybody who has money in that bank says "why should I take the risk? I will go over and take that Government guarantee, I assume the Government would not go bust". And then that may cause you to run into trouble.

So as a result, when Ireland did it, other European Governments started to do it. And within days, it spread to a lot of countries and to our part of the world, to Australia, to Hong Kong. This was October 2008, so I rang up Mr. Goh Chok Tong, who was then Chairman MAS. I said “well, we better react, you cannot just stand around because otherwise if Hong Kong has a guarantee and we do not have a guarantee, what will happen, deposits will move even if there is nothing wrong with our banking system”. So, we decided we needed to guarantee our deposits and to guarantee our deposits meant that there would be a contingent liability on the reserves because how can you pay for the guarantee? How can you back the guarantee? $150 billion is more than double your annual Government budget. Money has to come from somewhere. So, we said we will back it with $150 billion from the reserves. It does not mean you will take the money out, but it is standing there, everybody can see it there. If any of the banks run into trouble in Singapore, that is what is backing the Government guarantee. So, we went to the President in October. We briefed the CPA, they asked a lot of questions. President approved this contingent draw on the reserves. As it turned out, we were lucky, the Singapore banks and the foreign banks in Singapore were all okay. And we did not actually have to touch any of the $150 billion. But it was a real contingent liability. It could have been needed.

So that was October. Then as we watched the situation unfold, we got more and more worried. By November, we knew that we were heading into a very serious storm. We had a party conference that year, the PAP Party Conference, and at the PAP Party Conference, I had to talk about the economy instead of party matters. And I had to explain to the party members as well as to Singaporeans that we are going to be bringing forward the Budget so that we will have a proper big response to the economic crisis, which is looming ahead. A decisive response. This was November 2008. And we brought the Budget forward. So, the next year in 2009 instead of being in February, as usual, the Budget was in January. And running up to that budget we decided on two big measures, one, the Jobs Credit Scheme, four point something billion dollars to keep people at work, and the Government would help to pay a significant part of their wages, effectively their CPF. And then secondly, there is the Special Risk-Sharing Initiative to make sure that companies who needed credit could continue to get credit and good companies would not just die because their credit lines dried up and the banks did not lend to them. We wanted to make sure that the economy kept going. So, it all added up to a package of about $5 billion, I went to see the President. President had been following this closely. He said to me, “the moment has come”. So, he took my proposal, the CPA studied the proposal, they worked through it, they approved it. We implemented the scheme, we sailed through the crisis. As it turned out, the crisis passed faster than we expected. And then the economy really took off vigorously. And the growth went up. But the foreign worker numbers went up, the infrastructure was not enough. We ran into new problems then but at least those were not problems of despair and despond, where you have no work, no pay and hardship. So that was the first time we went in, and we spent the reserves. Because the economy turned so quickly, we were able to make good the amount and before the end of that term of Government, we were able to pay back what we drew from the past reserves and put back into the past reserves and make good, it was about $4 billion in the end we spent. But that was then, with COVID we took out $40 billion. I do not think it is possible for us to put that back.

CNA: COVID was different in many different ways, there were many ways in which COVID was different from that first time.

PM Lee: First of all, the scale was so enormous, and it came very much more suddenly upon us. Because with the global financial crisis, you could see Bear Stearns was in March, and gradually problems built up, slowly the awareness came, then Lehman Brothers in September, then gradually the impact on the economy and so on. But with COVID, from December 2019 to February 2020, from a strange bug, somewhere in one city in Wuhan, it became a global problem. And we had to react. When we prepared the budget in 2020, Heng Swee Keat was the Finance Minister, we were expecting rough weather. DPM Heng discussed with me, and we made what we thought was a quite generous package to see Singaporeans through the rough weather. We thought we did not need to use reserves at that point. I went to see the President, brief the President, President said would you like to use the reserves, if you need to, seeing the situation, she would be prepared to consider it. But at that point we felt okay, we said no we do not need to do that. After we delivered the budget, within days and weeks, the situation changed and we had to have supplementary budgets, within less than a month. And by the time we went into the supplementary budget, we knew that this was a storm of the century, and we had no choice, we had to use the reserves. So, we went to the President, we made the case, and we did what we needed to do. We had successive supplementary budgets, further arrangements during the year. We never had to react so rapidly and repeatedly before, but the situation demanded it. And fortunately, we had the resources, so we could do it. And we came out of this, we preserved Singaporeans’ jobs, we looked after the livelihoods, and we did not have to go into debt. It is a great blessing.

CNA: As you were doing this, did you have any anxiety that we were underdoing it or overdoing it or whether we were doing the right thing?

PM Lee: I had no doubt we were doing the right thing, what we needed to do we were doing. I was relieved that we were not held back because of the lack of resources to do, at least not lack of dollars, to do what we needed to do. It could have been overdone, but in such situations, it is not worth trying to finetune. You make the major decision, make the big move. If you have overdone it, well, I have bought more insurance than I needed, but no great harm done. If it is not enough, better make another decisive move. Which is what happened, the first budget turned out not enough, we had to make further decisive moves.

But overall, in the end, we did not spend all of the money we expected (to spend). I think [the Ministry of] Finance told us, we overall spent about $30 plus billion in 2020 and over the next two years, 2021, 2022, added up we spent about $40 billion, somewhat less than we had expected but still a very, very substantial sum.

CNA: One of the moves that we made was around vaccines. We were one of the first in Asia. Do you think having that resource available to us, having the reserves, did that play a part in this type of decision-making and this outcome to be able to get vaccines?

