Singapore will fail

Switzerland and Singapore - the strained and outdated comparison of two successful countries

The former central bank president Hildebrand recently proposed a state fund for Switzerland based on the Singapore model. Local admiration for the city-state is partly mutual. Nevertheless, the two states differ in key points.

The Swiss respect Singapore, the Singaporeans admire Switzerland. In the 19th century, confederates who enjoyed shooting founded the first Swiss Club in Asia; They brought their carbines and ammunition with them from Switzerland. The mutual sympathies took their course, and Lee Kuan Yew, the legendary father of Singapore, later cited Switzerland as a development model. In 2007, the Government of Singapore Investment Corporation (GIC) helped the major Swiss bank UBS.

Niches in the concert of the great

In this tradition, the former head of the Swiss National Bank (SNB), Philipp Hildebrand, recently brought up the idea of ​​a sovereign wealth fund based on the Singapore model in an interview with “NZZ am Sonntag”. Switzerland and Singapore are two smaller but successful nations that have found their niches in the concert of the big and very big.

They have high per capita incomes, regularly occupy top positions in international rankings, have top universities, compete for large corporations - and more recently for the World Economic Forum.

The two countries are - or at least have been in the past - proud of their militia armies. In both directions, people cultivated spiritual national defense and were spared wars after the founding of the states. Careers in business, politics and the military often run - or have run - in parallel.

The currencies, the Swiss franc and the Singapore dollar, are just as stable as the political systems. And the fact that people are more involved internationally today than in the past has no power-political reasons whatsoever. In both cases, this arises more from economic interests.

A lever of diplomacy

The list of real and superficial similarities between Switzerland and its imaginary sister republic in the tropics could easily be continued: multicultural and multilingual base, internationally significant financial and banking centers, intensive management of the resources of water and human capital, relatively low tax rates and tied pension systems. The latter amount to gigantic sums.

The Swiss pension funds alone managed assets of CHF 1,005 billion in 2019. Combined, Singapore's two sovereign wealth funds and the central bank, the Monetary Authority of Singapore (MAS), are likely to have even more assets. These institutions embody the enormous financial strength of the city-state, which is used as leverage in diplomacy and in international financial institutions, as well as for investments abroad. In the jargon of government representatives, a picture from martial arts is often used, namely that of boxer Manny Pacquiao: You fight like the little Filipino in a higher weight class, but thanks to speed and clout you are successful even there.

Don't be afraid of amalgamations

When comparing countries, however, it is easy to forget how different Switzerland and Singapore are despite everything. This can be illustrated by the Hildebrand case of all things: the former President of the Swiss National Bank stumbled upon a controversial dollar deal by his wife at the time, as is well known.

How would something like this have been received in Singapore? There, the Prime Minister's wife doesn't just manage a few private dollar accounts. No, the electrical engineer has headed the billion dollar state fund Temasek herself as CEO since 2004. She previously worked for the state arms company Singapore Technologies.

Imagine something like this in Switzerland: Bern is looking for a new head of the SNB; Ms. Parmelin or Ms. Maurer are proposed for the Presidium of the National Bank. Parliament, the press and the public got excited, and not just because of the obvious conflicts of interest. The conclusion would be clear: unthinkable!

That wasn't a problem in Singapore. There the question in parliament on the occasion of the nomination for the Temasek chief position was put dialectically the other way round: Should or should the family relationship stand in the way of such a vocation?

Close management team

As a reminder, when the visionary Lee Kuan Yew presented Switzerland as a role model in the 1980s, whose level of development had to be achieved, he had a lot in mind, but certainly not an approximation of the political situation. Neither does his son, Prime Minister Lee Hsien Long: party diversity and concordance are an abomination for the party he heads and which has been at the helm since 1965. Direct democratic instruments such as initiatives or referenda are unthinkable in the Singapore system.

The top-down principle and the concentration of power on a narrow circle of management do not mean a loss of efficiency, on the contrary: Good governance is a reality in Singapore and much more than just a slogan. On the other hand, transparency, institutional separations, the courage to ask questions and debate, and the culture of discussion in general, are sometimes neglected.

Black box sovereign wealth fund

For example, the Temasek sovereign wealth fund, founded in 1974, was a black box for a long time. The investment company, which is subordinate to the Ministry of Finance and manages the state assets allocated to it, only lifted the veil on its shareholding structure, size and returns in 2004. At that time Temasek was handling net assets of just under 200 billion singles. $. Today it is officially 307 billion sing. $ 200 billion. There is still no clarity about the salaries of the top people, including the Prime Minister's wife.

The largest sovereign wealth fund in the world

Assets Under Management (End of February 2021), in billion $

At Temasek, the investments in (large) state-owned companies that were viewed as strategic were traditionally bundled first. The holding company still manages shares in all of Singapore's major corporations, such as the Singapore Airlines, the Changi Airport Group, the DBS bank and Singtel.

It was only fifteen years ago that the company began to open up to other countries with a clear focus as a “value investor” and a long horizon; China as an investment destination now occupies a special position with a share of 29%. Temasek also proved to be an active investor in 2020. Among other things, one is involved in the German Biontech.

GIC Private Limited, the second sovereign wealth fund founded in 1981, invests part of Singapore's currency reserves and is more conservative than Temasek. This is expressed, for example, in the real return of 2.7% annualized (as of the end of March 2020) over the last twenty years; at Temasek it is 6%.

The proportion of government bonds and cash reserves, which make up around two fifths, is larger at GIC. Investments in private equity, real estate and alternative investments, on the other hand, are lower than with Temasek. Transparency was not invented at GIC either: They are silent about the amount of fixed assets. The phrase "over $ 100 billion" is obviously an understatement.

Both state funds have in common the long-term commitments and the substantial distributions to the state treasury. They regularly reach double-digit billions, for example a total of 17 billion singles in 2019. $.

The Swiss discussion

For Singapore, sovereign wealth funds have long been part of the arsenal of asset growth and livelihood security. The proposal for a comparable investment vehicle is relatively new for Switzerland, but has been appearing regularly for a number of years. The idea of ​​a sovereign wealth fund is not entirely alien: The Compenswiss AHV compensation fund is already such a vehicle - but with fixed assets of CHF 38.5 billion (end of 2020) it is rather small.

The starting point of the discussions about the really big money in this country were the low or even negative interest rates, at which the state has been able to finance itself for some time, and the currency reserves that have been accumulated in recent years.

Proponents point to the goals of increasing returns and investing in the future. Last year, politicians from the center-party (then CVP) called for a fund to better deal with the effects of the pandemic. The federal government could also participate in “systemically important companies” that were shaken by the Corona crisis, it said.

Politicians in Switzerland like to look at the sharp rise in foreign exchange holdings of the Swiss National Bank (SNB). As in the case of GIC in Singapore, some of these could be managed in a sovereign wealth fund. The SNB argues that it invests the currency reserves itself, whereby the investment policy is subordinate to the monetary policy mandate. The National Bank says it needs the foreign exchange to implement monetary policy. Strategic investments or flirting with financial diplomacy should not play a role.

The democratic institutions in Switzerland are incompatible with the idea of ​​a sovereign wealth fund that wants to buy influence abroad and pursues strategic goals. While in the city-state of Singapore the use of public funds hardly causes any discussion, this is different in Switzerland. The political desires are diverse and great. The Swiss system does not get along well with state capitalism and a financial diplomacy based on it.