CONFIDENTIAL
FM UKDEL IMF/IBRD WASHINGTON
TO PRIORITY HONG KONG
TELNO 1
OF 242355Z JANUARY 92
CONFIDENTIAL
031/9
HCC 031
034431
MDLIAN 9660
си
TOP COPY Q DIST?
AND TO PRIORITY HM TREASURY, BANK OF ENGLAND, ODA, FCO
AND TO PRIORITY UKREP JLG HONG KONG, PEKING
FCO FOR TEBBIT (ERD), HM TREASURY FOR SEDGWICK, BANK OF ENGLAND FOR BULLOCH, ODA FOR POWER
HONG KONG: 1991 ARTICLE IV CONSULTATION
1.
BOARD ENDORSED STAFF REPORT ON THE 1991 ARTICLE IV CONSULTATION FOR HONG KONG. ALL DIRECTORS WHO SPOKE WERE COMPLIMENTARY ABOUT HONG KONG'S RECENT ECONOMIC PERFORMANCE, AND THE CONTINUED ADHERENCE TO SOUND FREE MARKET ECONOMIC POLICIES. A GOOD DISCUSSION, WHICH AS EXPECTED CENTRED ON THE RISKS TO INFLATION AND THE EFFECT OF THE CONTINUED USE OF THE EXCHANGE RATE LLNK TO THE US DOLLAR.
2.
ALL DIRECTORS NOTED THE SENSITIVITY OF THE EXCHANGE RATE ISSUE. ALTHOUGH, THE JAPANESE, FRENCH, BELGIAN, AND NEW ZEALAND CHAIRS, ALL RECOMMENDED, ON BALANCE, A REVALUATION OF THE HONG KONG DOLLAR, ALONG WITH A COMMITMENT NOT EVER TO DEVALUE IN THE FUTURE, THEY ALL SUGGESTED DIFFERENT APPROACHES TO IMPLEMENTING SUCH A POLICY. IN EXPLAINING THE EXTREME IMPORTANCE PLACED BOTH BY THE HONG KONG AUTHORITIES, AND BY MYSELF ON THE CONTINUED LINK I RECEIVED STRONG SUPPORT FROM THE CHINESE CHAIR (FULL STATEMENT ALREADY FAXED TO HONG KONG) AND WAS ALSO SUPPORTED BY THE US, ARGENTINEAN, SAUDI, AND SPANISH CHAIRS. NO OTHER DIRECTORS SPOKE. THE STAFF, WHILE RECOGNISING THAT THE COSTS, IN TERMS OF LOST MONETARY CONTROL, OF THE LINKED EXCHANGE RATE SYSTEM, WERE HIGHER THIS YEAR THAN THEY HAD BEEN AT THE TIME OF THE 1990 ARTICLE IV
CONSULTATION ALSO STRONGLY DEFENDED THE AUTHORITIES VIEWS.
3.
WHILE SOME DIRECTORS PRESSED FOR A TIGHTER FISCAL POLICY, OTHERS, HELPFULLY, NOTED THE RISKS OF HIGHER TAXES IN HONG KONG.
4.
A FULL REPORT OF THE DISCUSSION WILL FOLLOW BY
SAVINGRAM.
PAGE 1 CONFIDENTIAL
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