That investment set off a political maelstrom. Demonstrators were angry not only because Mr Thaksin—legally—paid no tax on his gains ($1.9 billion), but also because a foreign company would now own a significant stake in the Thai telecom infrastructure. Sondhi Limthongkul, the maverick media tycoon and one of the leaders of the anti-Thaksin campaign, described the investment as “economic imperialism.” Appearing baffled, Singapore said Temasek operated independently on strictly commercial grounds and that its government had nothing to do with Temasek’s operations, but the demonstrators in Bangkok did not believe it.

In contrast, around the same time, Temasek acquired the late Khoo Teck Puat’s 11.55% stake (reportedly worth $4 billion) in Standard Chartered Bank in the United Kingdom, which has significant Asian operations. There will be regulatory scrutiny in London, but investors—and even Standard Chartered’s management—welcomed Temasek as a long-term investor.

These experiences parallel what has happened to Singapore Airlines (SIA), one of the jewels in Temasek’s crown. In the 1990s, Temasek made several vain attempts to launch an airline (on its own and in partnership with the Tata group) in India. Despite apparent political support from New Delhi, opposition from domestic competitors and some politicians prevailed, and the plan did not take off. Again, in contrast, SIA’s investment of nearly $1 billion for a 49% stake in Virgin Atlantic, the British carrier, went ahead without any protests. If anything, some analysts felt that SIA paid too much.

Singapore decided long ago that it must outrun its neighbors in order to offset its own lack of natural resources. This is why it went against the prevailing wisdom of other newly decolonized countries and chose to run an outwardly oriented economy. It shunned import substitution and reduced tariffs, inviting multinationals to set up shop.

Essentially, Singapore decided to leapfrog over the region and plug into the global economy by becoming a vital middleman—not one who adds costs, but one who adds value. By running an efficient port, an excellent airline, a busy airport, and an active shipyard, it benefited from the global economy. Multinationals used it as their base in the region. Over the next few decades, Singapore was well on its way to complete its journey from the Third World to the First, as Singapore’s founding father, Lee Kuan Yew, puts it in his autobiography.

As a tiny island state with a population of just over four million, it was inevitable that Singapore would run out of domestic investment opportunities. Going regional, therefore, became imperative. And that’s where politics kicked in. For the neighbors, Singapore is not only a Chinese island in a Malay sea, but a well capitalized, prosperous neighbor with a much larger per capita income, and a huge nominal GDP (bigger than all the Association of Southeast Asian Nations countries except Indonesia and Thailand).

Singapore has technologically advanced armed forces and a large defense budget. It is politically close to Australia and the United States, and it is seen as sympathetic to China’s emergence. It should therefore not surprise anyone that Thailand and India on one hand, and the United Kingdom on the other, would view Temasek’s—or its subsidiaries’—investments differently.

The contrasting responses are indicative of how Singapore is perceived in the region and beyond. In Europe and America, Singapore is known for its growth-oriented economy, a model of efficiency. In Southeast Asia and its environs, it is viewed as a formidable force which punches above its weight. Its governance model of state capitalism has meant that its political, bureaucratic and corporate worlds often seem inextricable.

Temasek officials assert that it is not “a government-directed policy agency,” and that “Temasek-linked companies receive no favors from the government.” The companies make their own investment and business decisions based on their best interests, they often say.

But Temasek is still owned by Singapore’s finance ministry, and it began as an investment vehicle to mobilize resources and capital for Singapore’s leading government-linked companies (GLCs)—DBS Bank, Singapore Telecom, Keppel, SembCorp, SIA, Port of Singapore Authority (PSA), and others. Many have an outstanding record: SIA is not only profitable but outperforms global airlines in passenger satisfaction surveys. PSA also enjoys healthy margins.

However, critics note that some of the companies are natural monopolies, or that they operate in a protected market. And Singapore’s GLCs are part of an intricate web through which the government exercises its authority over the way the country’s resources and wealth are generated, allocated and managed, job opportunities created and contracts awarded.

With opportunities limited in Singapore and a portfolio of $65 billion, conventional wisdom has it that in order to improve its returns, Temasek should increase its overseas exposure. Currently, some 51% of its portfolio is invested overseas, with 18% in Australia, 9% in other Asean countries, and 9% in China and East Asia. Temasek’s net profit last year was $4.8 billion on group revenue of $43.4 billion and an asset base of $125.5 billion.

