TNAG-0448-FCO40-513-Sterling-assets-and-balance-of-payments-of-Hong-Kong-1974 — Page 84

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-3 MAY 1974

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You will have seen Hong Kong telegram no 467 informing us of the tenor of the discussions in ExCo on the UK unilateral offer to continue guaranteeing Hong Kong's sterling reserves (on similar terms to those offered to other holders). The telegram refers to the Memorandum from the Executive Council which has now reached us. FRD have had a copy of the latter and Treasury have asked for one* Since it was mentioned in Hong Kong telegram no 467, which is being dealt with by

copies Treasury, I think we cannot refuse to see them the Blaup

Memorandum. Do you agree?

2, The first part of the Memorandum, outlining the previous guarantee, shows the advantages Hong Kong has received from accepting the most recent six-month extension (October 1973 to March 1974). The Memorandum shows that Hong Kong should receive some £10 million as compensation.

3. It is in the next section, "Topping up", that the report becomes tendentious, going at great length into the differences between the Treasury and the Hong Kong Government over the interpretation of the accidental breach arrangement. There are long excerpts from the exchange of telegrams and the implication that Treasury have taken advantage and unfairly treated Hong Kong, e.g. the underlined comment in paragraph 5. Towards the end of paragraph 6, the report excuses Hong Kong action for not maintaining their MSH by claiming that a fall in gilts on the London Market at the end of the month "after we have gone to bed" should not be held against them. Indeed, as the extract from the Treasury statement in paragraph. 4 shows, it is precisely that sort of occurrence which Treasury agrees would be counted as an accidental breach. The inference, however, in paragraph 6 is that Treasury are unreasonable not to accept this. The "Topping up" question is continued in paragaph 8(e), in which the paper also suggests that Treasury might be persuaded to accept a special provision for Hong Kong.

4. Paragraphs 7, 8 and 9 deal with the new guarantee on a factual basis and explain which of the alternatives offered by the Treasury would best suit Hong Kong in respect of actual figures.

5. It is perhaps the section headed 'Assessment' (paragraphs 10-14) that is the most interesting politically. Paragraph 11 sets out the advantages to Hong Kong of maintaining the terms of the unilateral declaration. These are couched entirely in practical terms from a Hong Kong point of view. We could not take exception to this. Paragraph 12 and, even more, paragraph 13 are somewhat surprising statements to be made in the name of the Queen's representative in a colonial territory Paragraph 12 points out that Hong Kong need only maintain the level of benefit from the unilateral declaration as long as it suits her. Paragraph 13 includes the sentence

/"There

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