CO129-590-28 Hong Kong finances- advances to meet deficits 20-12-1941 - 3-1-1944 — Page 9

9

Mr.Gent.

In effect the proposal means that United Kingdom funds should make good the deficiency between the expenditure which is now being incurred on behalf of the Government of Hong Kong and the dwindling income from investments etc.

This is rather a novel proposal and the nearest approach we have to it is the case of Somaliland to whom assistance to meet continuing commitments after occupation was made in the form of a grant in aid of expenses of administration provided on the Colonial and Middle Eastern Services Vote. Somaliland was, of course, already in receipt

of such a grant at the date of occupation.

I am by no means certain whether assistance in a similar form would be possible or indeed desirable in the case of Hong Kong. The alternative would be assistance from the Colonial Office Vote of Credit allocation but this is a matter which will need to be discussed with the Treasury. Whichever method it is found possible to use to provide the funds required, I can foresee considerable accounting difficulties.

In the opening paragraph of the draft reference is made to the conclusions of a meeting held in January, 1942 at which it was agreed that such advances as were required should be made by way of a loan to Hong Kong. It is not clear whether, in asking for assistance, a loan is still envisaged. I am doubtful whether, in present circumstances, the Hong Kong Government could be committed to a loan but I think that as a loan is mentioned what is intended should be put quite clearly to the Treasury at this stage.

If a loan is intended I think that it is desirable that some thing should be said about repayment terms - e.g., non interest bearing loan to be repaid if and when Hong Kong is in a position to do so.

Before agreeing to assistance from United Kingdom funds the Treasury will also need to be satisfied that all available assets have been realised to meet expenditure;

it

is