TNAG-2422-FCO40-3524-Hong-Kong-Her-Majesty-s-Overseas-Civil-Service-(HMOCS)-poli-1992 — Page 168

Reference

268

m stone psed

10/4

CONFIDENTIAL

Some good points, but overlooks the

Treamy shift to seeing a small-scale envate

From: D S FISH

sector scheme as political cover for Haval HKA 233/, (Ext 3444)

Japitalization.

2.Mr P Ricketts or

ন

Hong Kong Department/FCO

HMOCS

m

10liv.

THE MARGOLIS REPORT: WHERE TO NEXT?

Pa

s

2714

Date: 9 April 1992

in flore.

I Kink it is right to bring

Stoking safeguards to a test 1. We now have the final

the final Margolis Report and Sandra Brown's comments in her letter to you of 3 April. of streytt with MMT soon

wrote

FOL 16/1

2. My view is that the Margolis Report really signals the death knell for

for a

a private sector solution

solution to the sterling safeguard problem.

However, the unfortunate letter he Sandra Brown, which read as though it had been dictated by Keith Shipley, will have served to heighten Treasury suspicions that Margolis and the Hong Kong Government are working together to defeat rather than promote the ideas which they (the Treasury) found so attractive in the abstract. Sandra Brown's letter to you seeks to prolong the investigation and is clearly part of the Treasury tactic to play the sterling safeguards issue as long as possible. Their ability to do so will depend very much on the reaction of the HMOCS Association to our compensation proposal. If the Governor is correct in his assessment that our compensation package will buy time on sterling safeguards, this would suit the Treasury. I still cannot believe that our package will do other than bring the absence of a safeguard into sharper focus, and I continue to expect the Association to try to bring the issue to a head very quickly.

3.

If we do come under early and severe pressure on sterling safeguards, the Treasury will point to the very healthy state of the Hong Kong reserves and their renewed proposal that capitalisation is now a very feasible option. They will also say that there is still mileage in the private sector proposal. The Hong Kong Government will have to deal again with the capitalisation aspect and you have already sought their further views. The Hong Kong Government will also have to offer formal comments on the Margolis Report in relation to HMOCS officers, but I think that we ought soon to put to the Treasury our view that this no longer seems to be a fertile area for investigation.

4. It has always been clear to me that the only way a private sector solution could have helped secure the pensions of HMOCS officers was if it proved possible to borrow large sums of Hong Kong dollars, at fixed rates of interest over an extended period, possibly as long as thirty years. Mr Margolis in his Report, and the Bank of England and Barings in discussion, have made it clear that this is not going to be possible. In terms of meeting our obligations to HMOCS officers, we are looking at ways of protecting their full pension entitlement. The continued pursuit of limited, costly and high risk protection would be fruitless and we need to consider how best to persuade the Treasury to accept this.

/5. It is interesting