Encl. 5
11
of $51,654,719. Thus it may be rightly claimed that the Colony bore its full share of the cost of preparations for
50
defence and it is proposed that it should bear the oven heavier cost of reconstruction. It would surely not be reasonable t- expect it to do more.
く < 31.
But while this Colony is prepared to meet the cost of rehabilitation to the best of its ability, it is strongly folt that, where equipment from general war stocks was supplied to local Govornment departments, any claim for a refund of the value should be waived. When the Colony was re-occupied, the Harbour Department was much handicapped by the fact that most of the pre-war small craft had disappeared or had boon rendered unserviceable, and a cortain number of vessels wore supplied from general war stocks to make good the deficiency. Those were by no means ideal for the purposes for which they were provided, and if the Harbour Department had been able to order the types of vessel best suited to their requirements, far better value would have been obtained. The cost of assembling those small craft amounted to $325,000, and this has been met from Hong Kong funds. It was hoped that no claim would, in the circumstances, have been presented in rospect of these vessels, but one has recently bon received from the Ministry of Transport. The question is being taken up in more detail in a separate despatch but I consider that as the se craft were supplied from stocks accumulated for the general purposes of the war and were utilised to replace vessels removed or damaged by the Japanese, it is unreasonable to chargo the Colony with their value which is estimated at £143,950, especially when tho Harbour Department has, sinco the re-occupation, transacted business on behalf of the Ministry of Transport free of charge to a value of over $3,000,000.
32.
Early in 1945 at a time when conditions following the re-occupation of the Far Eastern Colonics could not have been accurately visualised, it was stated that the extent to which Hong Kong should be called upon to contribute to the not cost of the Military Administration would be determined, having regard to the remaining Hong Kong balances and to the amount of the subsisting liabilities of the Colony on the re-establishment of Civil Government. On the latter date the Colony had no reserve funds; the Exchange Fund is earmarked for a specific purpose and owing to the fact that the inc mo was utilised to moot Hong Kong commitments during the occupation period, the cover of the note issue no longer amounts to 100%. The liabilities with which the Colony is faced have been explained in detail in this despatch. They are so heavy that, when the Colony's lack of reserve funds is also taken into consideration, I find it difficult to imagino that it could now be scri uslý suggested that this Government should contribute towards the cost of the Military Administration. Indeed ny such suggestion would be completely illogical if ais Majesty's Government finds it necessary to waive claims for advances mado during the occupati n period,
33.
Assuming that a settlement is agrood to in the lis which I have proposed, and which are summarised in the schedule onclosed, a decision will still be necessary in regard to the sum of £750,000 advanced from Imperial funds between the date on which Civil Government was restored and the end of the financial year on the 31st March, 1947. This advanco was required to moot heavy payments in London at a time when the Colony's revunuo had not recovered sufficiently to permit of the transfer of funds to the Crown Agents. The payments in question included equipment required for rehabilitation purposes, but they chic fly represented the final scttlcmont of arrears of salary due to officials of the Hong Kong
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