TNAG-1640-FCO40-2287-Economic-situation-in-Hong-Kong-1987 — Page 77

xpayer, since more

since more tax relief will be due to the banks. This

occurs under the normal rules for provisions against bad ΟΙ doubtful debts. If any company's profits are cut back, the Exchequer is likely to get less revenue. That is wholly proper: indeed the only proper role for the taxpayer in this context.

Large though the tax cost is likely to be, I unhesitatingly commend the way the banks are now dealing with the debt problem on their books. By strengthening their

their balance sheets, and increasing provisioning, they are moving further down the road from involuntary lending back to lending based on proper commercial decisions, and from make-believe to realism.

They are also paving the way for a more market-orientated approach to the way in which the middle income debtors can in future meet their financial needs. So far, most funds have been provided through syndicated loans involving a number of banks. But other approaches have a role to play, particularly those involving a more explicit sharing of risk between lenders and borrowers. There needs to be more direct investment, both through new equity investment, and debt-for-equity swaps. This shift of emphasis will, however, require a more welcoming attitude from some of the debtor countries themselves, some of which are, for example, still resisting the idea of debt-equity swaps.

The debt problems of the middle income debtors will not be solved quickly. But the way forward is clear. The banks are adopting a more realistic approach towards provisioning. If the debtor countries themselves pursue sound policies, there is no reason why the middle income debtors should not, in time, make real progress towards full creditworthiness.

But the same cannot be said for the poorest countries of Sub-Saharan Africa.

The concentration on the middle income debtors has meant that, until recently, the plight of those in Sub-Saharan Africa has been neglected. But although the volume of debt there is not so great, their problems are even more acute.

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