SECRET
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spending something like £600,000 on maintenance.
(4) Mr Smith suggested that it might have advantages if the Hong Kong contribution were specified in terms of Hong Kong dollars rather than pounds sterling. He made it clear that this was aimed at avoiding the consequences of any further devaluation of sterling, but he accepted that it was mainly a point. Mr Brack did not mention it to me and I did not mention it to him.
(5) Both the Treasury and Ministry of Defence would like to apply the principle of paragraph 7 of the Governor's telegram to the problem of inflation; ie, if over the period of the inflation there is a major swing in costs (whether upwards or downwards) there should be provision for review, just as the Governor has proposed a similar provision in the event that the garrison is increased or decreased by more than one major unit.
4. The Treasury propose that on the assumption that agreement at the official level is reached, an agreed paper should be submitted to our respective Ministers as soon as possible. It would be up to the FCO to provide the draft of such a paper and it might be necessary to hold a further meeting of officials as early as possible next week to agree upon the final form of the paper before its submission to Ministers. This appears to be a sensible idea, and I shall begin the preparation of the necessary draft forthwith.
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5. As soon as we have got the all-clear from the Ministry of Defence, I think it would be as well if we were to send an interim telegram to the Governor to let him know that we have reached agreement at the official level on his proposals; and putting to him the points listed above; and asking him for his views as soon as possible so that we can obtain ministerial approval without delay.
29 January 1971
A W Gaminara
Hong Kong Department
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