CONFIDENTIAL
111764
MDLOAN 3454
YOUR TUR SUGGESTS THAT BOTH PUBLIC AND PRIVATE SECTOR LOANS ARE UNDER CONSIDERATION FROM ADB. YOUR EARLIER TELNO 779 OF 12 MARCH REFERRED ONLY TO THE LATTER. PUBLIC SECTOR LOANS WILL REQUIRE A GUARANTEE FROM THE HONG KONG GOVERNMENT, AND MAY REQUIRE A COUNTER GUARANTEE FROM THE BRITISH GOVERNMENT (WE HAVE NOT SO FAR BEEN ABLE TO CHECK THE POSITION OF COUNTER GUARANTEES IN THE ASIAN BANK, BUT THEY HAVE BEEN THE NORMAL PRACTICE FOR WORLD BANK LENDING TO DEPENDENT TERRITORIES.) WE SHOULD NOT
(NOT) WANT TO BE ASKED TO PROVIDE A COUNTER GUARANTEE, AND PRESUME THAT YOU MIGHT HAVE HESITATIONS IN ASSUMING THE CONTINGENT LIABILITY. BOTH FORMS OF GUARANTEE WOULD NEED, AT LEAST, PRIOR DISCUSSION WITH THE CHINESE. IF CORRECT THIS ANALYSIS WOULD SEEM TO RULE OUT THE POSSIBILITY OF PUBLIC SECTOR LENDING.
6.
AS
PRIVATE SECTOR LENDING, OR EQUITY INVESTMENT, WITHOUT GOVERNMENT GUARANTEES WOULD NOT (NOT) RAISE THIS PROBLEM. YOU RECOGNISE THE LEVEL OF ADB PARTICIPATION IS LIKELY TO BE VERY SMALL: ITS TOTAL PRIVATE SECTOR COMMITMENTS IN 1991 WERE US?215 MILLION, AND THAT WAS SIGNIFICANTLY HIGHER THAN IN PREVIOUS YEARS. THIS TYPE OF OPERATION WOULD STILL BE SUBJECT TO THE SAME DIFFICULTIES DESCRIBED IN PARAGRAPH 3 ABOVE, THOUGH TO A LESSER DEGREE.
7.
A FURTHER POSSIBILITY, WHICH WOULD NOT RAISE THE SAME LEVEL OF DIFFICULTY WOULD BE TO SEEK THE INVOLVEMENT OF THE ASIAN FINANCE INVESTMENT CORPORATION (AFIC), IN WHICH THE BANK HAS A MAJOR SHAREHOLDING. YOU MAY WANT TO CONSIDER THIS POSSIBILITY IF YOU HAVE NOT ALREADY DONE SO, BUT AFIC DOES TEND TO OPERATE ON A SMALLER SCALE THAN THE BANK ITSELF.
8=
IT WOULD BE HELPFUL TO KNOW WHETHER YOU THINK ANY ACTION IS REQUIRED BY US BEFORE THE ANNUAL MEETING NEXT MONTH. OUR EXECUTIVE DIRECTOR, AS YOU KNOW, IS HIMSELF GERMAN AND REPRESENTS OTHER MEMBERS ALSO. THE CONSTITUENCY AS A WHOLE HAS BEEN SUPPORTIVE OF THE BANK'S POLICY OF NOT (NOT) LENDING TO IT HIGHER INCOME REGIONAL NUMBERS. AN ALTERNATIVE POSSIBILITY MIGHT BE FOR ME TO RAISE THE ISSUE WITH THE BANK PRESIDENT WHEN I SEE HIM IN HONG KONG ON 4 MAY.
HURD
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