02/04/93 17:50
202 823 4985
UKDEL IMF-IBRD →→→ ERD FCO
002/009
· TREASURY FOR EVANS, SEDGWICK, CUNLIFFE, BANK OF ENGLAND FOR BULLOCH, FCO TEBBIT, ODA FOR POWER
IMF: HONG KONG 1992 ARTICLE IV CONSULTATION
1.
TEN
STAFF REPORT ENDORSED BY THE IMF BOARD. DIRECTORS SPOKE, WITH THE REMAINING FOURTEEN BEING TAKEN TO
ALL THOSE WHO GIVE THEIR SUPPORT TO THE STAFF APPRAISAL.
SPOKE WERE COMPLIMENTARY OF HONG KONG'S CONTINUED STRONG ECONOMIC PERFORMANCE, AND ADHERENCE TO FREE MARKET PRINCIPLES AND FREE TRADE. AS SUCH HONG KONG CONTINUES TO BE SEEN AS AN EXAMPLE TO THE REST OF THE MEMBERSHIP.
2.
ALL BUT THREE DIRECTORS AGREED WITH THE STAFF'S FULL SUPPORT FOR THE CONTINUED EXCHANGE RATE LINK TO THE DOLLAR, BELIEVING THAT THE COSTS OF THE POLICY WERE OUTWEIGHED BY THE BENEFITS IN TERMS OF FINANCIAL STABILITY. ONLY BONZOM (FRANCE), AND KAESER (SWITZERLAND) SUGGESTED THAT THE AUTHORITIES MIGHT CONSIDER A REVALUATION AGAINST THE US DOLLAR. TABATA (JAPAN) SUGGESTED FLOATING THE HK DOLLAR (CITING RECENT ERM TURMOIL AS EVIDENCE THAT FIXED EXCHANGE RATES WERE FLAWED). I STRESSED THAT A REVALUATION TO A HIGHER US DOLLAR EXCHANGE RATE WOULD ALLOW NO FURTHER FLEXIBILITY IN INTEREST RATE POLICY.
3.
ALL DIRECTORS WHO SPOKE AGREED WITH THE STAFF ANALYSIS OF FISCAL POLICY. THEY CAUTIONED THAT GIVEN THE EXCHANGE RATE LINK, THE AUTHORITIES HAD TO USE FISCAL
THIS POLICY ACTIVELY TO CONTAIN INFLATIONARY PRESSURES. COULD BE THROUGH LOWER CURRENT OR CAPITAL EXPENDITURE OR HIGHER TAXES. EVANS (AUSTRALIA) AND ABBOTT (US) SAID THAT WHILE THEY FULLY SUPPORTED THE EXCHANGE RATE REGIME, IF INFLATIONARY EXPECTATIONS WERE TO BECOME ENTRENCHED THAT
WOULD