CONFIDENTIAL
167611 MDHOAN 4776 #
CONSIDERATION.
4.
HOWEVER THE TREASURY CONCENTRATED THEIR FIRE ON STERLING SAFEGUARDS: THEY SAW NO OBLIGATION OR CASE FOR HMG TO PROVIDE SUCH SAFEGUARDS AND ARGUED THAT TO DO SO WOULD BE A COSTLY LIABILITY AND COULD HAVE WIDE AND EMBARRASSING REPERCUSSIONS HERE, (EG WITH REGARD TO UK PENSIONERS LIVING OVERSEAS WHOSE PENSIONS HAD NOT BEEN AUGMENTED WHEN THE POUND WAS DEVALUED). IF IT WAS TRUE THAT HONG KONG NEEDED HMOCS, THEN IT WAS STRONGLY IN HONG KONG'S OWN INTERESTS TO PAY THE PRICE. THEY FELT THAT
HKG HAD NOT GIVEN SUFFICIENT CONSIDERATION TO THEIR PROPOSAL OF
OCTOBER 1990 FOR HKG TO CAPITALISE BEFORE 1997 ALL EXISTING AND FUTURE HMOCS PENSIONS COMMITMENTS. THIS COULD BE DONE ON AN INDIVIDUAL BASIS OR, MORE REALISTICALLY, BY PAYING OVER THE WHOLE CAPITAL SUM TO HMG WHO WOULD THEN ASSUME RESPONSIBILITY FOR
PAYING PENSIONS AT A SAFEGUARDED RATE. THE CAPITALISED SUM WOULD BE SUITABLY DISCOUNTED FOR EARLY PAYMENT AND PAYMENT COULD PERHAPS BE PHASED MAKING THE PROPOSAL POTENTIALLY ATTRACTIVE TO HKG. THEY WOULD BE HAPPY TO SEND A TEAM TO HONG KONG TO DISCUSS
THE POSSIBILITIES.
5. WE EXPLAINED THE OBJECTIONS TO CAPITALIZATION, WHICH HAD GROWN SINCE YOU RULED IT OUT IN FEBRUARY (YOUR TELNO 469): IMPACT ON LOCAL OFFICERS: LOSS OF RESERVES AND CHINESE REACTIONS: SIGN OF NO CONFIDENCE IN THE JD: FINANCE COMMITTEE AND PERHAPS EVEN EXCO OPPOSITION. BUT THE TREASURY WERE ADAMANT THAT THIS ROUTE SHOULD NOW BE FULLY EXPLORED AND THAT YOU SHOULD BE UNDER NO ILLUSIONS THAT THIS EXPLORATION WAS A RITUAL EXERCISE: THIS WAS THE ONLY OPTION IF HMOCS EXPECTATIONS WERE TO BE MET. THE PAC WOULD EXPECT NO LESS.
COMMENT
6.
YOU WILL SOON RECEIVE A TELEGRAM ASKING FOR FURTHER ADVICE ON THE ISSUE OF CAPITALISATION. THIS WILL MEAN REVIEWING THE ADVICE IN YOUR TELNO 469 IN THE LIGHT OF SUBSEQUENT DEVELOPMENTS. I HOPE THAT YOU CAN MAKE YOUR RESPONSE AS CONSIDERED, CONVINCING, CONCRETE AND SELF-STANDING AS POSSIBLE. THE TREASURY HAVE OFFERED TO PREPARE THIS TELEGRAM. WE HOPE THAT THIS WILL PROVIDE A BETTER INSIGHT INTO THEIR THINKING, EG ON TARGETING AND TIMING OF THE COMPENSATION/INDUCEMENT SCHEME.
WHEN YOU RECEIVE THE WHITEHALL AGREED TELEGRAM YOU WILL WISH TO CONSIDER WHETHER, WHERE AND WHEN A DIRECT DISCUSSION WITH THE
7.
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