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Treasury Chambers
Great George Street, London S.W.I
Telephone: 01-930 1234, ext.
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Our reference: 2DM 415/01 Your reference:
E O Laird Esq CMG MBE
Hong Kong Department
Foreign and Commonwealth Office
Whitehall
London S W 1
Dear Laird,
HONG KONG DEFENCE CONTRIBUTION
RECEIVED IN REGISTRY No.51
23 MAR 1971
HKK 10/9
9 March 1971
At your meeting on 5 March the view was taken that some of the points made in your first draft of a formal reply from HMG to the Hong Kong Unofficials should be transferred to a separate guidance telegram to the Governor and that the reply should be made crisper and more concise. We very much agree. Besides being too long the first draft seems in some respects too conciliatory. The Unofficials did not mince their words and said some rather sharp things about us; We ought to reply in like vein.
Balance of Payments
2
The reference to balance of payments considerations in the formal reply would best read as:-
3
"It is true that in 1966 the United Kingdom's balance of payments problem was a major factor contributing to the request for an increased defence contribution from Hong Kong. Since then the United Kingdom has been able as a result of a number of difficult and sometimes painful measures, to move to a position of substantial surplus on current account, with a consequent improvement in the external financing position. But this improvement has occurred in the relatively recent past. The magnitude of the UK financing problem previously was such that, even though substantial repayments of debt have been made a very large burden of short and medium-term official debt remains outstanding. These debts have to be repaid in the next few
The need for the UK to maintain a substantial and continuing surplus on current account not only to repay remaining debt but also to cover large capital outflows associated with aid, overseas investment and trade credit, and to achieve a more sustained economic growth than in the past, has not therefore diminished.'
years.
The Governor has of course already commented briefly on the Unofficials' arguments (paragraphs 2 and 3 of telegram 144).
He
can also make the point that the latest available figure for the total of UK short and medium-term official debt outstanding (December 1970) is £1369m. Furthermore this total is not far short of the amount which was outstanding at the end of 1966 - £1481m. I think it is probably best for these figures to come in the Instructions rather than in the formal reply.
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