TNAG-1253-FCO40-1586-Third-countries-and-the-future-of-Hong-Kong-1983 — Page 178

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1982/3 was forecast at 8% but was only 2.4% as a result of the

recession. 48 growth forecast for 1983/4. Mainly as a result

of a sharp fall in property prices in the Territory, Hong Kong

registered a budget deficit of about $3.8 million (about £360

million) in 1982/3 instead of a planned surplus. This was the first budget deficit since 1974/5, but a deficit of $3.2 billion

(£305 million) is projected for 1983/4. These deficits are easily covered by Hong Kong's accumulated reserves.

5.

Recent problems in the financial sector (resulting mainly from the fall in property prices) appear to have been contained, at least for the time being. The Hong Kong Government has

tightened up legislation in the deposit-taking sector and is

amending the Exchange Fund Ordinance to allow them to guarantee

loans to banks in difficulties. The Hang Seng Index rose from under 700 in early December 1982 to over 1050 in late February It has declined again over the last month and stood at 918.59 on

31 May.

6.

The value of the Hong Kong dollar has fallen since

mid-1982. In July 1982 the rate against the US dollar was 5.95,

but it slipped to $6.95 by the end of October. It recovered to

$6.50 by the end of 1982, but has fallen steadily over the last

two months to stand at 7.155 on 31 May (a fall of 10% this year). So far in 1983 to 26 May, the trade-weighted exchange

rate index has fallen from 79.3 to 73.8 (−6.9%). Uncertainty has contributed to this fall, but it is also likely that many local investors are moving money out of Hong Kong dollars into

foreign exchange deposits in Hong Kong, which incur no interest

tax. As in other areas, however, lack of information means

assessments must be tentative for example, we have no

knowledge of the extent of intervention by Hong Kong Government

in the foreign exchange market.

Hong Kong and General Department

31 May 1983

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