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ACCEPTANCE BY UNOFFICIALS LESS EASY TO SECURE. MOREOVER WE NATURALLY WISH TO ENSURE THAT THE GARRISON IS PROPERLY HOUSED. WE THEREFORE DO NOT LIKE THE POSSIBILITY OF UNDER- EXPENDITURE ON CAPITAL WORKS LEADING TO A CORRESPONDING INCREASE IN THE CASH CONTRIBUTION (PARTICULARLY IF APPROVAL OF PROJECTS IS TO REMAIN IN LONDON) BUT PREFER AN AGREED MINIMUM PROGRAMME FOR IMPLEMENTATION DURING THE PERIOD.
AFTER ALL ANY UNDEREXPENDITURE IN THE CAPITAL WORKS PROGRAMME IN ANY ONE YEAR HAS THE EFFECT OF REDUCING THE TOTAL COST OF THE GARRISON IN THAT YEAR. REQUIRING HONG KONG TO PAY AN INCREASED CASH CONTRIBUTION IN THESE CIRCUMSTANCES COULD LEAD TO OVERPAYMENT OF ITS SHARE OF ACTUAL EXPENDITURE. THIS WOULD NOT BE OFFSET IN THE FINAL SETTLEMENT REFERRED TO
IN PARA 6 OF YOUR TELEGRAM NO 454 IF THIS WERE RESTRICTED -
TO EXPENDITURE ON CAPITAL WORKS,
(B) YOUR PARA 5: I DO NOT THINK THERE IS MISUNDERSTANDING. THE ONLY POINT AT ISSUE SEEMS TO BE WHETHER THE CASH INFLATION PAYMENT WHICH ADMITTEDLY WAS NOT REFERRED TO SPECIFICALLY IN OUR DRAFT, PENDING YOUR CLARIFICATION, IS MADE DURING THE YEAR TO WHICH IT RELATES OR IN THE FOLLOWING YEAR. OUR DIFFICULTY IS TO ENVISAGE HOW YOUR PROPOSALS WOULD WORK IN PRACTICE. WE PREFER THE RETROSPECTIVE ARRANGEMENT (IMPLICIT IN PARA 4 OF THE INFLATOR AGREED IN JANUARY) SINCE WE CAN THEN USE AGREED INDICES AS APPLIED TO THE WHOLE YEAR AND BE THAT MUCH MORE SATISFIED AS TO ACCURACY, WE AGREE TENTATIVE APPLICATION OF THE INFLATOR IN THE AUTUMN WOULD PRODUCE A MORE REALISTIC FIGURE FOR PURPOSES OF THE FOLLOWING YEAR'S ESTIMATES, BUT IS NOT THIS MORE OF A DOMESTIC MATTER FOR HONG KONG THAN FOR AGREEMENT BETWEEN THE TWO COVERNMENTS? FOR THE CAPITAL WORK AND MAINTENANCE ELEMENTS THE INFLATOR SHOULD BE APPLIED AS SUGGESTED IN PARA 3 OF MY TELEGRAM
NO 593.
MACLEHOSE
FILES
HKIOD (3)
DEFENCE D
SIR D WATSON
MR WILFORD
MR MALE
MR THOMSON
COPIES TO:
MR ABRAHAM DS6 MOD
MR THORP F1 (AIR) MOD
MR HANSFORD TREASURY
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