XN000022-1979-03-29 — Page 5

THURSDAY, MARCH 29, 1979

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INFLATION

HK'S NO. 1 ENEMY ******

INFLATION IS HONG KONG'S PUBLIC ENEMY NUMBER ONE, AND IT IS WORTH PAYING A CONSIDERABLE PRICE TO PREVENT THE +CRITICAL MASS EFFECT+ IT CAN HAVE, FROM GETTING A GRIP ON US, THE HON. DAVID NEWBIGGING TOLD THE LEGISLATIVE COUNCIL AT THE RESUMPTION OF THE BUDGET DEBATE TODAY (THURSDAY).

MR. NEWBIGGING SAID THE EFFECT HAS BEEN WITNESSED IN COUNTRIES WHEN INFLATION REACHES 10 PER CENT OR ABOVE, REMAINS UNCHECKED AND GOES ON TO DEVELOP ITS OWN MOMENTUM.

+THE SYMPTONS ARE A WEAK CURRENCY, LABOUR UNREST, SOCIAL DIVISIONS, RISING UNPRODUCTIVE GOVERNMENT EXPENDITURE TO BAIL OUT THOSE WHO CANNOT PROTECT THEMSELVES AGAINST INFLATION, AND ECONOMIC STAGNATION GENERALLY.

HE SAID THE PROBLEM IS PARTICULARLY OMINOUS AT A TIME WHEN HONG KONG IS SUFFERING FROM INTERNAL INFLATION, CAUSED PRIMARILY BY A COMBINATION OF EXCESS PRIVATE SECTOR DEMAND AND HIGH PUBLIC SECTOR SPENDING --AND OF WHICH A WEAKEN ING EXCHANGE RATE IS ALSO BOTH PARTLY CAUSE AND EFFECT--- THAT IT SEEMS THAT A FURTHER BOUT OF EXTERNAL OR IMPORTED INFLATION IS AGAIN WITH US.+

HE HOPED THE MEASURES PROPOSED BY THE FINANCIAL SECRETARY TO SLOW THE GROWTH OF TOTAL DEMAND WILL PROVE TO BE ENOUGH.

VISIBLE TRADE DEFICIT

HE CONTINUED: IF INFLATION IS PUBLIC ENEMY NUMBER ONE, ITS PARTNER IN CRIME MUST BE THE VISIBLE TRADE DEFICIT.

+AN ANNUAL VISIBLE DEFICIT OF $9,000 MILLION IS UNACCEPTABLE, LET ALONE A DEFICIT OF $12,000 MILLION THAT IS IMPLIED IN THE COMING FINANCIAL YEAR, + HE SAID.

THE LATTER FIGURE EQUATES TO 20 PER CENT OF THE FINANCIAL SECRETARY'S FORECAST OF PRIVATE CONSUMPTION EXPENDITURE IN 1979.

HE THOUGHT IT IS UNREALISTIC TO EXPECT HONG KONG'S EXTERNAL TRADE TO BE BALANCED IN THE SHORT TERM BY REDUCING THIS AMOUNT OF PRIVATE CONSUMPTION EXPENDITURE, AND URGED THAT MORE POSITIVE WAYS BE FOUND TO OVERCOME THE PROBLEM.

THE FINANCIAL SECRETARY'S PROPOSAL TO LIMIT CREDIT CREATION WILL HAVE SOME IMPACT, BUT MORE FUNDAMENTAL IS THE NEED TO INCREASE EXPORTS (ESPECIALLY THOSE WITH A HIGH ADDED VALUE CONTENT) AND NEW INDUSTRIAL INVESTMENT, PARTICULARLY FROM ABROAD, HE SAID.

/IN VIEW