}
CONFIDENTIAL
proposed.
Sterling Safeguards
4.
to the team
HKG explained why it was politically impossible to capitalize HMOCS pensions before 1997 and to transfer the assets and liability to HMG in the UK: neither ExCo nor
LegCo Finance Committee would accept this discrimination in favour of expatriates, and it would provoke a crisis with
China. Sir R McLaren has confirmed that the effect of such
a proposal on Peking would be grave. We think that the
Treasury now privately accept that Ministers will not buy
the proposal.
5. The Treasury are therefore likely to concentrate on whether the need for sterling safeguards for HMOCs officers could be obviated by a new idea for Hong Kong civil servants generally, which is now the object of a consultant's study: to allow the commutable part of a pension to be hypothecated to guarantee a loan by a financial institution to the individual officer, which he could invest in the currency of his choice. The Governor thinks this is a blind alley:
(a) the officer would have to pay loan interest and management charges (and try to keep ahead of inflation), could which would make the scheme very unattractive. HKG have not intention of subsidising it (cost; Chinese reactions; sign of no confidence).
(b) the banks may not judge the SARG's commitment to pay pensions good enough security (but there are ECGD-related problems for us in deploying this argument).
(c) it does not deal with the non-commutable element of pension entitlements (but a different scheme might?).
However the consultant's report will not be available until
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