TNAG-0573-FCO40-706-Monitoring-of-progress-made-on-planning-paper-on-Hong-Kong-1976 — Page 76

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(၆)

Mr Stewart, Hong Kong Dept

HONG KONG:

w mitten

MONITORING THE PLANNING PAPER

1.

I welcome your minute of 3 November.

2.

fels du Beppy

Fula TRU. & Jan.

Dur

alu.

As I see it there are three particular areas where FRD

can help:

i)

Assessing Hong Kong's fiscal in relation to social

policy, and in particular the effects of inter- national confidence of such steps as changes in the taxation system;

1?

ii)

Keeping an eye on Hong Kong's management of the

sterling balances;

iii)

ཁ

No way

Assessing the personal position of the Financial

Secretary, which the Treasury are keenly concerned about and which Sir Douglas Wass recently raised with the PUS.

3. This makes me the more willing to take up the functions described in paras 3 and 4 of your minute. In particular we should be very ready to be represented on the Standing Committee when subjects of concern to us are to be discussed.

4.

I note that the question of the sterling balances has been discreetly passed over in silence (though I may have missed a passing reference). I think this is right. But they do remain a factor in the picture. Some comment I heard during the Commonwealth Finance Ministers' meeting, reflected in the press as well, suggested that there was some resentment that starling reserves which had been kept "loyally" in sterling should have declined sharply in value. I believe this may have fed anti-British sentiment of the sort whose dangers are mentioned in para36. As recorded elsewhere, the Financial Secretary's handling of these balances is considered entirely reasonable by the Treasury, who have some private sympathy for Mr Haddon-Cave's disinclination to use deficit financing to enable and promote social change in Hong Kong: the Treasury admire efficiency too.

8 November, 1976

HH Mand

(H J H Maud)

Financial Relations Department

c.c.

Mr Hall

FRD

Mr R Thomas

CONFIDENTIAL