TNAG-2815-FCO40-4061-Future-of-Hong-Kong-International-Rights-and-Obligations-(IR-1993 — Page 89

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to 1 July 1997 would be signed by the Hong Kong authorities,

not HMG. Bank and Fund staff, together with the Chinese, have

resisted this. The outcome is a complex package of texts, including a memorandum of understanding which would be signed by

the Bank and Fund, and UK and Chinese Governors (the UK with responsibility up to 1 July 1997, the Chinese thereafter).

4.

The Treasury Solicitor's clear advice is that, taken

together, the package constitutes an assurance by HMG that it

stands behind Hong Kong's obligations in the period up to 1 July 1997; and that we are very unlikely to be able to secure changes to avoid this without unpicking the whole package. Hong Kong estimate the pre-July 1997 costs at HK$35mn, roughly £3.5mn at

the current rate of exchange.

5. Provided some proposed Chinese amendments which bear on Hong

Kong's autonomy can be satisfactorily resolved, Hong Kong remains

very keen to host the meeting. Treasury accept that to pull out of the bid at this late stage could send damaging signals which could undermine confidence in Hong Kong; and they also assess the prospects of the contingent liability being called as very low,

given Hong Kong's financial strength. They are prepared to recommend to the Chancellor that, in the final analysis, HMG should accept this contingent liability, on the understanding that it would be shared jointly between the Treasury (with responsibility for the IMF) and ODA (with responsibility for the

World Bank).

6. David Peretz will be asked to make a further effort to see

if there is any way to avoid this liability; but the chances of

doing so are

are rated as slim. If we do take on the contingent liability, Treasury consider that a joint minute notifying Parliament will probably need to be laid in due course.

M A Power

International Financial Institutions Department

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