Final exam for second-generation leaders

Far Eastern Economic Review July 16, 1998
By Ben Dolven in Singapore

In the Lion City, one of the biggest challenges for second-generation leaders Goh Chok Tong and Lee Hsien Loong is to emerge from the long shadow of the old lion, nation-builder Lee Kuan Yew. Is the economic crisis giving them the chance to do it? Yes and no.

FREE weekends have become a scarce commodity for staff of the Monetary Authority of Singapore. Not only are they working overtime trying to deal with the region's economic crisis, they have a new boss who's determined to reshape the country's financial industry.

That boss is Deputy Prime Minister Lee Hsien Loong, the eldest son of Senior Minister Lee Kuan Yew. Known to Singaporeans as "B.G. Lee" because he's a brigadier general, the younger Lee regularly marches into the austere MAS headquarters and dishes out a week's worth of assignments in just a few hours.

His work as MAS chairman is central to Singapore's future, but it's not Lee's only job. As deputy premier, he has made almost every economic policy statement in Singapore since the crisis began. "The government is virtually saying to B.G. Lee that, 'You're the one who's got to come up with the strategies to get us out of this domestically. You're the guy who's got to solve these problems,'" says Bruce Gale, the Singapore-based director of Political & Economic Risk Consultancy.

The economic crisis that has toppled old-generation leaders in Indonesia, Thailand and South Korea is squeezing Singapore as well. But in the tightly run city state, where Lee Kuan Yew officially passed the torch to a new generation eight years ago, it's proving less a political challenge than an opportunity. By testing the mettle of B.G. Lee and the prime minister, Goh Chok Tong, the crisis is giving Singapore's second-generation leaders the chance to emerge from the shadow of the elder Lee--and to reinforce their own leadership credentials.

How are they doing? Analysts say pretty well, given the constraints. Goh has proved himself an adept diplomat in defusing tensions with Malaysia. (His attempts to find common ground between former Indonesian President Suharto and the International Monetary Fund were less successful.) But because of the central importance of economics, B.G. Lee's political career may be getting the bigger boost from these testing times. And that's important, because virtually every Singaporean assumes Lee, 46, will one day succeed Goh, 57, as prime minister--the question is when, not if.

The crisis appears to be giving B.G. Lee an opportunity to strengthen his position, says Song Seng Wun, regional economist at local brokerage G.K. Goh. "If they can go forward and foster financial liberalization and bring in foreign companies, it does make him look quite good in the present light."

But first, the Lion City's leaders have to tackle some daunting tasks. With once high-flying economies in the region now moving in reverse, Singapore stands exposed, with domestic demand contracting and its companies deeply involved in projects across Southeast Asia and China. Some economists expect a recession this year, and even the government admits there will be a sharp slowdown. More worryingly, Indonesia's sudden explosion in May--and the flood of ethnic Chinese that poured into Singapore during the upheaval--provided frightening images of regional ethnic unrest that could affect the majority-Chinese island state.

In a sense, the crisis has stood Singapore's economic dilemmas on their head. At the start of 1997, the greatest fear of this nation of 3.2 million people was that large neighbours with cheaper labour might soon be able to build office towers, ports and industrial facilities to match its own. That worry has been replaced for now by two new challenges--keeping the economy from getting sucked deeper into the crisis, and strengthening the country's position for the day growth returns to the region.

Specifically, that means banking on financial services as the most important area for future growth. The industry expanded by 11 percent in 1996 and 15 percent in 1997, outpacing the rest of the economy. But there's no doubt the crisis will hurt: Announcements of financial-industry lay-offs have come almost weekly this year, and authorities say they will be lucky to see any growth at all in 1998.

That puts B.G. Lee, who is also chair of a high-profile financial-reform committee, in the hot seat. Of course, Lee has held high-powered positions ever since he entered politics in 1984. He was trade minister during the country's last recession in 1985 and became deputy prime minister in 1990, at age 38.

The sole interruption in his upward trajectory, however, was a serious one: In 1992, he was diagnosed with malignant lymphoma, a form of cancer. For more than four years, he lowered his profile as he underwent chemotherapy. His return to the spotlight in 1997, when he took the reins of the financial-reform committee and the MAS, came with the clean bill of health he received that year.

