Mr Paul
SECRET
Gf.
.
Mr. Furness.
FROM:
M V Stone
DATE:
CC:
Hong Kong Department
26 October 1990
Mr Burns
Miss Marsden
Ms Major
Mr Fifoot, Legal Advisers
PADS: RUN DOWN OF THE RESERVES: SARG LAND FUND
1. As you know, in telling the Chinese how HKG would fund the airport project, HKG indicated that this would be feasible, without borrowing, by running down their reserves to about HK$5 billion in 1996-97. At the same time, they set out how the SARG Land Fund would build up to about HK$92 million by 1997. They pointed out that, throughout the period 1996-97, the balance of the combined funds would be between $85 billion and $100 billion - all at money of the day prices. The attached forecast summarises the position.
2.
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I think this is an astute political move. The build up of the balance in the SARG Fund has not attracted much attention. But by the end of this year it will be HK$26 billion. Even if Hong Kong's estimates of land revenue
for the period up to 1997 are optimistic (and I do not believe they are unduly), the Fund will by then be very substantial indeed. Why should HKG maintain their reserves at current level when they would be doubled in 1997 by the addition of the Land Fund? What purpose for Hong Kong is served by having such huge reserves? By introducing the Fund into the equation in public, this will alert LegCo and
ROFAOT/1
SECRET