CONFIDENTIAL
14. Mr Fish noted that in Brunei HMG had stepped in to pay compensation when the Sultan refused to do so since he was offering those concerned a continuing career.
15.
Ms Brown said the Treasury had always been keen to make capitalisation as attractive as possible but did not believe that the arguments had been put to HKG with sufficient conviction. Mr Burns said that it was his view that we would not exceed in persuading the HKG that the capitalisation route was at all feasible, for political and financial reasons. But we would clearly have to look again at the issue in order to demonstrate to the Treasury that the option had been fully explained and shown not to be a way through this problem. Mr Rayson said that if after further discussion with HKG we arrived back at the same point, it would not mean that there would be an obligation on HMG to step in.
The Treasury saw their proposal as the only solution. Mr Rew said we needed to tell HKG there was no alternative. Mr Cox commented that it would be very damaging if that message was conveyed to more than a handful of top HKG officials. Mr Burns thought that however forcefully we put the point to HKG we would in practice have to act if faced with a fundamental crisis of confidence in Hong Kong. Ms Brown said that the answer to that would not necessarily be a sterling safeguard, for which the Treasury saw no case. She was optimistic that HKG would find capitalisation a reasonable solution. Mr Burns repeated that he did not think ths would be so, and said that we would need the Treasury's help to spell out their proposal so that we could present it effectively to HKG. It might be helpful to send a team of experts to Hong Kong. He pointed out that we were under pressure to resolve the issue quickly. Staff associations were campaigning fiercely both in Hong Kong and in the UK.
16. Mr Burns asked for more details of Treasury views on the compensation/incentive proposals. Mr Fish suggested that we could consider SPOS separately, since all agreed that there was a problem with its functioning. Ms Brown said the Treasury could not consider the other proposals before first exploring the capitalisation proposal fully with HKG: they had to be seen as a package. It was agreed that Departments would liaise about how best to put the proposal to HKG.
17. The meeting ended at 12.45.
Hong Kong Department 14 November 1991
WADAAM
CONFIDENTIAL