Kuwait

By the late 1970s, Kuwait’s commercial banking sector was effectively monopolized by merchant-owned private banks, which exhibited modest growth and confined lending to trade, household consumption, and real estate (Presley and Wilson Reference Presley and Wilson1991). The state barred foreign banks and mandated majority local ownership of commercial banks in 1970. Despite oil wealth and fiscal autonomy, Kuwait never became the international financial center that some elites had envisioned (The Planning Board 1969). Why, then, did the state shield these banks from competition and avoid disciplining them?

One explanation is that, at a certain critical juncture, Kuwaiti merchants did acquire structural power over the state. In 1951, multinational oil firms agreed to split profits equally with the Kuwaiti emir (Wight Reference Wight2021). This enabled the emir to settle family debts and cut tariffs. However, rising expenditures soon triggered a fiscal crisis. By 1953, the emir again turned to merchants for loans, promising them a large share of future oil revenues in return (Crystal Reference Crystal1995).

While this account is compelling in that it demonstrates the structural power of capitalists over the state during moments of fiscal crisis, it remains unsatisfactory for two reasons. First, it assumes that merchants acted as a cohesive bloc, rather than engaging the emir through fragmented, ad hoc arrangements. Second, it fails to explain why the Kuwaiti state repeatedly sought to curry favor with Kuwaiti merchants in the banking sector well into the 1960s – a period when the state’s finances were healthy. To explain continued merchant dominance of the private sector and the state’s inability to discipline them, it is crucial to examine how merchants forged a unified class capable of articulating collective demands on the state, despite the absence of any structural power.

Merchant influence in Kuwait traces back to the 1938 majlis movement, where institutional networks were formed within the merchant class and between merchants and the state. That year, Kuwaiti merchants demanded a legislative council to represent their interests (Alebrahim Reference Alebrahim2021; Herb Reference Herb2014). Although the council was dissolved and the movement crushed, it fostered strong in-group solidarity among merchants, who continued to function as a cohesive corporate body (Crystal Reference Crystal1995). Mechanisms of boundary-making, such as outmarriage taboos and the diwaniyya, a male social forum for political discussion, helped sustain their cohesion and offered a channel for airing economic grievances to the ruler.

The 1938 majlis movement also laid the groundwork for powerful business associations. After its collapse, the consolidation of merchant influence led to the formation of the Kuwaiti Chamber of Commerce and Industry (KCCI) in 1959. Rather than fragment or jockey for individual power, Kuwaiti business elites “opted for a strategy of internal solidarity and cohesion” (Moore Reference Moore2004: 189). The KCCI’s unity proved crucial for shaping state economic policy and managing intra-merchant tensions during fiscal crises. As Yom (Reference Yom2011) argues, these merchant-led coalitions persisted into the 1960s and became difficult to dislodge.

The rise of a distinct Kuwaiti merchant class in the 1940s and 1950s was also closely tied to the creation of an exclusionary citizenship regime. Predominantly Arab merchants pushed for economic enclosure, lobbying the state to privilege “local” industries and traders. The KCCI generally excluded noncitizens and served as a gatekeeper between national and global economic spheres (Boodrookas Reference Boodrookas2020; Moore Reference Moore2004). Citizenship conferred significant economic advantages, including landownership, monopoly rights, cheap credit from British banks, and control over noncitizen labor (Boodrookas Reference Boodrookas2020).

So powerful was this small network of merchant families that they were able to assume positions in some of the most important levers of state power.Footnote ³ In 1960, the Development Board was reconstituted with Sheikh Al-Ali Al-Sabah as the President, along with board members from leading merchant families who mostly held positions at the National Bank of Kuwait and the KCCI. Moreover, intermarriage between influential merchant families and the ruling Al-Sabah family was an important way in which merchants maintained their privileged economic status. Through marriage, families like the Al-Ghanims were privy to the ruler’s most important negotiations and served as bankers to his relatives (Crystal Reference Crystal1995). This meant that the Kuwaiti state, ruling family members, and leading merchant families were closely intertwined with one another on matters of economic development and planning.

In the field of commercial banking, their close ties to the ruling family and economic privileges meant that merchants were never seriously subjected to any forms of state disciplining. In fact, they were often assisted by the state in their financial ventures. In 1952, the National Bank of Kuwait was founded by leading merchants with the Kuwaiti emir’s approval. In 1961, by virtue of Emiri Decree No. 5 of 1960, the Commercial Bank of Kuwait and the Gulf Bank began operations, and in 1968, the Al-Ahli Bank was opened (Jones Reference Jones1987). In all cases, the banks were founded by influential merchant families such as Al-Khaled, Al-Ghunaim, Al-Ghanim, Al-Kharafi, Al-Hamad, and Al-Sager. Throughout the 1960s, the state also rejected a number of applications from foreign and non-Kuwaiti Arab banks, thus protecting local merchants from foreign competition (Jones Reference Jones1987). Neither compelled to innovate nor forge new markets, these commercial banks retained British management for their daily operations and recorded sluggish levels of growth. In 1970, the banking sector’s contribution to non-oil GDP remained at 4 percent despite the fact that Kuwait was home to some of the largest banks in the region and new commercial banks continued to open (The Planning Board 1970). Unsurprisingly, Kuwaiti banks have now lost their leading position in the region to their counterparts in Saudi Arabia, Qatar, and the United Arab Emirates.

