Voicing optimism for the Republic's future, he said that Singapore had managed to become a First World nation by running on "special rules" — from cost cutting at Singapore Airlines during the Sars outbreak last year to allowing the entry of low-cost airlines in order to maintain Singapore's status as an international air hub.

"As long as we remain special, we remain in business," said Mr Lee before taking questions from the audience, which included business leaders from 40 countries.

Two "enormous engines of growth" — China and India — will help Singapore grow over the next few years through comprehensive economic partnerships, he said.

Charting the way forward, he said Singapore would have to maintain its reliance on the growth engines of Japan, Europe and the United States, while riding high on the growth of China and India — and tap into the Arab countries.

Since the 911 terrorist attacks, people from Arab countries have found it hard to gain entry into Europe and the US as tourists and even when seeking health services.

Mr Lee said Singapore should look into tapping these sectors and also that of Islamic banking.

Singapore's edge lies in its human resources, Mr Lee said.

"I'm not so worried about our neighbours because they cannot quite catch up so quickly. You can build infrastructure, but you can't change the quality of the people quickly," he said.

He cited two advantages Singapore enjoys over its neighbours: Proficiency in the English language — he pointed out that Malaysia is just "going back to English" in schools — and the more open environment here in the form of a "free market for both goods and talent".

"Singapore excelled because it was the education centre of the region."

If one in four foreign students from China or India stayed behind in Singapore, he said, Singapore's talent pool would outweigh that of any neighbouring country.

"As long as we keep our education standard higher than our neighbours, we can do better than them," he said.

During the question period, Mr Andy Ong, chief executive officer of the Entrepreneur's Resource Centre, a commercial set-up providing training courses for aspiring entrepreneurs, asked how effective Singapore's education system was in terms of promoting the spirit of enterprise.

Mr Lee said: "You either have it in you to be an entrepreneur or a writer or artist — or you haven't. If you have it in you, even if you are deprived of education you will still make it because you have that hunger and drive."

He added, to chuckles from the crowd: "I'm not popular for saying this, but what will make that difference is when you have graduates marrying graduates."

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