From national development to economic diplomacy? Governing Singapore's sovereign wealth funds

Abstract

This paper examines the changing role and governance of Singapore's two sovereign wealth funds (SWFs) over the past three decades – from their earlier participation in domestic national development to their more active involvement in Singapore's economic diplomacy. Based on a variety of sources and data, I argue that these two SWFs, Temasek Holdings and the Government of Singapore Investment Corporation, are state-sanctioned means to secure the economic future of Singapore; they are not strategic devices developed by the Singapore government to pose geopolitical or economic threats on other states. Over time, their economic functions and strategic orientations have evolved with the city-state's dynamic developmental trajectories in the global economy. In the post-Cold War era of global finance, these state-controlled and professionally managed financial investment vehicles are more visible and active in their global expansion and acquisition trails. There are thus significant challenges to their strategic governance and international legitimacy in this new world order. This paper considers some of these challenges in light of recent development in the two SWFs and assesses their organizational and institutional responses to such challenges in today's competitive global economy. This case study of Singapore's SWFs illustrates the critical importance for understanding the rise of SWFs from small states in the evolving global system.

Keywords:

• strategic governance
• economic diplomacy
• developmental state
• sovereign wealth funds
• Singapore

Acknowledgments

This is a substantially revised version of an earlier paper first presented at the Annual Meeting of the Association of American Geographers, Washington, DC, USA, 14–18 April 2010. I would like to thank Gordon Clark and Ashby Monk for kindly inviting and funding my participation in the session on ‘The political geography of sovereign wealth funds’. I am also grateful to Dan Haberly and the two anonymous referees of The Pacific Review whose constructive comments were very helpful in my revisions. I am solely responsible for the content of this paper.

Henry Wai-chung Yeung, Ph.D., is Professor of Economic Geography at the Department of Geography, National University of Singapore (NUS), Singapore. He was a recipient of many research awards, including Outstanding Researcher Award from NUS, the Commonwealth Fellowship, the Fulbright Foreign Research Award and the Rockefeller Foundation's Team Residency in Bellagio, Italy. His research interests cover broadly theories and the geography of transnational corporations, Asian firms and their overseas operations, and Chinese business networks in the Asia-Pacific region. Professor Yeung is the author of four books and editor or co-editor of another five books. He has over 85 research papers published or forthcoming in internationally refereed journals and 40 chapters in books. He is Editor of Environment and Planning A, Economic Geography and Review of International Political Economy, Asia-Pacific Editor of Global Networks, Contributing Editor of International Journal of Urban and Regional Research and Business Manager of Singapore Journal of Tropical Geography. He sits on the editorial boards of 11 other international journals in the fields of human geography, management, urban studies, area studies and general social science. Two of his earlier papers appeared in The Pacific Review (1996 and 2000).

Notes

1. Interestingly, the GIC's website indicates only a very modest claim of managing funds in excess of US$100 billion as of March 2010 (http://www.gic.com.sg/about/overview, accessed on 29 March 2010).

2. By March 2010, Temasek Holdings’ total portfolio was valued at S$186 billion or about US$140 billion (Temasek Review 2010, p. 6).

3. In May 2010, six of these firms were no longer state owned. Jurong Shipyard remains a wholly owned subsidiary of Sembcorp Industries, a Temasek Holdings-controlled public company.

4. I would like to thank an anonymous referee for reminding me of this important point.

5. Temasek Holdings’ last placement was in September 2005 of a 10-year bond for US$1.75 billion with a fixed rate of 4.5% (Elson 2008: 86).

6. Thanks to Dan Haberly for this point, and see a more detailed and grounded analysis in Wu and Seah (2008), Shih (2009), and Clark and Monk (2010b).

7. Notable exceptions are the GIC's 9% stake in UBS, bought in December 2007, and 3.5% stake in Citigroup, acquired in January 2008. In both cases, even though the GIC had emerged as the single largest shareholder, it did not ask for or, when offered, take up a management role in these iconic global financial institutions.

8. See Worthington (2003: 202–213) for a detailed analysis of these senior executives as of 1998.