PM Lee: The vaccine cost us I think $1 or $2 billion, something like that. So compared to the $40 billion spending, it was not a big part. But certainly, just to be able to say, “I want it. I want to order it. I am going early and if I have to order three times over, I will do that”. I think if we did not have the reserves, we would not have that mindset to take such a robust approach. Then you will be like (what) some other countries were doing, you will be bargaining, you will be trying to argy-bargy, can I have it slightly cheaper, can I trade off earlier, later? And by then somebody else will have gone in and you will be left in the dust, which is what happened to the countries which went for this haggling, bargaining approach. We went in. We knew we wanted to buy insurance. We knew it would help to get the economy to open faster. We knew it would save lives. And we were able to do that.

Q: Why do you think Singaporeans need to understand more about the reserves?

PM Lee: I think Singaporeans do not understand enough about the reserves. They think it is a pot of gold, that you can know how much is enough, and if you have enough, then you can touch a little bit and you will still be okay. But actually, it is not a pot of gold. It is something which has been built up over many generations, which helps see us through rainy days. We hope that it will grow, but we cannot be sure that it will grow. Many things can go bump in the night – you can have wars, recessions, your investments may go wrong, your needs may suddenly pop up, you can have another pandemic, you do not know for sure that the reserves will keep on growing steadily, and you do not know for sure how much you may need to draw upon them. Therefore, you have to understand that this is a rainy day fund, which you put aside for a rainy day. It is not raining today, but do not worry, I am afraid a rainy day will come one day, and we have to be prepared for that.

Q: In what ways are the personnel in charge of investing our national reserves held accountable when there are losses?

PM Lee: We have to see in perspective the question of did our reserves make money or did our reserves incur losses. Then our reaction depends on how the situation was. Nobody is correct in making investments 100% of the time. If you are taking no risks, that means you are getting no returns. That means you put it in the bank, maybe on a fixed deposit and you earn 0.05% currently. If you are going to take risks, you earn better returns, but it is not guaranteed. So when you invest, sometimes your investments prosper, sometimes your investments do not. Our job is to have the systems, the people, the capabilities and the experience applied so that our investments succeed more often than not, and our investments grow. In fact, if you look at Temasek, GIC and MAS, their investments over the long term have grown steadily and perform more than credibly. So when a particular investment goes wrong, you have to ask, overall, did they do well? I think the answer is yes. Then on the specific case, did they make the right judgment? Was this a decision which was a good decision, but it just turned out that I took a good bet, 80/20 and then it turned out 20 instead of 80? It cannot be helped. Or was it a bad bet and you should not have gone into that in the first place? And if it is a bad bet, was it a mistake? Was it negligence? Or was it something worse? Then I decide what to do. So I think we have to look at it in perspective. You cannot do it as a Monday morning quarterback. After the fact, every project must do well, those which did not, we chop everybody who was involved. In that way, I think our system will fall to bits.

Q: What steps are taken to ensure transparency and accountability in the management of the national reserves?

PM Lee: The entities are audited. The Auditor General is involved. We have the Ministry of Finance overseeing GIC, Temasek and MAS. We have the Elected President and the CPA. They see the reports from the entities, they ask questions and get briefed so that they know, and we make sure that we run a tight ship.

Q: Who knows the exact amount of reserves Singapore has?

PM Lee: The Ministers overseeing the finances of the Government, which means the Minister for Finance, a small team who are also involved and the PM will know this. The officials in MOF who are involved in managing the reserves will know this. And the President and the CPA will also know this because they are overseeing this. They are regularly briefed and can ask any question they want.

Q: How much reserves should we have before we can say we have more than enough?

PM Lee: I think there is no answer to that question. We can never say we have more than enough. I think what we can say is we have a nest egg. It is comfortable and very valuable. If I can, I would like to build it up further. If I need to, I can draw upon it. But there is no such idea of “this is enough” because the future is unpredictable, many things can go wrong. For a year-to-year spending in the budget, what we have is enough, as I said and explained earlier, to account for 20% of the Government revenues and to pay for any of the ministries. In fact, what we get from the reserves to spend is more than what any ministry spends in Singapore. So from that point of view, our reserves are enough for our annual budget. But from the long-term point of view, will I have enough if the world is steady and peaceful? I hope so. Will I have enough under all circumstances? That is what I do not know, and that is what the Government has to worry about on behalf of Singaporeans.

Q: What happened in 1959?

PM Lee: In 1959, the PAP was elected and took power. And the first thing which Dr Goh Keng Swee discovered when he was appointed Minister of Finance was that there was a hole in the budget, $14 million, and he reported to the Prime Minister Mr Lee Kuan Yew, and they took emergency measures, cost cutting, saving, cut salaries, including ministers, and eventually turned it around, balanced the budget and gradually grew surpluses later on. In 1959, if Dr Goh had discovered $100 million in the Ministry of Finance, in the Treasury, he would have reported to the Prime Minister that we have a lot of reserves perhaps. Certainly, it would have been a lot of money at that time. Today, if you have $100 million in the Ministry of Finance, it is not enough to keep the Government running for very long. So what is enough then is not what is enough today. Because our economy is greater. To make a difference, you have to have more in your rainy day fund, and you also have to look at the future. So what is enough for tomorrow is even more a question which we have to ask ourselves, and for which my answer is I cannot predict exactly a number because I do not know what the future will bring. But I can carefully, patiently, prudently, top up bit by bit, every year I have a good year, I put aside a little bit for the future. A lot of Singaporeans do that in their own lives either in their own savings bank for their children or for their old age, or often they do it in religious groups, I have a good year, I give a certain proportion of my income to my church or to my temple. And I think we should take that attitude towards the reserves.

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