The case of Kuwait is instructive for sociologists of development and political economy. It demonstrates that theories of state-led development in the industrial sector, which emphasize the necessity of disciplining capital, are also applicable to financial services (Amsden Reference Amsden1992; Chibber Reference Chibber2003; Maggor Reference Maggor2021). As the Kuwaiti state was unable to acquire any sort of relative autonomy from mercantile interests, it lacked the institutional capacity to discipline private finance. Merchants established their own commercial banks with minimal resistance, were shielded from foreign competition, relied on British managerial expertise, and maintained the lion’s share of their assets abroad without much financial innovation. Yet Kuwait also challenges a central assumption in development theory: that capitalists must hold control over investment to exercise power over the state. In Kuwait, despite their limited structural leverage, merchants maintained dominance through other forms of embeddedness. Years of political mobilization, citizenship privileges, and intermarriage created a small, tight-knit network of merchants who exerted power through state institutions and dominated the realm of commercial banking, free from state demands.

Singapore

Singapore, on the other hand, consolidated and modernized its domestic commercial banking sector and helped develop new regional and international financial markets. Economic architects, like Finance Minister Goh Keng Swee, wanted to build a major financial center in Singapore, but felt that local banks could not achieve this themselves (Desker and Kwa Reference Desker and Kwa2011). In fact, Singapore’s ruling People’s Action Party (PAP) viewed the local finance capitalist class as unproductive rentiers wholly incapable of marshaling the party’s ambitious developmental plans (Tsui-Auch Reference Tsui-Auch2004). Founded in 1954 by a group of largely English-educated, middle-class lawyers, trade unionists, and journalists, the PAP also accused these largely Chinese finance capitalists of sympathizing and funding the PAP’s political challengers and promoting “Chinese chauvinism” (Low Reference Low2001). Singaporean state elites had long viewed the private financial sector as in need of reform and modernization if they were to fulfill the developmental vision of a globally oriented financial sector.

But given that Singapore was still fiscally dependent on local capitalists, how did it manage to reform and develop its own modern banking sector? Scholars of Singapore’s history and political economy have generally resolved this paradox by arguing that Singapore’s ruling elite was ideologically hostile to the country’s local bourgeoisie. This explanation focuses on the motives of the PAP, but tells us little about the precise mechanisms through which the state disciplined Singapore’s local merchants-capitalists in the financial sector. While the Kuwaiti case demonstrates that strong ties between capitalists and the state can hamper the ability of the state to discipline capital, it is not obvious that political marginalization necessarily produces acquiescence to state demands, let alone developmental collaboration or cooperation.

I argue that the successful disciplining of private finance capital in Singapore took place through two processes. First, the state attained autonomy from private finance capital. Unlike other sectors, finance wields distinct structural power: banks influence the cost of capital, allocate resources, manage the money supply, and absorb government debt. To arrest the power of private finance capital, the state established its own financial institutions and developed its own sources of finance, independent of the domestic financial bourgeoisie. Second, the state helped develop new, lucrative markets for private commercial banks to operate in, but importantly, used its own banks and government agencies to exert competitive and regulatory pressures over private commercial banks. The promise of profits, coupled with competitive and regulatory pressures, created an appetite on the part of private commercial banks to submit to state assistance by allowing state officials to assume senior positions within banks.

In 1955, the Central Provident Fund (CPF) was established under British rule as a compulsory savings and pension plan, designed to force Singaporean employees to save for their retirement through contributions from themselves and their employers (Barr Reference Barr2000). After the PAP took power in 1959, Finance Minister Goh began to use the CPF as a tool for state financing. By gradually increasing the mandatory contribution rate, the CPF provided the government with a cheap, non-inflationary source of finance for infrastructure and public goods provision (Huff Reference Huff1995). In effect, the Singaporean state gained access to private sector investment and workers’ wages without having to directly impose high corporate and income taxes, rely on external debt financing, or borrow from domestic capitalists.