Lee isn't about to start a revolution in the financial industry. But the reform initiative represents a substantial change for Singapore. For decades, the city state's tightly managed financial sector has lived in a protective cocoon: Confined by tight regulation, it also benefited from rules that kept foreign competition out. The last time a foreign institution received a full banking licence in Singapore was 1971. Until recently, strict regulations governing what Singaporeans could do with their mandatory savings greatly constrained the development of a local fund-management industry.

Lee's formula puts a new twist on the long-standing Singaporean strategy of actively wooing targeted businesses. For years, public bodies such as the Economic Development Board have criss-crossed the planet to bring global manufacturers to Singapore, and have created a hi-tech economy dominated by foreign multinationals. Now, Lee wants the MAS to do the same in the financial realm, while ensuring some local banks remain among the biggest players.

To achieve his goals, he has embarked on some serious institution-building. In April, the MAS set up a new industry-promotion department--a sea change in approach for an institution long considered a hard-headed enforcer of rules and regulations. The move will require a shift in thinking. "If you want to promote," Lee said in February, "then you will need people who have that temperament to knock on doors and to persuade and cajole and encourage."

He has also begun to hang some specific initiatives on the vague liberalization promises he first enunciated last year. In February, he announced a package of steps to encourage fund managers to set up shop in Singapore. In June there was a banking package, including guidelines for greater transparency, modest steps to free the hands of local banks, and promises to allow more foreign participation in the years to come. Ultimately, financial services could make up 18 percent -20 percent of the country's GDP, predicts Friedrich Wu, head of economic research at Development Bank of Singapore. That compares with around 12 percent -13 percent today.

But it will be a careful opening. Lee says he wants to ensure Singapore's financial industry does not suffer from the Wimbledon effect--a game played on your home ground where all the players are foreign. "Competition is already lapping at our doorstep," he warned in a speech in early June. "It is better to embrace liberalization proactively, at our own pace, than face the prospect of one day being swept away by the floodwaters of competition."

That's a warning to local banks: Prepare for foreign competition, or beware the consequences. And it comes from a man known for his bluntness--a taskmaster, say those who know him, a man who wants things done now and wants them done right. "Think of him as a headstrong young CEO," a local academic says of Lee's leadership style. "Think of him as a young Jack Welch."

Indeed, there are numerous parallels between Lee and the powerful General Electric chairman, known as Neutron Jack for his willingness to lop off unprofitable parts of his business empire. Consider: In February, Lee publicly took on a local reporter who had written that bank mergers--another of the government's oft-stated goals--should be delayed because they would lead to lay-offs at a time of rising unemployment. That, Lee argued, missed the point: Mergers help institutions streamline, that's why companies merge.

Lee's style of leadership owes much to his 13 years in the army, which brought him to the pinnacle of the military's general staff. He still speaks frequently of duty and honour, and the threat to society if they break down. But his top-down approach hasn't helped his popularity on the streets. Though he can dominate a boardroom of executives, Lee remains stiff in public appearances.

Early this year, he appeared on the front pages of local papers riding a mountain bike, clad in state-of-the-art biking shorts, sunglasses and an aerodynamic biking helmet. Lee, the Straits Times informed its readers, is an avid biker who rides 15 kilometres regularly. In the pictures, however, he looked more like an awkward yuppie surprised by photographers on a Sunday outing.

But to succeed at financial re-engineering, the brusque brigadier general won't need diplomatic tact or a smooth public persona--he will need political muscle. "He does have the power to make changes that others may not have," says Chia Shi Teck, a local businessman who mounted an unsuccessful independent campaign in the 1997 parliamentary elections. "In terms of being accepted by intellectuals as someone who can get things done, there's no question. But in terms of becoming a people's politician, that's something he hasn't succeeded in yet."

Goh, a more social man who plays golf and tennis, has done better on that front. Lee's elite, English-language education echoes through his fluid, seamless speeches. Goh, on the other hand, grew up speaking the Hokkien dialect--much more the language of Singapore's streets. Although he has presided over little real democratic change, most Singaporeans still consider the prime minister "one of us," according to one thirty-ish executive.

