XN000022-1979-04-25 — Page 11

WEDNESDAY, APRIL 25, 1979

MEASURES NOT SUFFICIENT TO RESTRAIN INFLATIONARY TREND

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RESTRICTING PUBLIC EXPENDITURE AND LIMITING THE EXTENT OF CREDIT CREATION BASED ON EXCHANGE FUND BALANCES WILL NOT BE SUFFICIENT TO RESTRAIN CURRENT INFLATIONARY TRENDS.

THIS APPEARS TO BE CONF IRMED BY THE FURTHER DECLINE IN THE EXCHANGE VALUE OF THE HONG KONG DOLLAR AND THE CONTINUING GROWTH RATE IN IMPORTS, THE HON. LI FOOK-WO SAID AT THE SECOND READING OF THE EXCHANGE FUND (AMENDMENT) BILL 1979 IN THE LEGISLATIVE COUNCIL TODAY (WEDNESDAY).

MR. LI HAD DOUBTED WHETHER THE MEASURES PROPOSED BY THE FINANCIAL SECRETARY IN HIS BUDGET SPEECH WOULD BE ADEQUATE WHEN HE SPOKE AT THE BUDGET DEBATE LAST (MARCH) MONTH.

+THE FINANCIAL SECRETARY HAS NOW ADMITTED THAT THE GROWTH RATE OF DOMESTIC DEMAND DOES NOT SEEM TO BE SLOWING DOWN, AND THAT THE GROWTH RATE OF BANK LOANS AND ADVANCES ACTUALLY ACCELERATED DURING THE MONTHS OF JANUARY AND FEBRUARY THIS YEAR,+ HE SAID.

MR. LI SAID THAT EVEN IF ALL THE BALANCES OF THE EXCHANGE FUND, TOGETHER WITH THOSE OF THE TREASURY, WERE TO BE CONVERTED TO CALL OR SHORT NOTICE DEPOSITS, THE MAXIMUM POTENTIAL EXTRA LIQUID ASSETS REQUIRED BY THE BILL WOULD ONLY BE A FURTHER $4,700 MILLION.

THAT WOULD BE ROUGHLY SEVEN PER CENT OF TOTAL DEPOSIT LIABILITIES AND WOULD RAISE THE LIQUID ASSETS WHICH MUST BE HELD BY THE BANKS TO ABOUT 32 PER CENT.

HOWEVER, AVERAGE LIQUID ASSETS OF THE BANKS IN FEBRUARY, AFTER DEDUCTING THE IR 100 PER CENT COVER ON INTER-BANK BORROWINGS, WERE NO LESS THAN $31,366 MILLION OR 45.6 PER CENT OF THE IR DEPOSIT LIABILITIES.

+IN OTHER WORDS, IF THOSE BALANCES WERE HELD BY THE GENERALITY OF LICENSED BANKS, THE ENACTMENT OF THIS BILL WOULD BE AN EXERCISE IN FUTILITY, MR. LI SAID.

SINCE THE BALANCES ARE HOWEVER DEPOSITED WITH ONLY A FEW BANKS, THE BILL'S POTENTIAL IMPACT WILL BE MUCH LARGER, BUT IT IS DOUBTFUL WHETHER IT WILL BE STRONG ENOUGH TO BE REALLY EFFECTIVE.

+SOMETHING MUCH MORE RADICAL WILL BE NECESSARY BEFORE THE GENERAL SITUATION SHOWS THE IMPROVEMENT SO ANXIOUSLY AWAITED BY EVERYONE IN THIS COMMUNITY, HE SAID.

HE CONCEDED THAT, COUPLED WITH THE RECENT INCREASE IN LENDING RATES, ENACTMENT OF THE BILL COULD PROVIDE THE PHYSICAL AND PSYCHOLOGICAL IMPACT TO SLOW DOMESTIC DEMAND, AND THAT ANY SUCH MEASURES WOULD TAKE SOME TIME TO BECOME EFFECTIVE.

HE THOUGHT IT REASONABLE TO GIVE THE BILL A TRY AND SUPPORTED IT WITH RESERVATIONS.

THE HON. CHARLES