In addition to the CPF, the state also repurposed the colonial-era Post Office Savings Bank (POSB) as a commercial bank to channel workers’ savings towards the government. Established in 1877, the POSB was one of Singapore’s oldest financial institutions and invested primarily in sterling-denominated securities. In the 1950s and 1960s, the PAP reoriented its investments towards local securities (Drake Reference Drake1969). In 1972, the POSB was separated from the Postal Services Department and became a statutory board under the control of a Board of Directors appointed by the Minister of Finance (Tan Reference Tan2005). Functioning effectively as a commercial bank at the behest of the state, the POSB took voluntary deposits from private citizens and required they be used to either purchase government securities or be deposited with the central bank. The POSB also outgunned private commercial banks by offering tax-free interest to its depositors (Rodan Reference Rodan1989). By the mid-1980s, the number of POSB offices and savings deposits far exceeded that of other big banks, including private commercial banks (Huff Reference Huff1994; Lee Reference Lee1984). Additionally, the Singaporean state created the Development Bank of Singapore (DBS) in 1968. It was a major mobilizer of Singaporean dollar funds in the domestic capital market and quickly became a regional market leader by creating new financial instruments (Chang et al. Reference Chang, Chong and Wee1992). In 1971, it issued the first three Asian Bond issues and developed the Asian Bond Market the following year by floating US dollar-denominated bonds. As Huff (Reference Huff1994: 342) notes, the government used these institutions “in its strategy to develop Singapore as the ‘Zurich of the East.’”

New financial markets, such as the Asian Bond Market and the Asian Dollar Market, and a larger local capital market, offered new, profitable opportunities for private commercial banks as well. But to prevent these banks from engaging in either overly risky or monopolistic activity, the state exerted significant competitive and regulatory pressure over them. Unlike in Kuwait, increased competition from Singaporean state banks, alongside regulations by the central bank, resulted in a slew of mergers and acquisitions among private commercial banks in Singapore. The United Overseas Bank (UOB) acquired shares in Chung Khiaw Bank in 1971 and took over the Lee Wah Bank in 1972. The Oversea-Chinese Banking Corporation (OCBC) acquired shares in the Four Seas Communication Bank and the Bank of Singapore (Chang et al. 1992). By the mid-1970s, the “Big Four” commercial banks had coalesced: OCBC, UOB, Overseas Union Bank (OUB), and DBS.

A concentrated banking sector allowed the state to steer financial development through strategic placement of administrative personnel. The Banking Act of 1970 stipulated that banks had to seek approval from the central bank for appointments of their CEOs, directors, and principal officers (Tsui-Auch Reference Tsui-Auch2004). This resulted in senior state managers taking up important positions in private commercial banks. For example, Francis Yeo, a senior central bank official in the 1970s, became a senior manager at UOB in the 1980s and 1990s. Joseph Pillay, the former chairman of Singapore Airlines and DBS and permanent secretary for the Ministry of Finance, became a Director on the board of OCBC (Low Reference Low2002). In 1979, the managing director and major owner of UOB, Wee Cho Yaw, appointed Tan Eng Liang, a senior minister of state for finance, as the general manager for Har Paw (a conglomerate in which UOB and Wee held sizeable shares) (Hamilton-Hart Reference Hamilton-Hart2000).

Now subject to both competitive pressures and government regulation, private banks were more willing to accept state assistance in order to modernize their operations. They had long been family-ruled and family-managed, but state assistance ensured they became professionally managed (Tsui-Auch Reference Tsui-Auch2004). The founder of OUB, Lien Ying Chow, brought in former Housing and Development Board (HDB) chairman, Lee Hee Seng, as the bank’s chief general manager in 1974. Lee instituted professional personnel policies, ending nepotistic appointments, improving productivity and efficiency, streamlining work processes, and introducing computer technology (Lim Reference Lim1999: 50). State assistance and competitive pressures also helped private commercial banks grow in more complex markets. Alongside the state-run DBS, OCBC entered the Asian Dollar Market and the gold market by forming an active merchant bank in collaboration with foreign counterparts in the late 1960s and early 1970s. It established a London branch in 1969 to better handle its customers’ sterling investments and formed a new International Division to take over from the Foreign Department in 1970, specifically to manage new operations in the Asian Dollar and free gold markets (Wilson Reference Wilson1972). By the late 1980s and 1990s, Singaporean banks expanded regionally, cementing themselves as the largest banks in Southeast Asia.

The growth of Singapore’s state and private commercial banks stands in sharp contrast not only to Kuwait’s banking sector but also to local banks in other (post)colonial financial centers. In Hong Kong, for example, local banks saw their demise as the city emerged as a global financial hub. With weak regulation and no central bank until the 1990s, local banks were left largely unregulated, engaging mainly in speculative activities in currency and gold markets. A wave of banking crises in the 1960s, coupled with an inability to keep pace with financial innovation, led to their near disappearance (Jao Reference Jao1979; Schenk Reference Schenk2002). Similarly, in the Caribbean and Latin America, imperial powers established offshore financial centers, but this often came at the expense of local financial institutions (Hudson Reference Hudson2017).

In Singapore, by contrast, the state’s strategic use of competitive pressures and regulatory oversight enabled the growth and modernization of domestic banks within a globally oriented financial sector. Competition, regulation, and access to new markets made commercial banks more willing to accept state assistance and oversight. A concentrated banking sector also made it easier for the state to interface directly with bank leadership through both formal and informal channels. While the local business class was marginalized as a whole, select individuals and firms were incorporated into elite state networks on a personal basis (Hamilton-Hart Reference Hamilton-Hart2000).