Lee Kuan Yew hasn't always made things easy for him. Early in Goh's first term, Lee said the new prime minister wasn't his first choice. In a biography published last year, Lee had less-than-glowing comments about his successor: "If he sits back and talks to his Cabinet, then he comes out with a firm position, after long discussion. But if you engage him in a press conference, you might get him to make some concessions . . . You won't get me to do this. You can talk to me till the cows come home; if I have decided this is no go, it is no go."

But Goh's softer style--his high "emotional quotient," as one economist puts it--has worked in diplomacy. Ask a group of foreign diplomats to list his attributes and nearly all will say something along the same lines: "He's a good listener." Goh's golf-course diplomacy cemented what several diplomats characterize as a very close relationship with President Bill Clinton. After a year of contentious relations with Malaysia following Lee Kuan Yew's derogatory statements in 1997 about the state of Johor, Singapore and its northern neighbour have declared relations thawed.

On Indonesia, Goh was less successful--though not for lack of trying. In late 1997, he emerged as a key intermediary in Western efforts to find enough common ground with Suharto to provide international financial aid to the country. But ultimately, Suharto failed to live up to a succession of agreements and resigned in May. Relations with the new government of President B.J. Habibie have been frosty.

Diplomatic finesse is in high demand in the wake of the massive changes that have reshaped Indonesia and the region. And if B.G. Lee is next in line, he has some work to do. His personal relationships in Malaysia, for instance, aren't well developed, say political analysts in Kuala Lumpur. "Is Anwar Ibrahim on a phone-call basis with B.G. Lee?" a Malaysian academic asks sceptically, referring to Malaysia's deputy prime minister. "I'm not sure anyone's on a phone-call basis with B.G. Lee."

With property prices tumbling and unemployment on the rise, though, it's economic management that concerns most Singaporeans. And that puts Lee in the spotlight.

Of course, the second generation's approach isn't a truly radical shift in Singapore, either economically or politically. In neighbouring countries, many younger leaders stand in marked contrast to their predecessors because of their fluency in the language of global capitalism. But B.G. Lee's management represents an evolution, not a break, from that of his father.

The elder Lee was well ahead of the curve in embracing globalization for Singapore's economy. He was also vigilant against the corruption that helped undermine governments in Jakarta, Bangkok and Seoul. That's probably one reason the economic crisis doesn't appear to be rocking Singapore's tightly controlled political system.

Goh's diplomacy, meanwhile, is different only stylistically from that of Lee Kuan Yew. One Singaporean diplomat describes how the down-to-earth Goh caught a dignified Kuala Lumpur waiter off guard by ordering items that weren't on the swank hotel restaurant's menu--sending waiters scurrying out to street markets to produce them. But the younger prime minister hasn't substantively altered Singapore's diplomatic role in the region: It remains a small state, run primarily by ethnic-Chinese leaders, that touts the open market and is nervously surrounded by larger Islamic neighbours.

At home, Goh has overseen a slow, gradual relaxation of what's permitted in the arts. A new rating system for films, introduced in 1991, allowed racier pictures to hit local screens. Singapore had its first entry at the Cannes Film Festival in 1996, a decidedly gritty look at life in a public-housing block. And bookstores have begun stocking titles that deal with homosexuality and other once-taboo subjects. Though authorities have tried to block certain Internet Web sites, the spread of personal computers has brought in vast amounts of new information.

But in politics, there's little sign of a looser approach. Goh conducted his campaign for the 1997 elections in extremely hard-hitting fashion: He warned voters that their neighbourhoods could become slums if they elected opposition candidates. Last year, he joined Lee Kuan Yew and B.G. Lee in lodging libel suits against opposition politicians Tang Liang Hong and J.B. Jeyaretnam.

So while the second generation has begun to exert itself in the economic and diplomatic realms, the outline of Lee Kuan Yew's shadow has largely held its shape. A further relaxation of political expression may have to wait for yet another generational shift. "When a third generation of leaders come in, I think there will be a marked change," says Chiam See Tong, one of two oppositionists among parliament's 83 elected members. "If you want a clean break, you have to have a much younger bunch."