original agreement consequently, they would argue that they should not be penalised (as the Mortgage Agency would do, by taking away some of their deposits) for having failed to produce enough funds.
11
There is undoubtedly some force in this argument; to set up the Mortgage Agency now would certainly risk a lot of ill feeling in the banking community and would, indeed, risk provoking banks which have already signed up in the scheme into withdrawing (as they are entitled to do). Several difficult questions of staffing, of administration expenses, of taxation policy etc. would need to be resolved before the Mortgage Agency could start work: this would inevitably take quite a long time - certainly too long to cope with the present shortfall. Furthermore, it is very unlikely that the Agency could obtain its resources more cheaply than the banks, even if the Government were to guarantee the Agency's liabilities in full. Thus it appears that the establishment of the Mortgage Agency is not a realistic alternative in present circumstances.
Government Borrowing
12
It would almost certainly be possible for the Government to raise the necessary funds by some form of bond issue in Hong Kong or overseas; the funds would have to be passed on to the flat purchasers either through the banking system or through an intermediary agency such as the Hong Kong Building & Loan Agency. The cost to the Govern- ment of raising funds this way, and so the cost to the purchasers, has not been examined. The principal disadvantage of the scheme is that, if it were adopted at present high interest rates, it would lock the Govern- ment and the purchasers into those rates for a relatively long period, while the scheme proposed in paragraph 27 below allows for an annual recalculation of the rate of interest, which is likely to benefit the flat purchasers.
Use of Government Resources
13
It would in theory be possible for the necessary funds to be provided out of the Government's accumulated fiscal reserves. This is not, however, the purpose for which those reserves have been, and continue to be, accumulated, which is, among others, to cover the Government's contingent liabilities, and to cover any budgetary deficits (deliberately planned deficits or unforeseen deficits); nor would it be
consistent with present budgetary policy to draw from those reserves for the purpose of this scheme.
Modifications to the Existing Scheme
14
It is by no menas clear that the banking and deposit-taking company sector as a whole would be unable to provide the necessary
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