In sum, while both Kuwait and Singapore were small, wealthy city-states, their divergent trajectories in finance stemmed from the state’s ability to discipline capital. In Kuwait, deep integration between merchants and state elites foreclosed meaningful discipline. In Singapore, the state achieved relative autonomy from finance capital and strategically used competition, regulation, and public financial institutions to catalyze private sector development. Just as states disciplined firms in industrial sectors to drive productivity, similar processes unfolded in finance. Disciplining finance involved breaking the structural power of private capital and using state-owned banks to compel modernization, innovation, and compliance with government regulation.

Kuwait

Kuwait was uniquely situated in the Sterling Area. The Kuwaiti emir agreed to receive sterling payments for oil on the condition that such sterling could be freely converted into Indian rupeesFootnote ⁴ and a supply of US dollars would be provided “for any goods essential for the benefit of his state and not available in sterling.” HM Treasury also allowed the emir, his family, and “a few of the most senior sheikhs” to make capital transfers of sterling abroad to purchase property without consulting British officials (Galpern Reference Galpern2013: 205–6). As one British official noted, “the best way to ensure that the Ruler continues to bank with us is almost certainly to let him see that he is free to make transfers when he likes.”Footnote ⁵ As such, the Exchange Control Act of 1947 was never extended to Kuwait. Instead, a free market emerged where sterling could be exchanged for US dollars, known as the “Kuwait Gap.” Merchants involved in the gold trade exploited this market by smuggling gold to India for profit, returning to Kuwait with Indian rupees, exchanging rupees for sterling, and then trading these for dollars to purchase more gold (Jones Reference Jones1987). The arrangement between Britain and Kuwait was essentially a colonial quid pro quo; oil rents paid in sterling saved massive amounts of US dollars for the Treasury, while the free conversion of sterling into rupees and easy access to dollars benefitted the Kuwaiti ruling family and merchants. While Britain was aware of unauthorized sterling conversion to US dollars and even considered expelling Kuwait from the Sterling Area, the UK Treasury’s Working Party on Exchange Control in Kuwait concluded that the exclusion of Kuwait from the Sterling Area or the introduction of exchange controls were “unnecessary or impracticable.”Footnote ⁶ Even after Kuwait gained independence in 1961, exchange control legislation was never introduced and distinctions were never made between accounts held by residents and nonresidents (IMF 1969). Nor were there exchange control obligations on the transfer to Kuwait of resident or nonresident capital in any currency (IMF 1969; Schenk Reference Schenk1994).

What did this entail for Kuwait’s prospects of developing an international financial center? If Kuwait wanted to attract international banks while protecting the local banking sector, it would have to create an offshore banking sector that distinguished resident accounts from nonresident accounts. But since Kuwaiti elites were generating healthy profits through the “Kuwait Gap,” maintaining this arrangement precluded the possibility of creating an offshore banking center. Alternatively, it could have invited international banks to operate onshore, as in Hong Kong, where there was also no distinction between resident and nonresident accounts (Jao Reference Jao1979). However, doing so would mean that local Kuwaiti banks would have to compete directly with international banks with little protection – something that the ruling family and merchants were unwilling to accept.

Furthermore, the Kuwaiti state consistently tethered its financial policy to British financial interests to ensure political stability, making it more difficult to diversify its sterling reserves. To guarantee that Kuwait’s rapidly increasing oil revenues would remain in the Sterling Area, in 1953 the British Foreign Office sent Sir Roger Makins, the head of its Economic Division, to persuade the Kuwaiti emir to accept a scheme for British management over its revenues through the establishment of a Kuwaiti Investment Board (KIB).Footnote ⁷ In return, the Kuwaiti emir insisted that the board had to invest in securities backed by the British government, the Kuwaiti investment portfolio had to obtain a higher yield than it was currently receiving, and that the board had to maintain a high level of liquidity for the country’s investments. As a result, in February 1953, the KIB was launched, consisting of four leading British experts with experience in the City of London (Galpern Reference Galpern2013; IBRD 1963).

The absence of Kuwaiti representation was unpopular with some sections of Kuwaiti leadership, though it found favor with the Kuwaiti emir.Footnote ⁸ Fearing potential political rivalry or a coup, he did not want any leading merchant or member of his family to “become familiar with the State’s financial affairs which he feels he must keep strictly under his control” (Galpern Reference Galpern2013: 216). He did so by preserving British management of Kuwait’s financial surpluses. Even after Kuwait gained independence in 1961, Sheikh Jaber Al-Ahmad Al-Sabah, the new President of the Department of Finance and Economy, rejected British proposals to increase Kuwaiti representation on the KIB. Archival documents from the Arabian Department suggest that Sheikh Jaber sought to maintain the existing structure of the KIB in order to relieve pressure from neighboring Arab states who were demanding favorable loans and investments.Footnote ⁹ Bazoobandi (Reference Bazoobandi2012), however, argues that it was the chairman of the KIB, H. T. Kempt, who rejected the proposals for Kuwaiti representation. Whatever the reason, Kuwait’s geopolitical vulnerabilities as a small state, combined with the enduring influence of its former colonial rulers, ensured the continuation of British management over Kuwaiti reserves.

