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SAVINGRAM
BY BAG
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FM UKDEL IMF/IBRD WASHINGTON
TO FCO SAVINGRAM NO. 23
[292300Z]
OF JANUARY 29, 1992
AND INFO.SAVING HONG KONG, MANILA
IMF: 1991 HONG KONG ARTICLE IV CONSULTATION (SM/92/4).
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HICC 031/9
SUMMARY
1.
All Directors complimentary about Hong Kong's recent economic
performance and the continued adherence to sound free market economic
policies. Discussion centred on the risks to inflation and the continued use
of the exchange rate link to the dollar. Several Directors suggested a
revaluation of the Hong Kong dollar, but several others, including the
Chinese, supported the authorities in their clearly stated view that the
exchange rate link to the dollar continues to be of crucial importance to the
future stability and long-term prospects for the Hong Kong economy. (And the
13 Directors who did not speak can also be assumed to agree with the staff's
support for this view.) While some Directors pressed for a tighter fiscal
stance, others noted the risks of introducing higher taxes in Hong Kong.
DETAIL
2.
In advance of the discussion, I circulated Buff statement 92/12, and
Wei (China) circulated Buff statement 92/13 (both faxed to HMT and Hong Kong).
Eight other chairs intervened in the discussion. Wei's Buff statement was
supportive of the Hong Kong authorities recent policies, in particular
maintaining the exchange rate link with the US dollar, and the recent measures
taken in the labour and property markets to dampen inflation. However, he did
warn that the effects of recent expansionary fiscal policy should not be
underestimated, and that without a 'complete reversal of the recent running-up
of public spending' there was still the possibility of higher inflation.
concluded with a restatement of China's commitment in the future to 'one
country, two systems'.
He
3.
The first full intervention in the discussion was from Tabata
(Japan). He welcomed the recovery of GDP growth in 1991, but said that there
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