CONFIDENTIAL
Argument
6. The reason why the Hong Kong Government was not able to take immediate action to freeze Kuwaiti and Iraqi assets was because Hong Kong does not have equivalent statutory powers to those which the UK was able to exercise under the
Emergency Laws (Re-enactments and Appeals) Act 1964. The
Hong Kong Legislature had also adjourned for the summer
recess. (Although it could have been recalled this would
have caused some delay). The possibility of using the Governor's existing emergency powers was also ruled out
because these are clearly limited to circumstances where
there is a threat to public safety, the defence of the territory or the defence of public order. After urgent consultation with the Hong Kong Government over the weekend
of 4-5 August, we therefore concluded that the only option was to make an Order in Council under the Royal Prerogative.
This Order, together with similar Orders for the Caribbean
Dependent Territories, was drafted on Monday morning and
made in the late afternoon of Monday 6 August.
7. It is true that the fall in Hong Kong share prices on Monday 6 August (7.4%) was sharper than in London and the other major international markets but it was not all that
out of line with the fall in several of the other smaller
markets, eg Zurich 7.3%, Singapore 6.35%, Frankfurt 5.4%. This fall must also be seen in the context of the Hong Kong market being one of the most liquid (because of its one-day settlement period) and of share prices there having risen rapidly over recent months. Some Kuwaiti selling
undoubtedly did take place on 6 August. But some banks stalled until Tuesday 7 August, seeking confirmation that
selling instructions emanating from London were in order
under the Freeze Directions issued by the Treasury in the
UK. Market turnover on 6 August was in fact lower than on 7
BUSAHL/3
CONFIDENTIAL