CONFIDENTIAL
માર
4. The papers enclosed with my minute of 11 February make clear that, because of White Paper commitments, practice in
other Dependent Territories and Ministerial statements, HMG
have a duty to ensure that Hong Kong HMOCS officers enjoy
sterling safeguards of their pensions. We should have liked HKG to fund these safeguards, eg by capitalisation before
1997 as suggested in paragraph 3 of your minute. But I am clear that this would not be possible without provoking a
constitutional and political crisis in Hong Kong and a diplomatic confrontation with the Chinese who, irrespective
of financial logic, would deplore the transfer out of Hong
Kong reserves of some HK$5 bn on the eve of 1997. The
financial and political costs to HMG of such a situation and the associated collapse of confidence would be immense. The situation would be almost as grave if the failure of HMG and
HKG to provide the assurances necessary led to the exodus of
senior police officers and civil servants of which the
Governor has warned, with its consequences for our ability
to administer the territory and to wider confidence.
5.
There remains on the table one alternative to
HMG-funded sterling safeguards, which officials of all departments have agreed would be attractive if a feasible
scheme can be worked out: Option (d) in the paper enclosed
with my minute, a commercial hypothecation approach.
I hope
that the experts will be able to make this work at an
acceptable cost (I think all concerned recognise that some HMG funding would be needed). But if they fail, I believe that HMG will have to provide a safeguard scheme, including a contingent liability for HMG, as proposed by my officials last August.
Aroiv
TUGABK/2
CONFIDENTIAL
/6.