XN000022-1979-03-28 — Page 18

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WEDNESDAY, MARCH 28, 1979

PLEA ON CREATION OF INDUSTRIAL DEVELOPMENT BANK

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THE HON. LI FOOK-WO HAS EXPRESSED CONCERN ABOUT THE EFFECTS OF USING INTEREST RATES TO RESTRICT THE GROWTH RATE OF LOANS AND ADVANCES AND HENCE EXCESSIVE DOMESTIC DEMAND, IN THE CONTEXT OF HONG KONG'S EXPORT-ORIENTATED ECONOMY.

COMMENTING ON THE BUDGET IN THE LEGISLATIVE COUNCIL TODAY (WEDNESDAY), MR. LI SAID IT IS REGRETTABLE THAT BY CONTINUING TO USE INTEREST RATES AS A WEAPON, THE BUDGET WILL EXERT ADDITIONAL PRESSURE ON THE MANUFACTURING INDUSTRY, WHICH FACES DIFFICULT ENOUGH CONDITIONS ARISING FROM HIGHER LABOUR AND MATERIAL COSTS, SLACKENING DEMAND IN THE PRINCIPAL MARKETS AND INCREASING PROTECTIONISM.

HE THOUGHT SOME OVERALL DISTINCTION SHOULD BE MADE BY FREEING ADVANCES TO THE MANUFACTURING SECTOR WHILE RESTRICTING LOANS FOR ALL OTHER PURPOSES.

ALTHOUGH THE FINANCIAL SECRETARY HAD GIVEN IN HIS

BUDGET SPEECH AN ASSURANCE THAT OTHER FORMS OF DIRECT CONTROL, SUCH AS THE IMPOSITION OF CEILINGS ON LENDING FOR SPECIFIED PURPOSES, HAD BEEN EXAMINED BUT DISCARDED DUE TO INEQUITY OR INEFFICIENCY, HE HAD NOT EXPLAINED HOW HE ARRIVED AT THIS DECISION, MR. LI SAID.

ANOTHER REASON THE FINANCIAL SECRETARY GAVE WAS THAT IMPOSITION OF DIRECT CONTROLS MIGHT BE INTERPRETED AS A RADICAL CHANGE OF GOVERNMENT POLICY FROM WHICH AN ERRONEOUS CONCLUSION MIGHT BE DRAWN.

+HOWEVER, THE INTRODUCTION OF ANY FORMAL MONETARY POLICY, SUCH AS THE ONE HE HAD PROPOSED, IS IN ITSELF A RADICAL CHANGE OF POLICY.

+ IS IT NOT THE DUTY OF GOVERNMENT, HAVING TAKEN MEASURES TO ATTACK AN ACKNOWLEDGED AREA REQUIRING REGULATION, TO ENSURE THAT THIS ACTION MUST BE AS EFFECTIVE AS POSSIBLE?+ MR. LI ASKED.

HE WONDERED WHETHER THE MEASURES PROPOSED, WHICH ARE NON-FISCAL AND DEPENDENT PRIMARILY ON INTEREST RATES, WOULD BE ADEQUATE WITH THE PRESENT RELATIVELY HIGH AVERAGE LIQUIDITY RATIO IN HONG KONG'S BANKING SYSTEM.

HE THOUGHT THE PROPOSALS ARE JUST A HOLDING OPERATION AND THAT A COMPREHENSIVE PLAN IS ESSENTIAL TO TACKLE THE PROBLEM.

+FOR INSTANCE, HE (THE FINANCIAL SECRETARY) COULD HAVE ELABORATED ON THE VARIOUS MEASURES WHICH COULD BE INTRODUCED BY STAGES TO CONTROL INFLATION, EVEN IF NO DATES ARE GIVEN FOR THE IR RESPECTIVE IMPLEMENTATION, HE SAID.

A. Ll