However, when Temasek invests in the region, its neighbors do not see it as an Asian conglomerate, but as an arm of Singapore, Inc. That perception has nothing to do with how efficient some Temasek companies are and everything to do with their concern that a small, powerful state is seeking control of strategic sectors of their economies.

In Singapore’s case, the neighbors’ concerns increase because in their eyes Temasek is not any other prominent company, but it is perceived as being close to the Singaporean ruling class. Its CEO, Ho Ching, is the wife of Prime Minister Lee Hsien Loong, who is the son of Minister Mentor Lee Kuan Yew. The prime minister’s younger brother, Lee Hsien Yang, runs Singapore Telecom, in which Temasek has a large stake.

Whenever critics have commented on the Lee family’s dominance in Singapore, the republic has reacted promptly, saying that the Lees are an exceptional family and cannot be discriminated against merely because they are related to one another. Also, the government adds, being a small nation, Singapore’s talent pool is limited.

Beyond that apprehension, Singapore’s neighbors are also concerned that its dominance in their economies would prevent them from moving up the value chain. They do not want to become Singapore’s satellites. According to Mukul Asher, professor of public policy at the National University of Singapore: “It is an entrenched perception in the region that when dealing with Singapore companies, you are not dealing with just a commercial entity, but with a wealthy and resourceful state.”

Indeed, Singapore loses no opportunity to snap up assets, opportunities and resources in the region. At home, it offers good jobs that attract people (from South and Southeast Asia, to meet labor shortages at all levels); it runs a well regulated financial center that lures wealth (many of the region’s wealthy individuals park their riches in Singapore, safely beyond the prying eyes of their home-country tax authorities); and it ensures a stable polity that draws property buyers (particularly ethnic Chinese Indonesians). None of this excites its neighbors, who see their talent and wealth migrate to Singapore.

Yet Temasek has built a respectable overseas portfolio, which includes stakes in ICICI Bank and Mahindra and Mahindra in India, as well as stakes in China Construction Bank and COSCO Holdings in mainland China, and in Indonesia’s Bank Danamon and Hana Bank in South Korea. Temasek’s overseas exposure has grown indirectly as well, as its companies are also active abroad: Singapore Telecom owns nearly a third of Indonesia’s leading cellphone operator, Telekomunikasi Selular (Telkomsel) and another Temasek affiliate, ST Telemedia, has a sizeable stake in Indosat—a stake which raised concerns about Singapore dominating Indonesia’s telecom infrastructure.

Following similar logic, India did not approve st Telemedia’s entry into mobile operator Idea Cellular, because SingTel already has a stake in Bharti Televentures, a rival. Meanwhile, Korea turned down DBS Bank’s bid for Korea Exchange Bank, because under Korean regulations, Temasek (as DBS’s parent) is considered a nonbanking group. Likewise, Temasek could not increase its stake in ICICI Bank because another state-owned Singaporean entity, the Government of Singapore Investment Corp. (GIC) also has a stake in that bank, and if Temasek were permitted to increase its stake, Singaporean interests in ICICI Bank would have gone beyond 10%, the limit Indian regulations allow. Temasek has not been able to convince Indian regulators that it is independent from GIC or the Singapore government.

Many of the executives of Singapore’s GLCs, including Temasek, have spent a large part of their careers as civil servants. Bureaucracy anywhere is designed to be risk-averse; its management ethos is not wired to produce the kind of returns that markets sit up and notice. As risk avoidance becomes a priority, executives take comfort by tying up with parastatals, or large corporations run by well-connected tycoons. Changing that aspect would require a change in the mindset of Singapore’s establishment.

When Temasek published its first financial report in 2004, Standard and Poor’s said that its investment strategy had produced “inferior” returns over the five previous years when compared with similar companies. A 2004 study said that Temasek’s major listed companies had yielded a return of only 1.7% annually since their listings. Low returns was a matter raised in the Singapore Parliament as well.

But such criticism misses the broader point. Temasek’s mission statement is to create and maximize long-term shareholder value. But Singapore’s broader strategic objectives may not necessarily require Temasek to do so. Instead of challenging the notion that Temasek is a branch of the Singaporean government, Singapore should recognize how that relationship it is perceived in the region and attempt to improve its image. That would cause less heartburn, and Singapore, Inc. will be able to pursue deals more readily, even if it means ceding the regional field to competitors.

Mr Tripathi, a former Singapore correspondent of the REVIEW, is a writer based in London.

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