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030154
MDHIAN 6797
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FM UKDEL IMF/IBRD WASHINGTON
TO DESKBY 09093OZ FCO ·
TELNO 369
OF 06230OZ NOVEMBER 92
HKC 031/9.
TOP COPY
Q DIST?
pu
AND DESKBY 090930Z HM TREASURY, BANK OF ENGLAND, ODA AND IMMEDIATE HONG KONG, UKREP JLF HONG KONG
HONG KONG TELNO 2581
WORLD BANK BORROWING IN HONG KONG
1.
I SPOKE TO JESSICA EINHORN (VP, TREASURER) TO DISCUSS WORLD BANK MANAGEMENTS'S VIEW THAT THE IBRD SHOULD NOT ISSUE BONDS IN HONG KONG WITH A MATURITY AFTER 1997. THE VIEW HAD BEEN BASED ON THE BANK'S NORMAL RULE THAT IT DOES NOT BORROW FROM A MEMBER WHO IS ITSELF BORROWING FROM THE BANK.
2.
I MADE ALL THE POINTS IN PARAGRAPH 4 OF TUR, ADDING THAT THE IMF CARRIED OUT SEPARATE ARTICLE IV CONSULTATIONS WITH HONG KONG, AND WOULD CONTINUE TO DO SO AFTER 1997. I STRESSED THE UNIQUE SITUATION OF THE HKSAR AFTER 1997, IN PARTICULAR THE ONE COUNTRY TWO SYSTEMS' ARRANGEMENTS. ΤΟ CONTINUE TO BORROW FROM HONG KONG WOULD THEREFORE NOT SET ANY KIND OF PRECEDENT FOR BANK BORROWERS. THERE WOULD CONTINUE TO BE A SEPARATE AND CONVERTIBLE CURRENCY, AND A FREE FLOW OF CAPITAL IN AND OUT OF THE HKSAR. I SAID THAT THE DIFFERENCES WERE RECOGNISED BY THE CREDIT RATING AGENCIES, AND THAT OTHER MULTILATERAL AGENCIES (ADB, EIB, IFC) ALSO CLEARLY RECOGNISED THE DISTINCTION, AND WOULD CONTINUE BORROWING AFTER 1997. (MS. EINHORN COMMENTED THAT THE IFC DID NOT SHARE THE WORLD BANK'S POLICY OF NOT BORROWING IN BORROWING COUNTRIES.) I ALSO POINTED TO HONG KONG'S SEPARATE TRADE AND INVESTMENT AGREEMENTS.
3.
MS EINHORN AGREED THAT I MADE A STRONG CASE FOR CONTINUED BORROWING IN HONG KONG. WE AGREE THAT I WOULD WRITE TO HER MAKING MOST OF OUR POINTS, SO THAT SHE COULD AGAIN RAISE THE ISSUE WITH STERN (MANAGING DIRECTOR). SHE CONSLDERED THAT THE STRONGEST ARGUMENTS WERE THOSE WHICH STRESSED ONE COUNTRY TWO SYSTEMS', THAT HONG KONG ITSELF WOULD NOT BE A BORROWER OF THE BANK, AND THE FACT THAT THERE WOULD CONTINUE TO BE A SEPARATE AND FULLY CONVERTIBLE CURRENCY IN HONG KONG. ON THIS BASIS ONE COULD REASONABLY
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