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be found, of which hopefully $150 million a year might come from loans (from the Asian Development Bank) and the balance from additional taxation. Unpalatable though these measures have been and will be, they appear essential if we are to achieve the results I believe necessary.
20. The Government and Civil Service have responded very well, and with some enthusiasm, to these massive demands put on them. With so much to do, and after gearing up departments to do it, it has been extremely disappointing for all concerned to have to rephase programmes in the light of financial uncertainties. But in spite of the disappointment, the new levels of progress will still be very great, and the objectives of the programmes will not be prejudiced, provided the economy continues to perform in the future in the same way it has done in the past.
21. The Government did consider drawing on its reserves so as to maintain the momentum of its expenditure during this difficult and rather uncertain period, or alternatively of attempting to borrow on a much greater scale than that envisaged above. However both alternatives were rejected. With regard to borrowing it is necessary to remember that in 1975/77 the Mass Transit Railway Authority will be obliged to go to the market for $HK2,000 million for bridging finance, so clearly the Government must be careful not to overload the possibilities of the market by making excessive demands on it meanwhile. With regard to the Colony's available reserves, now standing at about $HK3,000 million, we would not hesitate to use these in a crisis, indeed this is precisely what they are for, but they are not great when viewed against an annual budget of $6,000 million, or a public works programme over the next 10 years amounting to about $HK25,000 million at 1974 prices. Furthermore the existence of these reserves makes the Government credit-worthy, and with the need for massive borrowing ahead they are an asset not lightly to be thrown away. But in any case with such large spending programmes drawn up for the next 10 years, and liable as the Colony is to chronic uncertainty about its trade and thus its revenue, we thought it prudent to harbour these resources until a real need arises. Of course the position would be quite different if the Hong Kong Government could count on massive develop- ment aid or soft loans, but this it cannot do. It is compelled to stand on its own feet and must conduct its financial policies accordingly.
22. The foregoing paragraphs summarise the position of this Colony at this moment. With the assurance of a period of acceptance of the status quo by China, the Hong Kong Government is geared to make a massive effort to use this period to set right as much as it can of the deficiencies in the Colony. Perhaps in our original draft plans we were attempting to do too much too quickly, but in any case we have been slightly and temporarily knocked off-course by the financial uncertainties induced by the oil crisis. But the effort and the programmes stand, and the course has been re-plotted.
23. The Government is now confronted with social problems brought about by imported inflation and by the uncertainty of export markets affected by the oil crisis. The position will be described in my next despatch.
24. I am sending a copy of this despatch to Her Majesty's Ambassador in Peking.
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I have, etc.,
MURRAY MacLEHOSE.