VZCZCXRO9984
RR RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHGP #0689/01 0660049
ZNR UUUUU ZZH
R 070049Z MAR 06
FM AMEMBASSY SINGAPORE
TO RUEHC/SECSTATE WASHDC 9039
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUEAWJA/DEPT OF JUSTICE WASHDC
RUEANQT/FINCEN VIENNA VA
RUCNASE/ASEAN MEMBER COLLECTIVE
RUEHBJ/AMEMBASSY BEIJING 2106
RUEHNE/AMEMBASSY NEW DELHI 1470
RUEHIN/AIT TAIPEI 6347
RUEHHK/AMCONSUL HONG KONG 5952

UNCLAS SECTION 01 OF 04 SINGAPORE 000689 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
E.O. 12356: N/A 
TAGS: EFIN ECON ETRD ETTC EINV ETRD PREL SN
 
SUBJECT: TREASURY U/S ADAMS' VISIT TO SINGAPORE 
 
¶1. (SBU) Summary:  In meetings with Singapore's top 
leadership, Treasury Under Secretary for International 
Affairs Timothy Adams emphasized U.S. commitment to the 
Southeast Asia region.  Prime Minister Lee said that U.S. 
preoccupation with other parts of the world fueled a 
perception of neglect.  He stressed that the United States 
needed to play a key role in ASEAN integration through fora 
such as the East Asia Summit (EAS).  Both PM Lee and Senior 
Minister Goh were relatively unconcerned about downside 
risks associated with the Chiang Mai Initiative, arguing 
that it provided reassurances to regional governments and a 
bond market alternative to the IMF.  U/S Adams underscored 
U.S.-led efforts to increase Asia's IMF representation. 
Despite Singapore's recent strong economic performance, PM 
Lee stressed the need to close a growing income gap through 
better education, workforce retraining, and continued 
promotion of a high savings rate.  PM Lee asserted that 
obstacles to negotiating a bilateral Double Taxation 
Agreement (DTA) could be surmounted.  FM Yeo observed that 
rising protectionist sentiment in the United States, and in 
particular the Dubai ports deal controversy, was fueling the 
perception that Muslim money was not welcome in the West; 
Singapore was beginning to see an increase in flows of 
petrodollar wealth to Southeast Asia as a result.  SM Goh 
told U/S Adams that he worried most about the destabilizing 
effects of terrorism.  He welcomed reduced tensions between 
China and Taiwan, but said that rising strains between China 
and Japan were reverberating throughout the region.  End 
Summary. 
 
¶2.  (U) Visiting Singapore for the first time February 24- 
26, Treasury U/S Adams met with Prime Minister and Finance 
Minister Lee Hsien Loong, Senior Minister and Monetary 
Authority of Singapore Chairman Goh Chok Tong, and Foreign 
Minister George Yeo.  He also met with Government Investment 
Corporation (GIC) Special Investments President Dr. Teh Kok 
Peng, Singapore-based financial analysts and business 
representatives from the U.S.-ASEAN Business Council. 
 
Overcoming Misperceptions of U.S. Disinterest 
--------------------------------------------- 
 
¶3.  (SBU) U/S Adams told PM Lee that part of the reason for 
his visit to Singapore was to reaffirm U.S. commitment to 
the region.  PM Lee said that the perception of a 
disinterested United States was not misplaced given its many 
distractions elsewhere.  He lamented this development, 
stressing that the region was changing, and not just in 
terms of the China-India economic growth story; the United 
States also needed to keep an eye on other players in the 
region.  He noted that Singapore's trade with China had 
increased nearly 50 percent in the past year and about 30 
percent with India, albeit from a lower base.  Together, 
China, Hong Kong and Taiwan were now a larger trading 
partner of Singapore's than the United States, he observed. 
 
U.S. Role in ASEAN Integration 
------------------------------ 
 
¶4.  (SBU) Asked how the United States should respond to 
ASEAN integration efforts such as the EAS, PM Lee said the 
United States must participate in such fora. 
Regionalization was inevitable, he argued; the only way for 
the United States to cope would be to establish and maintain 
deep links across the Pacific.  He noted that even ASEAN 
members seemingly more resistant to or suspicious of U.S. 
engagement (e.g., Indonesia) privately welcomed a U.S. 
presence in the region as a source of stability.  PM Lee 
suggested that it would be a real loss if the United States 
distanced itself from ASEAN over Burma.  FM Yeo stressed 
that Asia could achieve another generation of peace, but 
only if the United States stayed involved. 
 
