CONFIDENTIAL
and we have to bear in mind that we shall continue to have a British garrison in an increasingly in Hong Kong until 1997. On the third point, the Governor sees no prospect of persuading LegCo to vote funds for safeguarding the pensions of HMOCS officers above, and a Ministerial direction to the Governor would in our judgement lead to a constitutional crisis, and in particular to a breakdown in confidence between the Legislative Council and HMG. If the commercial loan option can be developed in a technically and politically feasible way which meets the main concerns of HMOCS officers, it would clearly be the most satisfactory solution. If this does not prove possible the FCO (Diplomatic Wing and ODA) strongly believe that an HMG-funded partial compensation/safeguards package of the kind set out inn Annex B and C is the most practical and cost-effective way of tackling the problem. Otherwise the choice is to take a firm decision not to proceed with a scheme, or to delay a decision until much nearer 1997. Both would leave the problem unsolved, with all the attendant risks. And both could still involve HMG in some costs, if
the situation deteriorated in Hong Kong.
NFJABA/10
CONFIDENTIAL