XN000022-1991-05-16 — Page 3

THURSDAY, MAY 16, 1991

"WE NOW FACE A SITUATION IN WHICH THERE IS STRONG DEMAND FOR FIRST CLASS HONG KONG DOLLAR DEBT PAPER BY FINANCIAL INSTITUTIONS IN CONNECTION WITH THEIR MONEY MARKET ACTIVITIES AND BY FINAL INVESTORS OF AN UNKNOWN BUT REPORTEDLY LARGE QUANTITY.

"WE ALSO FACE A SITUATION IN WHICH WE ARE LIKELY TO BE BORROWING JUDICIOUSLY ΤΟ FUND PART OF OUR CAPITAL EXPENDITURE ASSOCIATED WITH THE DEVELOPMENT OF OUR INFRASTRUCTURE IN THE COMING YEARS.

"THE SENSIBLE THING TO DO IS TO BRING THE TWO TOGETHER THROUGH FURTHER DEVELOPMENT OF THE DEBT MARKET IN HONG KONG," HE SAID.

TURNING TO RISK AREAS IN RELATION TO HONG KONG DOLLAR DEBT, SIR PIERS SAID FOR CURRENCY RISK, THERE WAS VIRTUALLY NO RISK FOR THOSE RUNNING A U.S. DOLLAR BOOK.

"WE ARE SERIOUS ABOUT MAINTAINING THE LINK OF THR HONG KONG DOLLAR WITH THE U.S. DOLLAR.

"WE

CONSIDER THIS TO BE ONE OF THE MOST IMPORTANT THE MAINtenance oF STABILITY AND PROSPERITY FOR HONG KONG.

FACTORS IN

"WE HAVE STRENGTHENED OUR SYSTEM CONSIDERABLY THROUGH MONETARY REFORM MEASURES INTRODUCED IN THE PAST FOUR YEARS. IT HAS WITHSTOOD THE SHOCKS OF JUNE 1989 AND THE GULF WAR WITHOUT DIFFICULTY,' HE SAID.

HE

"

ALSO URGED DELEGATES TO MAKE THEIR ASSESSMENT OF CURRENCY RISK AGAINST THE BACKGROUND OF CLEAR ASSURANCES ON THE HONG KONG DOLLAR DELINEATED IN THE SINO-BRITISH JOINT DECLARATION.

ON CREDIT RISK, SIR PIERS SAID THE GOVERNMENT IMPOSED UPON ITSELF STRICT DISCIPLINE IN THE MANAGEMENT OF PUBLIC FINANCES.

"ONE OF THE GUIDELINES THAT WE FOLLOW IS THAT THERE SHOULD BE A SURPLUS ON OUR RECURRENT ACCOUNT WHICH IS LARGE ENOUGH TO FINANCE AT LEAST HALF OF OUR CAPITAL EXPENDITURE.

"THIS WILL ENSURE THAT WE WILL NOT, UNDER ANY CIRCUMSTANCES, BORROWING TO FUND RECURRENT EXPENDITURE, ALTHOUGH MANY COUNTRIES DO.

BE

"WE HAVE ALSO BUILT UP HEALTHY FISCAL RESERVES WHICH NOW RUN TO ABOUT 70 PER CENT OF OUR ANNUAL FISCAL BUDGET. PART OF THIS MAY BE DRAWN UPON, IF REQUIRED, TO FUND THAT PART OF THE CAPITAL EXPENDITURE WHICH CANNOT BE COVERED BY THE SURPLUS ON THE RECURRENT ACCOUNT AND BY THE SUBSTANTIAL CAPITAL REVENUE DERIVED MAINLY FROM LAND SALES.

"HOWEVER, A PRUDENT LEVEL OF RESERVES WILL BE MAINTAINED. WELL AWARE OF THE SAYING THAT YOU CAN BORROW ONLY WHEN YOU HAVE IN THE BANK."

I AM MONEY

HE TOLD DELEGATES AT THE CONFERENCE THAT HONG KONG CONTINUE TO BE A GOOD RISK BOTH BEFORE AND AFTER 1997.

WOULD

/"IN THE