SECRET
6.
Apart from the content and cost of the capital
works programme, it would also be necessary to explore how the programme would be related to the early release of land which was, presentationally at least, important to the
HK Government.
7.
The Question of inflation: This would have to
be examined in the light of
8.
a) UK's recent experience of inflation, and
b) the suggestion that there should be an
open-ended commitment.
Various ways in which the effects of differential
inflation on the basic cost might be limited were:
a)
reduction of sterling content of
supplies;
b)
reduction of the UK element of support
personnel and the extent to which there was scope for economy or substitution particularly in the medical and education
fields.
Alternatively:
c) a formula might be devised whereby HK's
liability to bear the cost of differential
inflation was limited.
9.
H.E. said that in the absence of any reduction in
the risk or limitation of HK's responsibility for inflation,
Unofficials would almost certainly press for the payment arrangements under any agreement to be based on actuals and the Hong Kong Government could not resist this pressure.
SECRE
•
.4