TNAG-2515-FCO40-3669-Future-of-Hong-Kong-International-Rights-and-Obligations-Sub-1992 — Page 163

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SAVINGRAM

BY BAG

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FM UKDEL IMF/IBRD WASHINGTON

TO FCO SAVINGRAM NO. 23

[292300Z]

OF JANUARY 29, 1992

AND INFO.SAVING HONG KONG, MANILA

IMF: 1991 HONG KONG ARTICLE IV CONSULTATION (SM/92/4).

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HICC 031/9

SUMMARY

1.

All Directors complimentary about Hong Kong's recent economic

performance and the continued adherence to sound free market economic

policies. Discussion centred on the risks to inflation and the continued use

of the exchange rate link to the dollar. Several Directors suggested a

revaluation of the Hong Kong dollar, but several others, including the

Chinese, supported the authorities in their clearly stated view that the

exchange rate link to the dollar continues to be of crucial importance to the

future stability and long-term prospects for the Hong Kong economy. (And the

13 Directors who did not speak can also be assumed to agree with the staff's

support for this view.) While some Directors pressed for a tighter fiscal

stance, others noted the risks of introducing higher taxes in Hong Kong.

DETAIL

2.

In advance of the discussion, I circulated Buff statement 92/12, and

Wei (China) circulated Buff statement 92/13 (both faxed to HMT and Hong Kong).

Eight other chairs intervened in the discussion. Wei's Buff statement was

supportive of the Hong Kong authorities recent policies, in particular

maintaining the exchange rate link with the US dollar, and the recent measures

taken in the labour and property markets to dampen inflation. However, he did

warn that the effects of recent expansionary fiscal policy should not be

underestimated, and that without a 'complete reversal of the recent running-up

of public spending' there was still the possibility of higher inflation.

concluded with a restatement of China's commitment in the future to 'one

country, two systems'.

He

3.

The first full intervention in the discussion was from Tabata

(Japan). He welcomed the recovery of GDP growth in 1991, but said that there

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