Thoughts on economics and liberty

Why Temasek is a bad idea #1

I’ve discussed Temasek here. Some more questions have arisen re: the Singapore “model”, in particular, whether India should learn from the Temasek model. [See Temasek faq]

My response is no. While a strict Temasek type model (which even Temasek does not abide by) might be superior to an autonomously managed government owned GBE model, but there is no reason to suggest it is better to a fully privatised marketpalce with appropriate regulation.

I’ll post relevant info as I find time. This one is an extract from Kathryn C. Lavelle’s THE BUSINESS OF GOVERNMENTS: NATIONALISM IN THE CONTEXT OF SOVEREIGNWEALTH FUNDS AND STATE-OWNED ENTERPRISES, Journal of International Affairs, Vol. 62, No. 1, Global Finance (FALL/WINTER2008), pp. 131-147.

See also this: Temasek’s lack of transparency sets bad tone and A Brief Research Note on Temasek Holdings And Singapore: Mr. Madoff Goes to Singapore.

There has never been a clean separation between government and Temasek:
“Singaporeans are deeply displeased with their Prime Minister’s wife, Ho Ching. She has run Temasek Holdings, the state-owned fund, since 2002, and has presided over a spectacular series of misjudgments that have lost Singaporeans billions.” [Source]

See also: Christopher Chen’s “Solving the Puzzle of Corporate Governance of State-Owned Enterprises: The Path of the Temasek Model in Singapore and Lessons for China”, Northwestern Journal of International Law & Business. Spring2016, Vol. 36 Issue 2, p.303-370.


When the government organized Temasek Holdings in 1974, it transferred stakes of approximately thirty such government-owned firms, which had been held by the Ministry of Finance, to the new, independent entity. At the fund’s thirtieth anniversary dinner in 2004, President S. R. Nathan stated that “a conscious effort was made by the government to distance itself from the day-to-day decision making of the companies in which it had a stake.” These companies would not enjoy any subsidies or protections, but would be subject to market discipline. This distance between firms, the fund and the state is taken seriously. As of 2008, Temasek denies that it is a SWF. Its governance structure is one in which the fund does not officially discuss its investment and divestment activities with the government. The constitution of the country also has provisions that separate the board and management from government interference. While the state may indeed have such divisions among government and management, Temasek is not so easily completely separated from the nation, or from the people, of Singapore. The Ministry of Finance remains Temasek’s sole share holder. Ho Ching was appointed executive director in 2002. She is the second wife of Lee Hsien Loong, who became Prime Minister in 2004.

As a result of the initial transfer of government stakes to Temasek in the 1970s, many of the national firms that Temasek owns are deeply embedded in the state’s development strategy, and their control cannot be transferred outside of it. Approximately 33 percent of Temasek’s holdings remain in the local economy. For example, SingTel is such a firm whose roots extend to the end of the nineteenth century when Bennet Pell started a private, fifty-line telephone exchange in the city, making Singapore one of the first cities in the East to have telephone service. This early start helped the then colony become a major communications hub in the region. The British later managed the telephone service through a Telephone Department established for that purpose. When the government took over basic infrastructure activities during the period of independence, the Telecommunication Authority of Singapore (TAS) was created in response to the withdrawal of British forces and the realization that there would be no common market with Malaysia. In anticipation of future losses in trade and other business activities, Singapore began to look farther abroad, and initial concepts for a so-called global city appeared. The Telecommunications Authority of Singapore (providing international services) merged with the Singapore Telephone Board (providing local services) in 1974, at which time the government’s shares were transferred to Temasek. Singapore Telecom was converted into a corporation eighteen years later and was named SingTel, or Singapore Telecommunications Ltd.

Pushed by the World Trade Organization to liberalize its financial and telecom sectors, the government looked to expand its investments overseas. SingTel followed the government strategy of building an external economy and moved into the international arena in 2001 by acquiring Australia’s second largest telecommunications provider, as well as other providers in Thailand, Hong Kong, India, the Philippines, Taiwan and Indonesia. When SingTel became a public company in 1993, the initial public offering represented only 11 percent of its shares, with the remainder held by Temasek Holdings. Public shares were offered in three tranches: A shares (given to Singapore citizens at a discount), B shares and C shares. Citizens who used their mandatory social security savings to purchase shares received an additional discount. In later transactions, the government encouraged the enlargement of the base of share owning citizens by giving the equivalent of 10 percent of their original holdings at later dates in a “Loyalty Share Scheme” in November 1994, 1995, 1997 and 1999. Under this arrangement, 600 Group A SingTel shares in 1993 would generate an additional 240 SingTel shares by 1999.

As of 30 May 2008, Temasek Holdings owned 54.11 percent of the total share capital issued. Therefore, less than half of the corporation is held or traded in the open market, while a significant percentage of the national shareholder base possesses a strong financial incentive not to sell. The political problem with Temasek’s (and by association SingTel’s) expansion is that telecom firms are natural monopolies. The current Prime Minister’s younger brother manages SingTel. States in the region have sought to keep the firm out of certain key sectors because they view it as an investment vehicle for the state of Singapore—an intrusion into the governance of their own economies—despite the fact that many of the firms in which Temasek invests are well run and highly prof itable.

Temasek’s purchase of the Thai family conglomerate Shin Corporation (the telecommunications firm of then Prime Minister Thaksin Shinawatra) is believed to be one of the factors that contributed to the 2006 coup, as many Thais felt that the sale transferred a national asset to foreigners. Other factors that contributed to this tension, however, may have been the structure of the deal that allowed some to avoid paying tax on the proceeds. Temasek thus exhibits many of the contradictions of both SWFs and SOEs. It remains chiefly invested in the national economy of Singapore through its stakes in firms whose control cannot be transferred outside the state, such as SingTel and Singapore Airlines. SingTel represents by far the largest market capitalization on the Singapore Stock Exchange. Nonetheless, the next largest include Nikko Cordial Corporation, Nomura Holdings, DBS Group Holdings, Oversea-Chinese Banking Corporation Ltd., Singapore Airlines and United Overseas Bank. Of these, two are Japanese firms (Nikko and Nomura); one is the national airline (Singapore Airlines) whose majority owner is Temasek; two are private sector companies (United Overseas Bank and Oversea-Chinese Banking Corporation Ltd.); and the DBS group is a former development finance institution of the government, also currently owned by Temasek. No single pattern prevails among the largest firms. Restructuring within companies is ongoing.

Sanjeev Sabhlok

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