TNAG-0544-FCO40-639-Strength-of-garrison-in-Hong-Kong-1975 — Page 37

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6.

Apart from the content and cost of the capital

works programme, it would also be necessary to explore how the programme would be related to the early release of land which was, presentationally at least, important to the

HK Government.

7.

The Question of inflation: This would have to

be examined in the light of

8.

a) UK's recent experience of inflation, and

b) the suggestion that there should be an

open-ended commitment.

Various ways in which the effects of differential

inflation on the basic cost might be limited were:

a)

reduction of sterling content of

supplies;

b)

reduction of the UK element of support

personnel and the extent to which there was scope for economy or substitution particularly in the medical and education

fields.

Alternatively:

c) a formula might be devised whereby HK's

liability to bear the cost of differential

inflation was limited.

9.

H.E. said that in the absence of any reduction in

the risk or limitation of HK's responsibility for inflation,

Unofficials would almost certainly press for the payment arrangements under any agreement to be based on actuals and the Hong Kong Government could not resist this pressure.

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