TNAG-0569-FCO40-702-Planning-paper-on-Hong-Kong-1976 — Page 138

STAFF IN CONFIDENCE

Mr Larmour (DUS)

CONFIDENTIAL

33

HONG KONG: ECONOMIC THINKING

Following Lord Goronwy-Roberts meeting yesterday morning, I have been having further thoughts about the future of economic thinking in Hong Kong.

1.

2. I am concerned at what I consider to be deficiencies in the economic thinking at present "in situ" in Hong Kong. As I said to the Minister of State, to my mind it is not only too conservative and rigid, but too narrow in its use of techniques of economic management. In temporal terms, it is pre-Keynesian. These deficiencies are epitomized in the latest Budget which is not only regressive in character but indicates that medium term plans are being made on such a basis.

3. In order to carry out Her Majesty's Government's political aim of accelerating social progress as endorsed by the Minister of State yesterday, public expenditure will need to be raised adequately. In order to do so recourse will need to be made to:

widening the tax base

introduction of income tax

a) public sector borrowing

c)

d)

e)

f)

import duties

control of money supply

use of reserves

Some of these concepts are not only new to the Colonial Secretariat, but I am afraid rather alien to their mind and approach to economic thinking.

4. Whilst in the past Foreign and Commonwealth Office Economists Department have, at the Financial Secretary's request, recruited working level economists for Hong Kong, we have not been involved in appointments at a higher level. It is this level that concerns me, as a professional adviser, when looking at Hong Kong's future economic policies.

5. I have analysed the economic experience of the existing staff (details at Flag 'A' Flag 'A') and this suggests to me that there is no one with the economic expertise

to introduce the economic reforms that are needed. I would therefore suggest that we need now to consider in adequate time replacements of a different nature to those now "in situ" for such posts as Financial Secretary and Secretary for Economic Services. Such replacements would need to have a fair running in time. I would suggest that the new men should also be required to be both up to date in their economic thinking and to have a good appreciation of Her Majesty's Government's requirement for social progress and the sensitivity we attach to it.

6.

A senior member of Economists Department would, of course, be available to offer professional advice on these aspects.

16 March 1976

роман бинти

Adrian Smith

Senior Economic Adviser

cc Mr Hayes

Mr O'Keeffe (HKIOD)

CONFIDENTIAL