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3 the
DOCUMENT OF INTERNATIONAL MONETARY FUND AND NOT FOR PUBLIC USE
UNITED KINGDOM OFFICE
ROOM 11- 120
BUFF/ED/93/15
0418
February 2, 1993
Statement by Mr. Che on United Kingdom
Executive Board Meeting 93/16 February 3, 1993
Hong Kong
In 1992, Hong Kong's economy performed quite well on the basis of a strong rebound in 1991. A higher growth of 5 percent was solidly achieved in the context of a moderation of domestic private demand. as well as of the overall weakened demand in Western markets. Inflation as measured by the Consumer Price Index (A) moderated to about 9.4 percent, the lowest level since 1989. Trade development was equally impressive with both exports and imports attaining higher growth. The labor market remains flexible though not without fragility. On the whole, Hong Kong's economy was evidently in better shape in 1992.
The stronger growth momentum with reduced inflation in Hong Kong's economy can be attributed mainly to two factors. First of all, it is China's robust double-digit growth in 1992 that has a strong and decisive bearing on Hong Kong's satisfactory economic performance. The China element has once again demonstrated its powerful effects on Hong Kong's sustained growth. Secondly, the conventionally sound economic policy mix and environment were still primarily maintained by the Hong Kong authorities in 1992 despite some deviations. A strengthened recovery during the second half of the year in a few industrial countries, particularly the United States, has also been a positive factor for an outward-oriented economy such as Hong Kong's.
Nevertheless, during 1992, Hong Kong's economy was still disturbed by some apparently negative factors. One of the consequences was the sharp decline in Hong Kong's stock market at the end of the year. Business confidence has also been unavoidably affected. Consequent uncertainties were likely to have weakened an otherwise stronger growth for Hong Kong. Hong Kong began 1993 confronting additional challenges under these very special circumstances.
As my authorities are in broad agreement with the thrust of staff assessment, I would like to briefly reiterate our position on some major policy issues.
First, it is fair to say that the linked exchange rate system, adopted in 1983, has continued to make a positive contribution to bolstering economic and financial stability in Hong Kong. Needless to say, there is no perfect exchange regime, as any exchange arrangement reflects specific circumstances when it is adopted. The linked exchange regime is no exception. As Hong Kong is well into the transitional period, it is of vital importance to keep the exchange system stable in order to safeguard