IMMEDIATE
PHER/CAT A
FM F.C.0. 232925Z
SECRET
SECRET
CONFIDENTIAL
Tor Cor
(HK)
PA. &:21
TO IMMEDIATE GOVERNOR HONG KONG TELEGRAM NO. 236 OF 23 MARCH.
MIPT.
DEFENCE CONTRIBUTION.
FOLLOWING IS TEXT OF REPLY TO UNOFFICIAL MEMBERS.
BEGINS.
RECEIVED IN REGISTRY No.51
25 MAR 1971
HKK 10/9
اك
1. AFTER MOST CAREFUL STUDY OF YOUR MEMORANDUM HMG MUCH REGRET THAT
THEY FEEL UNABLE TO ALTER THE VIEWS CONVEYED TO YOU BY ME ON 19-
FEBRUARY.
2. IT IS TRUE THAT IN 1956. THE UK'S BALANCE OF PAYMENTS PROBLEM WAS
A MAJOR FACTOR CONTRIBUTING TO THE REQUEST FOR AN INCREASED DEFENCE CONTRIBUTION FROM HONG KONG. SINCE THEN THE UK HAS BEEN ABLE, AS A RESULT OF A NUMBER OF DIFFICULT AND SOMETIMES PAINFUL MEASURES,
TO MOVE TO A POSITION OF SUBSTANTIAL SURPLUS ON CURRENT ACCOUNT, WITH A CONSEQUENT IMPROVEMENT IN THE EXTERNAL FINANCING POSITION. BUT
THIS IMPROVEMENT HAS OCCURRED. IN THE RELATIVELY RECENT PAST. THE
MAGNITUDE OF THE UK FINANCING PROBLEM PREVIOUSLY WAS SUCH THAT, EVEN THOUGH SUBSTANTIAL REPAYMENTS OF DEBT HAVE BEEN MADE, A VERY LARGE BURDEN OF SHORT AND MEDIUM-TERM OFFICIAL DEBT REMAINS OUTSTANDING.
THESE DEBTS HAVE TO BE REPAID IN THE NEXT FEW YEARS. THE NEED FOR THE UK TO MAINTAIN A SUBSTANTIAL AND CONTINUING SURPLUS ON CURRENT ACCOUNT NOT ONLY TO REPAY REMAINING DEBT, BUT ALSO TO COVER LARGE CAPITAL OUTFLOWS ASSOCIATED WITH AID, OVERSEAS INVESTMENT AND TRADE CREDIT, AND TO ACHIEVE A MORE SUSTAINED ECONOMIC GROWTH THAN IN THE PAST, HAS NOT THEREFORE DIMINISHED.
3. IT IS FULLY REALISED THAT HONG KONG FACES LARGE FINANCIAL COMMITMENTS IN THE YEARS AHEAD. IT WAS PRECISELY FOR THIS REASON
THAT HMG INFORMED ME, IN REPLY TO MY ENQUIRY, THAT THEY WERE READY
TO ACCEPT £9.5 MILLION, BUT ONLY AS THE VERY MINIMUM CONTRIBUTION
TO WHICH THEY COULD REASONABLY AGREE. SUCH A CONTRIBUTION WOULD DO
NO MORE THAN RESTORE THE SITUATION (AS REGARDS THE PROPORTION OF
CONFIDER
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