It was the night before Singapore's Finance Minister was due to talk to The Times and a more internationally recognisable voice of the city-state was out and about in full, hectoring flow.

Lee Kuan Yew, the octogenarian statesman who looms over the Singaporean Government as its “Minister Mentor”, was opening an event at one of the city's swish hotels. If voters were ever gripped by the “sheer madness” of electing a member of the opposition, Mr Lee said, in a typical bit of carrot-and-stick politicking, it would take “only five years” to ruin Singapore completely.

It is tempting to believe that the old man must be wrong and that there is far more resilience in Asia's smallest country than its patriarch suggests. Singapore's affluent skyline bears every sign of the city-state's sustained economic vibrancy. Where there are not recently finished skyscrapers, there are cranes building more.

There is a fledgeling biotechnology industry and a fourth university has just opened. The host of expatriates, sucked first towards the city's financial district for work, cram a swelling new ghetto of clubs and bars after hours. Even Cabinet ministers admit that the place is much more interesting than it used to be. Singapore appears, at least on the surface, to be a country with enough momentum and vivacity to survive the election of a few MPs from outside the monolithic ruling party.

But there is little doubt that Singapore's business model is under threat. According to the Finance Minister Tharman Shanmugaratnam, it always has been. And now it has a number of hungry, growing cities in India and China breathing down its neck as viable financial hubs. Because of Singapore's minuscule size, the openness of its markets and its dependence on exports and the financial services industry to drive growth, a country that appears to have prospered through doctrinaire social manipulation is, in reality, disproportionately at the mercy of monetary and fiscal policy.

“I would say that starting from the premise that we are vulnerable is not a bad thing in a whole sphere of policies,” Mr Tharman said. “The fact is that we are vulnerable ... psychologically, it is both a liability and an asset.”

He describes the need for a place such as Singapore to build resilience to the “unknown unknowns” that the global economy may throw in a finance minister's path. In the 21st century, he argues, unpredictable shocks are becoming more frequent.

Latitude in monetary and fiscal policy is crucial - and yet when the softly spoken, British-educated Mr Tharman talks of Singapore's striking economic vulnerabilities, he emphasises the need for social cohesion, a force, he says, that has helped to make his country so attractive for investment and without which one of South-East Asia's most impressive economic stories would surely unravel.

Although that emphasis on social cohesion as economic panacea is textbook Singapore stuff, Mr Tharman believes that the Government's attitudes are too readily simplified. It is easy, he smiles, to parody Singapore - and the farther from Singapore you go, the easier it is. Instead, Mr Tharman sees himself as being in charge of the finances of a complex society with a “surprising amount of fringe”.

Nor does he see paradox within the Government as it struggles to ferment new ideas and a “fertile crescent”

for business and science. When he returned from a recent visit to Israel, Mr Tharman remarked on that country's ability to nurture innovation within what he called an unruly democracy. It is not outside Singaporean culture to be questioning people, he said, but there was more evolving to do. He adds his belief that the Government should not try to control the internet because of the impossibility of doing so effectively - a comment at odds with a continuing legal action against a foreign blogger critical of Singapore's justice system.

“It is not every man for himself and every idea for itself and we all live happily ever after,” Mr Tharman said. “We have to preserve this compact, but never be trapped by our past.”

Singapore's need for social cohesion, Mr Tharman believes, arises from its size. If Singapore were like London or San Francisco and other cities within larger economies, he argues, it could afford to be more of a free-for-all. “In those cities you have the weight of a middle country out there where established norms are sustained and persevered with and values evolve only gradually,” he said. “Our middle country is two or three subway stops from the centre of the financial district. Everyone is part of the same neighbourhood. You have to look after not just your software programmer, your financial derivatives trader and your creative class, but the people who are clearing the refuse and serving in the McDonald's outlets, the technicians, secretaries and engineers.

“That is why you need a certain degree of consensus-building, a degree of constraint in your social norms.”

Cohesion, therefore, remains the stated goal and Mr Tharman insists that the global economic tide has made securing it even more vital. The balance of policy-making, he says, is even more delicate. Singapore's traditional use of exchange-rate policy to respond to the economy's various headwinds faces limitations in the current climate, he feels. A dramatic strengthening of the Singapore dollar might bring some temporary relief from $120-a-barrel oil prices, but it would hurt the country's already slowing exports.

Singapore's extraordinary rise was crafted in an era of far more favourable terms of trade. With that era over, the burden on the monetary and fiscal navigators is even heavier. With the exception of eggs, Singapore imports all its food and energy, so it has found itself in the front row for soaring commodity prices and the resultant inflation. Mr Tharman says that the most critical task he faces is ensuring that corporate Singapore does not unleash a second, more destructive, spiral of inflation via wage rises.

The tripartite tradition of annual pay talks, which puts the Government at the same table as employers and unions, goes a long way to ensuring that the State's views on the matter are heard.Morever, Singapore's wrestle with inflation is teaching lessons that should be heeded abroad. Singapore's unique catalogue of exposures, Mr Tharman says, means that it is behaving like an ultra-sensitive barometer for the rest of Asia. With very little in the way of padding from price shocks, Singapore is facing in the immediate weeks what others will be forced to cope with in coming months.

Mr Tharman said: “We have not had the luxury of even contemplating insulating ourselves from global prices. We are a small, highly open economy, a textbook case of a country that cannot insulate itself from global prices and trends. How we behave and how we respond to the crisis is, in a sense, something that all countries will have elements of. Ultimately, as you are finding across Asia, sustaining subsidies is an expensive proposition.”

Given Singapore's reputation as a land of strict rules with a top-down vision of how the state should look, many people would expect its Government to dictate its way through any given crisis. Mr Tharman is adamant, though, that Singapore's response will bear no such hallmarks. “It's really not an economy that can be characterised in any sense as having command features,” he said. “If we are interventionist, it is in the social sphere in the way we shape our housing policies ... in the effort to achieve social cohesion and ethnic cohesion in our neighbourhoods.

“Singapore is one of the freest economies in the world. We make no bones about the fact that we do intervene in the social sphere to ensure a degree of mobility and cohesion that would not naturally come about through the free workings of the market.”

Tharman Shanmugaratnam CV

Born: 1957

Education: Obtained undergraduate and masters degrees in economics from the London School of Economics and Cambridge University. Later obtained a masters degree in Public Administration at Harvard University

Career: Politics: Singapore's Minister for Finance. Previously served in various positions in the Economic and Education ministries since his entry into politics in 2001, including Minister for Education between August 2003 and March 2008. He was appointed Minister for Finance in December last year

Finance: Spent much of his earlier professional life at the Monetary Authority of Singapore (MAS), Singapore's central bank and integrated financial regulator, where he was chief executive before he entered politics. At present, he is also deputy chairman of the National Research Foundation and serves on the boards of the Government of Singapore Investment Corporation and the MAS. He is chairman of the Ong Teng Cheong Institute of Labour Studies and chairman of the Council of Advisors of the Singapore Industrial and Services Employees' Union. He is a life trustee of the Singapore Indian Development Association

Family: married to Jane Yumiko Ittogi, a lawyer. They have four children, three boys and a girl, all school age

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