XN000022-1989-04-26 — Page 26

WEDNESDAY, APRIL 26, 1989

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OUR EXPORTS ARE THUS IN STRONG DEMAND AND OUR IMPORTS, GREATER IN VALUE THAN OUR TOTAL EXPORTS, ARE HEAVILY PURCHASED FROM COUNTRIES WHOSE CURRENCIES HAVE GREATLY APPRECIATED AGAINST THE US AND HONG KONG DOLLARS DURING THE LAST TWO OR THREE YEARS.

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THE SITUATION WAS LIKELY TO CONTINUE AS LONG AS THE REMAINED RELATIVELY WEAK, HE ADDED.

US DOLLAR

IT SHOULD BE ACKNOWLEDGED THAT THE HONG KONG DOLLAR LINK WITH THE US DOLLAR WAS ONE FACTOR IN THE BUILD UP OF HONG KONG'S INFLATION RATE, MR MCGREGOR SAID.

HE SAID: "I ACCEPT, HOWEVER, THAT MUCH OF OUR INFLATION IS CAUSED BY FACTORS BEYOND OUR INFLUENCE AND CONTROL, DETERMINED BY WHAT IS HAPPENING IN OUR PRINCIPAL MARKETS AND ΤΟ THE PRINCIPAL CURRENCIES OF THE WORLD."

MR MCGREGOR SAID HE HAD READ CAREFULLY THE FINANCIAL SECRETARY'S STATEMENTS ON HIS STRATEGY FOR PUBLIC FINANCES BEARING IN MIND THE NEED, ON THE ONE HAND, TO CONTAIN INFLATION AS FAR AS POSSIBLE AND, ON THE OTHER, TO PROVIDE SUFFICIENT FUNDS FOR STEADY AND PRODUCTIVE PUBLIC SECTOR GROWTH.

HE SAID: "I APPLAUD THE POLICY HE HAS SET OUT BUT I SHOULD LIKE TO SUGGEST THAT THE STATE OF OUR PUBLIC FINANCES IS SUCH THAT HE NEED NOT WORRY TOO MUCH ABOUT SLAVISHLY FOLLOWING ARBITRARY FORMULAS AND GUIDELINES FOR PUBLIC EXPENDITURE.

"THE TREND GDP GROWTH RATE OF SIX PER CENT HE HAS ESTIMATED FOR THE NEXT FIVE YEARS MIGHT WELL BE EXCEEDED.

"EVEN IF IT IS NOT, THERE MAY BE STRONG AND GOOD REASONS FOR THE FINANCIAL SECRETARY TO SPEND MORE ON CERTAIN ESSENTIAL FUNCTIONS WITHIN THE ECONOMY WHICH COULD RESULT IN A HIGHER PUBLIC EXPENDITURE GROWTH LEVEL THAN A SIX PER CENT GDP GROWTH WOULD APPEAR TO JUSTIFY.

'WE SHOULD NOT OPERATE A STOP/GO GROWTH POLICY IN PUBLIC EXPENDITURE, MR MCGREGOR SAID.

"WHEN WE HAVE EXPERIENCED THE OCCASIONAL DEFICIT AND THE POSSIBLE THREAT OF ANOTHER, WE HAVE TENDED TO PANIC A LITTLE AND то REDUCE GROWTH IN EXPENDITURE ON SOMETIMES ESSENTIAL ECONOMIC INFRASTRUCTURE AND SOCIAL SERVICES TOO SHARPLY."

MR MCGREGOR SAID HE DID NOT THEREFORE BELIEVE THAT THERE WAS ANY SPECIAL MAGIC IN PRECISE PROPORTIONATE BUDGETARY GUIDELINES.

"THEY SHOULD BE REALISTIC AIMING POINTS BUT THEY SHOULD ALSO NOT BE USED TO HINDER PUBLIC SPENDING ON ESSENTIAL INFRASTRUCTURE AND SERVICES, HE SAID.

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TURNING TO THE INFRASTRUCTURE, MR MCGREGOR SAID HE WAS GLAD TO NOTE THAT THE FINANCIAL SECRETARY WAS TAKING PRUDENT MEASURES то SET ASIDE LARGE SUMS OF MONEY TO HELP PAY FOR MASSIVE INFRASTRUCTURAL' PROJECTS SUCH AS THE NEW AIRPORT.

"THERE IS