¶5.  (SBU) SM Goh noted that, although China's rise had 
helped spur greater ASEAN integration, this process began 
much earlier.  He recalled wryly that ASEAN was much more 
serious about integration now than it had been during his 
earlier stint as Trade and Industry Minister when goods 
proposed by his neighbors for preferential treatment 
included things like snow plows.  Currently, this process 
was well underway, underpinned by a number of free trade 
agreements, including the ASEAN and China-ASEAN FTAs, as 
well as an increasing number of open skies agreements, he 
 
SINGAPORE 00000689  002 OF 004 
 
 
said. 
 
Chiang Mai Initiative a Useful "Psychological Arrangement" 
--------------------------------------------- ------------- 
 
¶6.  (SBU) U/S Adams said he worried that, in addition to the 
EAS, undertakings such as the Chiang Mai Initiative were 
moving Southeast Asia toward increasing regionalization and 
less engagement with established global institutions.  PM 
Lee said that he did not anticipate any negative fallout 
from the Chiang Mai Initiative, suggesting that it was only 
natural for regional governments to support development of a 
bond market alternative to the International Monetary Fund 
(IMF).  Chiang Mai will not solve all our problems, but it 
will help mitigate future risks, he concluded.  SM Goh 
deemed the Chiang Mai Initiative a useful "psychological 
arrangement" that reassured countries in the region, but 
observed that if there were another financial crisis along 
the lines of 1997-98, no country would be immune.  He 
highlighted a similar process in developing the Asian Bond 
Fund, in which eleven Southeast Asian central banks 
participated.  Asked if India were involved, SM Goh said 
that this would be possible under the EAS mechanism.  He 
dispelled the notion of a common Asian currency, arguing 
that economic disparities among potential participants made 
this a long-term endeavor, at best. 
 
Increasing Asia's IMF Presence 
------------------------------ 
 
¶7.  (SBU) U/S Adams said that the United States was leading 
an effort to reorganize the IMF's representation to give 
more weight to Asian member countries.  He cautioned that 
European members, which would be obliged to relinquish IMF 
Board seats in order to implement this restructuring, were 
resisting these efforts. 
 
Singapore's Economy: Strong but Uncertain 
----------------------------------------- 
 
¶8.  (U) Although Singapore had achieved strong economic 
growth in 2004 and 2005, longer-term prospects depended on 
strategic restructuring in areas such as education and 
workforce retraining, PM Lee explained.  Lower income 
households were falling behind.  Consistent annual growth 
averaging 9 to 10 percent was a thing of the past and the 
"trickle down" effect had commensurately diminished in 
recent years, he said.  PM Lee stressed that the government 
could not sit idly by, nor could it promote a welfare state 
system without engendering European-style side-effects. 
Singapore instead had opted to encourage a high savings rate 
and to fold a portion of these assets into the budget to 
benefit lower income families.  This mechanism, however, did 
not fully address the wealth gap but rather only provided 
reassurances to these groups, he admitted. 
 
¶9.  (U) SM Goh highlighted Singapore's ageing population and 
the need to compete with China and India as particular areas 
of concern for the economy; in addition, many Singaporeans, 
well educated and fluent in English, were pursuing 
opportunities overseas and not returning.  "If we do not 
keep running ahead of our competition, we will fall behind," 
he remarked.  SM Goh denied that Singapore's very high 
savings rate was a deliberate hedge against the country's 
demographic transition, attributing it primarily to 
Singapore's mandatory pension system, the Central Provident 
Fund. 
 
¶10.  (SBU) Not believing in a post-industrial society, 
Singapore emphasized strengthening both the services and 
manufacturing sectors, PM Lee said.  Hong Kong may have 
relinquished its manufacturing base to the Pearl River Delta 
across the border in China, he observed, but if Singapore 
were to do something similar with Malaysia or Indonesia, the 
result would be an inefficient "two countries, two systems" 
arrangement. 
 