When there were calls for diversification throughout the 1960s, this institutional arrangement made moves away from sterling-denominated assets difficult. The 1950s and 1960s were periods of intense ideological contestation in Kuwait, with pan-Arab, liberal, Nasserist, secular, anti-colonial, and socialist ideas coming to the fore (Al-Rashoud Reference Al-Rashoud2019). The changing political landscape amplified calls from the local press to exit the Sterling Area, withdraw sterling investments, and distribute them freely to demonstrate that the country was no longer under British tutelage.Footnote ¹⁰ Younger generations of Kuwaiti finance officials were also in favor of diversifying the city-state’s sterling reserves. In July 1961, the British were informed that Sheikh Jaber planned to draw down sterling reserves to about £50 million over the next two to three years to fund his industrialization plans.Footnote ¹¹ In response, British officials purposely brought up fears surrounding Iraqi irredentism and the need to maintain sizable assets outside Kuwait, specifically in London. In August 1961, W. P. Cranston of the British Consulate-General in Kuwait noted, “I took the opportunity to stress once more the Kuwait/Iraq situation had shown the value to Kuwait of having secure State reserves carefully invested outside the Arab world which provided full security.”Footnote ¹² This line of argument was particularly cogent given that British air, sea, and land troops had been sent to Kuwait in July 1961, as part of Operation Vantage, to counter territorial claims made by Iraq against Kuwait. Officials at Kuwait’s Finance Department maintained a general orientation towards safe investments in British markets. Efforts were made at directing new surpluses towards European, American, and Japanese funds, but the amounts were modest. Letters of correspondence between HM Treasury, the Political Agency, and the British Consulate-General suggest that Kuwaiti finance officials were content with the commercial returns on sterling investments.Footnote ¹³

Even after the sterling crisis in 1967, Kuwait did not radically diversify its reserves. On the eve of the sterling’s devaluation in November 1967, Kuwait was the second largest holder of sterling (approximately £515 million). During the gold crisis of March 1968, Kuwait diversified some of its reserves, but it still remained the second largest holder of sterling. When Britain was finally forced to negotiate with members of the Sterling Area in 1968, British officials wanted Kuwait to retain a Minimum Sterling Proportion (MSP)Footnote ¹⁴ of 50 percent, while Kuwaiti officials argued that their National Assembly would not accept an MSP greater than 25 percent.Footnote ¹⁵ As a form of compromise, the British offered a public MSP of 25 percent alongside a private statement of intent that Kuwait would not in practice go below 45 percent. In the end, Kuwait accepted a proposal of 25 percent in addition to expressing “their intention to use their best endeavors to maintain the end-June proportion (54%) in practice” (Schenk Reference Schenk2010: 309). Although the Kuwaiti state made overtures to diversify its reserves in the face of nationalist pressure, it repeatedly sacrificed autonomy over national financial policy in exchange for safe and steady financial returns in sterling-denominated assets. Financial assets were only significantly diversified after the sterling moved to a floating exchange rate in 1972 and in the wake of the oil booms of the 1970s, by which time other financial centers were taking advantage of greater global US dollar liquidity.

Singapore

In the late 1950s and 1960s, the Vietnam War, savings from overseas Chinese, and regional conflicts like the Indonesia–Malaysia confrontation (1963–1966) increased US dollar circulation, in search of safe lending opportunities. Alongside growing demand for financing regional trade and development, this created a strong appetite for a stable financial center in the region (Kim Reference Kim and Battilossi2020). While Kuwait chose not to establish an offshore banking center despite ample US dollars in the Middle East, Singapore capitalized on the situation to develop its own offshore banking hub.

Unlike Kuwait, Singapore had inherited British exchange controls, introduced in 1931, which restricted foreign currency transactions by residents and local currency dealings by nonresidents (Anuar Reference Anuar2019). This legal distinction enabled the 1968 launch of Asian Currency Units (ACUs) – bookkeeping entities within international banks that conducted all foreign currency business except in Singapore dollars. This arrangement allowed local Singaporean banks to gain exposure and participate in the world of global finance, while also helping them to grow onshore without being overwhelmed by large, international banks (Tee Reference Tee2003).

Singapore also diverged from Kuwait in managing foreign reserves. Unlike Kuwait, which ceded significant control over reserve management to Britain, Singapore’s leaders acted covertly and deceived British officials at the Treasury and the Bank of England in the lead up to the Sterling Agreement negotiations. British officials, believing that 88 percent of Singapore’s reserves were in sterling, were blindsided when Finance Minister Goh revealed that he had been secretly diversifying reserves by accumulating new assets (Schenk Reference Schenk2010). To assuage British fears, Goh told his British counterpart in December 1967 that 80 percent of the country’s reserves were still held in sterling.Footnote ¹⁶ But given that Singapore had begun diversifying its reserves in 1966, it is almost certain that he had been lying to his British counterpart ahead of the upcoming negotiations.

