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Servants are now probably higher than is really justifiable. But we need not go into that now. It will be noted from the terms of the Colonial Secretary's speech announcing the decision on conversion rates (page 6 of enclosure 2 to No. 5) that the Government has made it clear that the conversion rates may be altered in the future. As regards the military contribution (Appendix IV to the Estimates) it must be noted that they have deducted the cost of the Anti-Piracy Guards for both 1931 and 1932. That is one of the concessions the War Office will probably agree to, but they may object to its being retrospective. We must bear in mind that Hong Kong has deducted it when we have our further discussions with the War
Office.
The loan position is most important (see paragraphs 13 to 16 of the Treasurer's memorandum). If the new waterworks scheme at Shing Mun is approved, the total loan commitments will be $26,500,000. But of that, $5,000,000 are to repay the 6% 1927 Public Works loan.
That loan
can run until November, 1938, so it will not be necessary to pay it off unless the new loan can be raised at lower rates. The Treasurer is not prepared to forecast whether in November this year that will be possible.
Another $5,000,000 is required to re-
imburse to surplus balances sums advanced for loan works. It will be noted that the new gaol, which we have reluctantly agreed to letting them charge to loan (No. 7 on 82818), is to cost $4,500,000.
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