CONFIDENTIAL
the political judgement
was that
Mr
repercussions. (For example HMG had never compensated UK pensioners living overseas for the effect of sterling devaluations). In contrast HKG would suffer a comparatively small degree of discomfort as a result of capitalisation. Burns said there was potential for even greater discomfort for HMG in the long run if we could not maintain stability in the Territory. We did not want all HMOCS officers to leave before 1997. Ms Brown emphasised that their proposal would involve no cost to HKG, as they were referring to an actuarial valuation of a liability. It would not affect Hong Kong's finances. Mr Cox argued that the management of Hong Kong's economy was brought into question. HKG had made undertakings to the Chinese, in a Memorandum of Understanding signed by the Prime Minister, about the size of its reserves in 1997. It had repeatedly explained that pensions must be funded out of current revenue.
11. Mr Fish stated that we should not imagine that our proposals for a sterling safeguard were anything more than a fair minimum for HMOCS officers; they would not consider the rate of HK$16:£1 sterling particularly favourable. This would be the minimum which was defensible in Parliament. Mr Burns said that HMG had obligations which an incentive scheme by itself would not meet. Mr Kerby added that we were shooting for the same target of the least costly solution. We must put ourselves in the place of a Hong Kong expatriate civil servant who saw a risk that the Hong Kong dollar may fall through the floor. This risk would lead some HMOCS officers to believe that there was little point in remaining in Hong Kong. This was the key point, not whether we had any strictly legal obligations.
12.
Ms Brown and Mr Rayson argued that HMOCS officers formed a special group and that HKG could explain this to LegCo as the reason for a transfer to HMG of a lump sum. Mr Rayson argued that without capitalisation HMG would be allowing assets within our control to pass to the Chinese. Could the Foreign Secretary not direct the Governor to provide the necessary funds? Under UK pensions legislation civil servants are entitled to commute their pension entitlements. Why was it not possible to apply these rules to Hong Kong? Mr Fish said that capitalisation was theoretically possible, but in practice it was not workable in Hong Kong. Mr Burns said that a direction to the Governor would cause a constitutional crisis and pave the way for similar Chinese intervention after 1997, thus wholly undermining the Joint
(Mr Fish, ODA's Declaration.
amendment)
26/11
13. Mr Rayson said that under the Treasury proposal HMOCS officers could leave Hong Kong whenever they wanted.
Mr Kerby explained that HMG did not want that, but needed to induce people to stay. Ms Brown added that HMOCS officers would not be making a black and white judgement about whether or not to remain beyond 1997. They would take a number of factors into consideration, including the terms of any compensation/incentive scheme.
WADAAM
CONFIDENTIAL