Britain’s planned military withdrawal from Singapore by 1971 also escalated tensions, with Prime Minister Lee Kuan Yew threatening to leave the Sterling Area altogether (The Straits Times 1968a). The British dispatched Arthur de la Mare, the High Commissioner, to negotiate with Lee. Lee told him that, had it been solely up to him, diversification would have proceeded more slowly. The Singaporean cabinet, he claimed, was divided: a pro-Japanese faction led by Goh Keng Swee supported diversification, while Lee led the pro-British camp. Forcing the issue, Lee feared, could fracture the cabinet and allow Goh to challenge his leadership. Though Lee gave de la Mare a verbal assurance to slow diversification, Goh continued with it (Orchard Reference Orchard2021). The British ultimately backed down, unwilling to inflame the internal “power struggle” (Schenk Reference Schenk2010), especially amid fears of a left-wing insurgency.Footnote ¹⁷ By 1968, only 39 percent of Singapore’s reserves were in sterling and the British were forced to move their offer of a 50 percent MSP to 40 percent, which Singapore accepted (Schenk Reference Schenk2010). A more diversified reserve holdings afforded Singapore the benefits of participating in global financial markets without being completely subjected to the whims of vagarious market forces and British monetary policy.

Like Kuwait, Singapore’s domestic stability was far from assured. It was bombed by Indonesian marines in 1965, expelled from Malaysia the same year, and faced labor unrest. Prime Minister Lee described Britain’s premature withdrawal as “a matter of life and death” (The Straits Times 1968b). But in contrast to Kuwaiti elites, who often relied on British protection against threats, Singapore’s leaders used these crises to negotiate monetary decolonization and distance themselves from a British-led financial order. Diversifying reserves offered a degree of autonomy over industrial and financial policy, shielding the economy from the speculative shocks that destabilized other financial centers.Footnote ¹⁸ At the same time, the creation of an offshore market not only endowed firms in Singapore with access to US dollar financing, domestic banks grew through expanding lending opportunities in the region. In sum, the colonial legacy of exchange controls and postcolonial maneuverings meant that Singapore developed a global orientation to finance – one that was not hemmed in by the monetary constraints of a waning British empire.

Kuwait

Kuwait’s planning agencies often employed foreign technocrats in nascent financial organizations, yet they were rarely integrated into durable reform coalitions. Instead of forming productive alliances with international technocrats, key elites either resisted or failed to sustain such partnerships – undermining prospects for institutional transformation.

In 1960, Sayyid Ali Tewfik Haggag, an Egyptian financial expert in the Finance Department, began drafting the national budget following a new law formalizing budgetary rules. Although he had witnessed a positive trend towards more publication of financial data, he was constantly “exhorting the Kuwaitis to publish more figures and not be so secretive.”Footnote ¹⁹ He also wanted a special allocation of 10 percent of the budget to be dedicated for the reserves, which had not been accepted. He reported that Kuwait had overspent by £3 million the previous year, partly due to unbudgeted land purchases. Haggag repeatedly faced roadblocks as “quite young and inexperienced Shaikhs were sometimes put in charge of Departments and given full authority.”Footnote ²⁰ Haggag was not alone in harboring this concern. Sayyid Ahmad Sayyid Omar, the Deputy Director of the Finance Department, was also unhappy about the situation. Yet Omar felt there was little that he could do because those put in charge of government departments were benefitting handsomely from the state’s land purchases, as they would often be the owners of the land themselves.Footnote ²¹ Despite shared concerns and a reformist orientation, these experts failed to form durable alliances with each other or with reform-minded elites like Sheikh Jaber.

Many foreign experts advising the Kuwaiti government on financial matters were also constrained by British interests. Dr. Fakhri Shehab, an Iraqi economist and chief advisor to the Finance Department, had far more political influence than Haggag and was positioned to make a significant impact. In many ways, he did – contributing to the creation of the Kuwaiti Dinar and the Kuwait Fund for Economic Development. Yet, despite his reformist orientation, British archival sources indicate that Shehab maintained a notably close relationship with British authorities, as reform-minded Kuwaiti elites failed to manage or constrain the conflicting loyalties of such experts. During negotiations between the Bank of England and the Kuwaiti Finance Department, one letter noted that “The Bank of England have, however, been kept informed, though quite unofficially, by Dr. Fakhri Shehab … who is employed by the Kuwaiti Finance Department.”Footnote ²² When the British were worried about Kuwaiti diversification efforts, they thought that “it might be possible to work through expert advisers in Kuwait, such as Dr. Shehab” as “his influence was not anti-British.”Footnote ²³

