Reference.........MUA...10/393/1.
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4/8/9/1
Mr. O'Brien,
Financial Policy & Aid Dept.
Copy to: Miss Brown,
A.M. & T. Department
I am taking up with you again the subject of Hong Kong's application for a loan to develop Kai Tak Airport about which you gave us advice last December. I enclose a copy of a minute which I have sent to Miss Brown (who now has the file) together with a copy of the letter from the Treasury with which it is concerned.
2.
It seems to me that the prospects for this loan are now rather more encouraging. You will see that the Treasury has, at least for the present, rejected the idea of Hong Kong raising a loan on the London market in the sense that they are not prepared to agree to give the guarantee which they and the Bank of England believe would be necessary. They also put out of court any suggestion that any new money should be found on F.C.0. or Board of Trade votes and they clearly state that the area where the necessary savings (they talk in terms of £3m.1969/73) could most easily be found would appear to be within the annual aid ceiling.
3. It is true that the 0.D.M. said, at a much earlier stage of this application, that they hoped matters would not mature to the point where their funds were used for Kai Tak development.
But we have not yet made any definite approach to that Ministry. Indeed it would be for your Department, if any, to do this. However, O.D.M. were represented at the meeting in the Treasury on 5 March to which Mr. Steel refers and were as clearly opposed then as we expected them to be to the idea of spending aid money on so prosperous a territory as Hong Kong. But as I say, we have not yet formally asked them to do so. Nevertheless I think that the Treasury letter is a fairly clear indication that this is the likeliest source so far as they are concerned: and it foreshadows, I feel sure, Treasury pressure to press our case with the 0.D.M. on the basis not that this is an aidworthy project under their criteria but that it is desirable overseas expenditure in the U.K. interest. As you will be aware, a battle will then be joined with the O.D.M. on a question of principle which is unlikely to be solved at official level.
4. I should be grateful to have your views on this letter. I am sorry that I cannot send you the file at this stage but you are familiar with the memorandum and I think you know the main moves which have been made.
5. As you will see from the attached copy of a minute to Miss Brown (A.M.T.) the Treasury suggestion that traffic rights for K.L.M. at Hong Kong might be offered in exchange for a Dutch loan is being handled separately.
h. 5. Canber
(W. S. Carter)
Hong Kong Department.
1 April, 1969
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