Tax Treaty 
---------- 
 
¶11.  (SBU) PM Lee said that Singapore greatly valued its 
excellent relationship with the United States, best 
exemplified by our Strategic Framework and Free Trade 
 
SINGAPORE 00000689  003 OF 004 
 
 
agreements.  He expressed confidence that both countries 
could conclude a DTA that would further bolster bilateral 
economic ties.  Although Singapore had certain interests to 
protect, obstacles to negotiating a DTA such as agreed 
mechanisms and obligations concerning information exchange 
and limitation of benefits could be surmounted, he asserted. 
During U/S Adams' meeting with the U.S.-ASEAN Business 
Council, representatives from IBM, Citibank, and NOL 
expressed strong support for a U.S.-Singapore DTA. 
 
Rising U.S. Protectionism and China, the Middle East 
--------------------------------------------- ------- 
 
¶12.  (SBU) U/S Adams expressed concern about growing 
protectionism in the United States, directed primarily at 
China and most recently at Dubai following Dubai Ports 
World's proposed $6.8 billion acquisition of P&O.  PM Lee 
concurred, observing that Washington seemed obsessed with 
the purported China threat during his visit last year.  U/S 
Adams warned that a hard landing of the Chinese economy 
would precipitate serious repercussion throughout the global 
economy, particularly in the commodities and U.S. securities 
markets.  PM Lee assured U/S Adams that China did not want 
to clash with the United States, although it might continue 
to "cheat around the edges."  FM Yeo said that the United 
States needed to deftly hold China accountable for its 
actions.  This was especially challenging, he observed, 
since China appeared to understand the United States better 
than the United States did China. 
 
Protectionist Tendencies Undermine Doha 
--------------------------------------- 
 
¶13.  (SBU) Asked about Singapore's views of the Doha Round, 
PM Lee said that success was critical.  He criticized the 
overall negative tone among WTO members that made it 
difficult to manage protectionism globally.  U/S Adams noted 
that a collapse of the Dubai ports deal could conceivably 
undermine the Doha process and the free trade principles the 
United States espouses. 
 
Unwelcome in West, Petrodollars Flowing to Singapore 
--------------------------------------------- ------- 
 
¶14.  (SBU) FM Yeo expressed similar concern about the rising 
protectionist tide, and noted that the Dubai ports 
controversy solidified the growing perception that Muslim 
money was not welcome in the West.  He said that there had 
been a shift in flows of petrodollar wealth toward financial 
centers like Singapore and that the government was 
encouraging development of Islamic banking as one way to tap 
into this asset stream.  While certain financial analysts 
told U/S Adams they had noticed some up-tick in the amount 
of petrodollars coming into Singapore, one Singapore-based 
U.S. bank representative described the increase as "huge." 
 
Terrorism Number One Concern 
---------------------------- 
 
¶15.  (SBU) Asked what he worried about most, SM Goh 
questioned whether terrorism could be defeated.  It was 
imperative that the United States stay the course in Iraq 
and remain firm with Iran lest the terrorists become 
emboldened, he warned.  Singapore was surrounded by Muslim 
neighbors with populations that were becoming increasingly 
conservative, he said.  SM Goh felt reassured by recent 
statements by Indonesia's Islamic party leaders that they 
stood for fighting corruption and not for promoting a 
theocracy.  He observed that the problems in the southern 
Philippines and Thailand had more to do with terrorism 
"riding on the backs" of Islam than with the religion 
itself. 
 
China, Taiwan, Japan 
-------------------- 
 
¶16.  (SBU) SM Goh said that he was heartened to see a 
reduction in tensions over the past year or so between China 
and Taiwan.  President Bush's statements to Taiwan President 
Chen Shui-bian and China's Anti-Secession Law had both 
helped stabilize the situation, he observed; China was also 
learning how to live with Taiwan-style democracy and had 
therefore adopted a more nuanced approach to cross-Strait 
 
SINGAPORE 00000689  004 OF 004 
 
 
relations.  Although he did not foresee open conflict 
between China and Japan, increasing tensions fueled by 
rising nationalism on both sides were reverberating 
throughout the region, he said. 
 
¶17.  (U) Treasury Deputy Director for South and Southeast 
Asia John Ciorciari, traveling with U/S Adams, cleared this 
message. 
 
HERBOLD