The British were also hostile to international experts visiting on missions. Their main concern was ceding control over the investments of Kuwaiti reserves to outside bodies. In 1960, the Kuwaiti Finance Department appointed Dr. Paul van Zeeland to advise them on a draft decree prepared by the Bank of England to establish a national currency and currency board. The British accepted most of van Zeeland’s suggestions, albeit with some notable exceptions. They disapproved of van Zeeland’s recommendation that the currency board should hold a minimum of 50 percent of gold reserves as a cover for the currency, instead seeking a figure closer to 25 percent. They hoped the cover would largely be in sterling as they envisioned the Kuwaiti Dinar to be linked to the British pound. Van Zeeland also suggested a nine-member currency board including one neutral member with links to international monetary organizations. Once again, the British were averse to this suggestion, fearing that such a member would be “a crony of Dr. van Zeeland” or someone from the Bank for International Settlements (BIS). Even though the Bank of England was not opposed to the diversification of Kuwaiti assets in principle, they were perturbed about his proposal to have outside representation on the KIB. The British preempted many of these concerns because of their close connections with Shehab, who was acting as an intermediary between the Kuwaiti Finance Department and van Zeeland. In fact, it was Shehab who gave the Bank of England access to van Zeeland’s report without the knowledge of Kuwaiti officials.Footnote ²⁴ The absence of a coherent, developmentally oriented elite coalition committed to financial autonomy meant that even reform-minded Kuwaiti elites lacked the institutional capacity to insulate expert relationships from external pressure.

Similarly, during a visit by Joseph Rucinsky from the IBRD, the British expressed significant reservations about “foreign meddling” in Kuwait’s reserves. In November 1960, Mr. R. A. Beaumont of the Foreign Office wrote, “We are not without our fears that the IBRD mission, like other experts visiting Kuwait (e.g., Dr. van Zeeland) will be fascinated by the existence of the Kuwait reserves and make far-reaching recommendations both in respect of existing reserves and in respect of investment policy for future reserves.” He went on to note, “We would hope that the terms of reference to be agreed between the Kuwaitis and the IBRD would allow the IBRD to do no such thing.”Footnote ²⁵ The British sought to maintain the general structure of the KIB so that reserves “would not be suddenly and arbitrarily withdrawn or switched into currency other than sterling.” Using Shehab to “put such ideas into Shaikh Jabir’s mind,” the British persuaded Kuwaiti finance officials to decline some of Rucinsky’s recommendations.Footnote ²⁶

This is not to suggest that the British held ultimate veto power over all financial matters – far from it. In 1968, for instance, the public–private Kuwait Investment Company brokered a deal with the IBRD to issue World Bank bonds in Kuwaiti Dinars – the first time the Bank issued bonds in a non-European or non-dollar currency (The Planning Board 1969). Yet such breakthroughs were often exceptions to the trend. Figures like Haggag and van Zeeland offered reformist advice, but lacked either the political capital or the material benefits needed to become trusted partners within the ruling coalition. Even Shehab, who had policy influence, ultimately proved more valuable to external actors than to state reformers. In contrast to the British, who provided political assurances and defended elite material interests, transnational experts offered little that could anchor them in domestic institutional life. As such, state elites often did not incorporate transnational experts into their ruling coalitions, so technocratic interventions remained episodic, fragmented, and easily overridden by either entrenched domestic interests or informal imperial influence.

Singapore

The development of Singapore’s financial sector, on the other hand, was shaped in large part by the state’s ability to effectively utilize transnational experts for economic transformation. Chief among them was Albert Winsemius, Singapore’s unofficial economic advisor. Born in the Netherlands in 1910, Winsemius had served as a price controller before World War II, later becoming director-general of industrial development at the Dutch Ministry of Finance and a World Bank consultant (Stoelinga Reference Stoelinga2020). In 1960, the UNDP sent him to Singapore to advise on industrialization strategies. He quickly became a central figure in Singapore’s economic history – not just in industry, but also in finance (Rahim and Barr Reference Rahim and Barr2019).

Winsemius developed tight-knit relations with important leaders in the PAP, particularly Prime Minister Lee and Finance Minister Goh. A determined anti-communist, Winsemius believed that Singapore’s success required the state to help cement the country as an attractive place for foreign investment. This resonated with the right wing of Singapore’s PAP, which sought to attract foreign capital to undercut the power of the local capitalist class and to beat their political rivals on the left. In an interview with the Singapore Monitor, Winsemius recalled that his first piece of advice to Singapore’s leaders was to “Get the communists out … as long as they play their negative role, there will not be a climate favorable for investment and job creation.” The second piece of advice was to keep intact the statue of Sir Stamford Raffles, the British founder of modern Singapore, as it was “the best calling card we could give to Western investors” (Singapore Monitor Reference Singapore1984: 16). Despite the PAP’s anti-colonial proclivities, Winsemius’s advice was politically beneficial to figures like Lee who sought to reassure Malayan leaders and multinational companies that Singapore was not a bastion of left-wing insurgency.

