84.1 aefl.mr/snf/3.28.9
HM Treasury
CONFIDENTIAL
Gf.
Your copy. (
a
65
Copy. (we have
We cary).
Parliament Street London SWIP 3AG Telephone 071-270
4902
A R Paul Esq
Foreign & Commonwealth Office
HKB 431
16
28 September 1990
LONDON SW1A 2AH
Dear Mr Paul
HONG KONG:
HMOCS COMPENSATION/INCENTIVE SCHEME
enter
24/10
€2
Thank you for sending me a copy of your draft telegram. I let your office know that I would not be able to make your original deadline. I am sorry about this particular as my comments are of a fundamental nature.
2. Following our meeting on 22 August I thought we had reached a point where we had agreed that further clarification of the purpose and potential effectiveness of a compensation scheme was needed. At the meeting it was agreed that the next step should be to consult the Chinese about the principle of an incentive scheme. It is by no means clear that the Chinese want HMOCS members to stay on eight years after 1997. I can understand that you feel you have to say something to the Hong Kong Government now but I would have thought that the telegram should focus on the purpose and potential impact of any scheme rather than on the details.
3.
we
Turning to the question of the value of the Hong Kong Dollar, would have a major problem with any suggestion of Sterling safeguard because of both the implications for public expenditure and the signal that would go out to markets about HMG's confidence in the currency and by implication the Hong Kong economy. The draft telegram implies that, at some point, we shall be giving a Sterling safeguard. It would be quite wrong to suggest that there any prospect of a Sterling safeguard now or later for either pensions or a compensation/incentive scheme. In both 1967 and 1973 when Sterling was devalued, there was similar pressure for a currency guarantee in relation to pensions. Although the
was
consequences of devaluation were known at the time, pressure for a guarantee was resisted. It is therefore unlikely that a guarantee would be given at a time when any estimate of need is speculative. In the light of these serious concerns I must ask you to amend the telegram so that there is no suggestion that such a safeguard will be given.
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