TNAG-2515-FCO40-3669-Future-of-Hong-Kong-International-Rights-and-Obligations-Sub-1992 — Page 48

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002376

MDLIAN 1494

CONFIDENTIAL

FM HONG KONG

TO PRIORITY FCO

TELNO 2581

OF 290747Z OCTOBER 92

TOP COPY Q DIST?

AND TO PRIORITY UKDEL IMF/IBRD WASHINGTON, PEKING

AND TO PRIORITY UKREP JLG HONG KONG

NR

YRTELNO 1405 OF 31 JULY 1991: WORLD BANK BORROWING IN HONG KONG

1. FURTHER TO TUR, WE ISSUED AS AGREED A LETTER TO JOCELYN RADIFERA REGARDING THE WORLD BANK'S VIEW THAT THE BANK COULD NOT ISSUE BONDS IN HK MATURING AFTER 1997 WITHOUT PRIOR CHINESE AGREEMENT AND THAT IT WOULD NOT BORROW FROM A BORROWER OF THE BANK.

2. IN THE ABSENCE OF ANY REPLY FROM IBRD, WE TOOK THE OPPORTUNITY OF OUR ATTENDANCE AT THE 1992 BANK/FUND ANNUAL MEETINGS IN WASHINGTON TO FOLLOW UP WITH PAUL SIEGELBAUM (SUCCESSOR TO RADIFERA). SIEGELBAUM DID NOT CONTEND OUR VIEW THAT CHINA'S PRIOR CONSENT WAS NOT REQUIRED ACCORDING TO IBRD'S ARTICLES OF AGREEMENT. HE, HOWEVER, DEFENDED IBRD'S POLICY OF NOT BORROWING FROM A BORROWER OF THE BANK. WHILE SENIOR BANK MANAGEMENT (INCLUDING THE PRESIDENT) RECOGNISED HK'S UNIQUE STATUS AS AN SAR IN CHINA POST-97, THEY DECIDED AGAINST MAKING AN EXCEPTION TO THE POLICY OF NOT BORROWING FROM A BORROWER BECAUSE OTHER COUNTRIES LIKE KOREA, THAILAND AND PHILIPPINES MIGHT TAKE THIS AS A PRECEDENT AND PRESS FOR SIMILAR TREATMENT. THIS DECISION OF THE BANK MANAGEMENT HAD NOT BEEN REFERRED TO THE BOARD OF DIRECTORS AS THE MANAGEMENT CONSIDERED THIS TO BE ESSENTIALLY AN OPERATIONAL MATTER. WE BRIEFLY RAISED THIS WITH DAVID PERETZ AND IT WAS AGREED THAT HE SHOULD TAKE THIS UP WITH THE BANK.

3. WE SUGGEST THAT UKDEL IMF/IBRD BE ASKED TO RAISE THIS ISSUE WITH THE IBRD BY MAKING A SPECIAL CASE FOR HONG KONG'S UNIQUE SITUATION POST-97, I.E. HONG KONG WILL HAVE ITS OWN CURRENCY AND BE RESPONSIBLE FOR ITS OWN ECONOMIC, FINANCIAL AND MONETARY POLICIES. ITS ECONOMY WILL BE SEPARATE AND DISTINCT FROM THAT OF CHINA. WE THEREFORE CONSIDER THAT THE BANK SHOULD APPLY ITS POLICY FLEXIBLY AND NOT DISCONTINUE ITS BORROWING ACTIVITIES IN

HONG KONG.

4. SUBJECT TO YOUR AND UKDEL'S VIEWS, WE WOULD SUGGEST UKDEL

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