In this chapter, I address the two authoritarian countries where chief executives adopted the orthodox solution to the signaling problem, namely, to appoint close associates who shared their preferences to key bureaucratic positions. In both cases, the regulatory outcomes were in line with the chief executives' preferences for stringent regulation.

SINGAPORE

Recall that an authoritarian country whose chief executive has arm's length relations with the banking sector is predicted to have a stringent bank regulatory environment, unimpeded by signaling problems or gridlock. I show in this chapter that, although Singapore changed its development strategy several times in the course of the last three decades, there was one constant: arm's length relations between the chief executive and the entire business community, including the banking sector. I begin with a background section that addresses the period between 1965 and 1990, when Lee Kwan Yew served as the chief executive. In Section 6.2, I describe the political environment under Lee's successor, Goh Chok Tong. In Section 6.3, I describe the bank regulatory environment in Singapore in the years leading up to the Asian crisis.

Background: Singapore Between 1965 and 1990

Ever since its emergence as an independent state, Singapore has operated under a system of government that falls well short of being a democracy. The government's powers include detention without trial, deregistration and replacement of radical unions with compliant ones, and withdrawal of licenses from newspapers deemed to be opposed to national interests.