Sir D Watson
CONFIDENTIAL
1. Stepfant (237
RECEIVED IN REGISTRY No. 51
20 DEC1973
HKK 5/1
Sipfor
HONG KONG:
MONETARY MANAGEMENT AND INSTITUTIONS
Mr Barratt held a meeting on this subject with Mr Payton and myself. Mr Gwynne (Treasury) was there to take a note.
2. On substance, there was a general feeling of unease about monetary management in Hong Kong. Mr. Barratt said that on his visit he had felt that the Hong Kong Government was too smug in its confidence in its ability to adapt to changes without changing itself. He also felt that the Financial Secretary was carrying too great a burden; and that there would be difficulties if for any reason that burden should prove too great. It was also the general feeling that there was a UK interest here: for so long as things went well in Hong Kong, they would be resistant to any advice; but if things turned sour HMG would inevitably be involved.
3. When discussion turned to what HMG should do, I felt it necessary to refer to the possible role of the Governor, and, I fear, to the delicacies involved because of the relationship between the Governor and the Financial Secretary. I emphasised that my under- standing of the FCO view was that it was necessary to be extremely circumspect in how this matter was handled; and that any initiative from this end could create difficulties. The Governor, we thought, was aware of the problem, if only in rather general terms. The Governor was best placed to make a judgement on what was feasible in the context, and when to make a move. I thought anything which might involve a confrontation with the Financial Secretary (perhaps even his resignation) must be avoided.
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I also said that one possibility that we were toying with was to take some convenient opportunity of reverting to this subject in a personal letter to the Governor. We could ask him how his mind was moving, and re-emphasise our willingness to help in any way that he might consider appropriate. In the meanwhile it would probably not be helpful to seek to express our worries through other channels.
5. I think that both Mr Barratt and Mr Peyton are content that we should play things in this way for the time being. Though I must report that both were somewhat doubtful about whether the Governor was sufficiently in the picture; they were, in particular, both very surprised that the Governor had not seen fit to seek any advice from the Bank of England at any level. Hence Mr Barratt suggested that at some convenient opportunity it might be useful if an FCO Minister could have a private word with the Governor on the basis of a piece of paper which could be shown to the Governor. If this was thought to be a good idea, perhaps the FCO could when the time seemed
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CONFIDENTIAL