But such views held purchase among Lee’s faction within the PAP for domestic political reasons too. The early 1960s were a period of intense political contestation within the PAP as many figures were defecting to form the left-wing Barisan Socialis. To consolidate its control over the state, the PAP sought to defeat its more militant and left-wing political rivals. With the help of Winsemius, Goh wrote the State Development Plan of 1961–64. Together, they countered the democratic socialist views put forward by James Puthucheary, the manager of the Industrial Promotion Board, a trade unionist, and an economist (Loh Reference Loh, Rahim and Barr2019). Goh and Winsemius’s views promoting the role of the state in attracting foreign capital won out over those of Puthucheary and his colleagues, proving a crucial moment for the right wing of the PAP in wresting control over the future of Singapore’s economic policy (Loh Reference Loh, Rahim and Barr2019; Seng Reference Seng and Seng2017). Importantly, it also further solidified relations between Winsemius and senior figures in the PAP such as Lee and Goh.

Once this faction of the party consolidated power, the Singaporean state was positioned to more effectively implement Winsemius’s proposals for developing the financial sector. As a key architect of the Economic Development Board (EDB), he recommended splitting it into specialized divisions. When the EDB’s financial commitments grew nearly sevenfold between 1961 and 1967, Goh and Winsemius transformed its finance division into the DBS, which soon became active in commercial finance. The DBS went on to pioneer the first three Asian bond issues in 1971–72, partnering with Japan’s Daiwa Securities and receiving technical support from Germany’s KfW (Lee Reference Lee1968: 8; Lee Reference Lee1984; The Straits Times 1971: 2). Reflecting on his role, Winsemius remarked, “by that time [1970], I was no more an outside advisor. I was a fixed part of the furniture” (Singapore Monitor Reference Singapore1984: 16). Though originally tasked with advising on the first five-year plan (1961–1965), he deemed it too short and doubled its length (Loh Reference Loh, Rahim and Barr2019). Winsemius also expressed disdain for short-term consultants, describing them as “people from more developed countries who come two or three days or a week to Singapore… telling the Singaporean what they do wrong and what they really should do” (Loh Reference Loh, Rahim and Barr2019: 76). He remained an unofficial advisor to the government for 24 years, from 1960 to 1984.

By lengthening his time horizons in the country, not only did Winsemius become an important constituent in the ruling coalition, he introduced PAP leaders to other important experts. One of these experts was a regional consultant with the Bank of America (BoA), J. D. van Oenen. Van Oenen forged a lasting relationship with the government when he made a significant windfall from the devaluation of sterling in 1967 by running a sterling overdraft in London on behalf of the government. As a senior employee of the BoA later recalled, the “Singapore government and ourselves made a killing in one day. This was the initial rapport with the government” (Schenk Reference Schenk2020: 21–22). Van Oenen then approached Goh in 1968 to allow the BoA to collect US dollar deposits from the region into Singapore to fund local and regional lending, marking the beginning of the Asian dollar market. Van Oenen noticed that Singapore’s time zone could enable twenty-four-hour international banking by operating between the closing hours of San Francisco and the opening hours of London and Zurich. Together, Winsemius and van Oenen developed the idea of building an offshore banking center in Singapore, which gained traction with PAP leaders as they recognized its importance in their developmental strategy (Schenk Reference Schenk2020; Stoelinga Reference Stoelinga2020).

The cases of Kuwait and Singapore demonstrate that the state’s ability to forge long-term partnerships with transnational experts was crucial for the implementation of politically ambitious developmental policies. In Kuwait, reform-minded state elites were unable to forge durable alliances with transnational experts, in part because such experts lacked the political leverage or material benefits needed to become trusted coalition partners. This was compounded by entrenched elite interests within the state and the persistent influence of British authorities, both of which constrained the autonomy necessary to strategically embed external expertise into developmental planning. These conditions were the outgrowth of the inability of the state to discipline merchant-capitalists and the tethering of Kuwaiti financial policy to British monetary interests. Even though there may have been more of a cultural and linguistic fit between figures like Sayyid Ali Tewfik Haggag, Dr. Fakhri Shehab, and Kuwaiti political elites, this was not sufficient for overcoming these countervailing forces.

By contrast, the Singaporean state had achieved a degree of autonomy from both private capital and British financial interests. But this alone does not explain how state leaders sought and implemented the advice of transnational experts – especially those offering unconventional advice. In her study of European left-wing parties, Mudge (Reference Mudge2018: 32) argues that “party experts” shape political trajectories through a “genetic link” between their social positions and party rhetoric. Yet Winsemius came from an entirely different background than PAP elites and he was not working within the dominant economic paradigm of the time. Some sociologists explain expert influence through micro-level factors like local knowledge, cultural fit, or perceived authenticity (Alshaibi Reference Alshaibi2024; Harrington and Seabrooke Reference Harrington and Seabrooke2020). But in this case, none of those seems decisive – Winsemius had never visited Southeast Asia before arriving in Singapore and openly admitted his unfamiliarity with its history and politics (Meulbroek and Akhter Reference Meulbroek and Akhter2019). Shared anti-communist sentiment may explain a political alliance, but not agreement on such an unorthodox developmental strategy. Instead, the success of the developmentally minded partnership depended less on cultural alignment or epistemic fit and more on the state’s willingness to empower experts like Winsemius who could offer concrete material or political advantages, thereby earning the trust required for long-term integration into the ruling coalition.