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The Chief Executive, Mr Tung Chee Hwa, met with the visiting delegation of the European Parliament at his office today (Monday) and briefed them on the latest developments in Hong Kong.

They discussed a number of issues, ranging from the evolution of democracy in Hong Kong, the economy and the SAR's future link with Europe.

On the development of democracy in the SAR, Mr Tung noted that the democratic evolutionary process was enshrined in the Basic Law, which set out a 10-year timetable for respective elections of the Chief Executive and the Legislature.

"The development of democracy must comply with the timetable set out in the Basic Law. The Basic Law is our constitution and was written after four years' of consultation and should not be amended lightly," he said.

Reiterating that Hong Kong was going through a difficult period of economic adjustment, Mr Tung noted that years of high property prices, high wages and negative interest rates had resulted in a bubble economy.

"We are experiencing a credit crunch which had worsened because of the fear of an attack on the linked rate. Tourism and consumer spending have also taken a downturn," he said.

"Hong Kong's economy needs to be corrected if we were to regain our competitiveness," he said.

Mr Tung explained that because of the currency board system, Hong Kong could not resort to monetary measures to inflate the economy.

"One of the reasons for Hong Kong's success was our commitment to prudent financial management. We have consistently been able to achieve budget surpluses averaging two per cent of our GDP in the last 10 years.

"The Government had foreseen difficulties ahead as we drew up the 1998/99 Budget early this year. Therefore, we have introduced tax reductions and expenditure increases totalling $53 billion, or four per cent of the GDP. This has been done well within the principle of prudent financial management," Mr Tung said, adding that it would take time for these fiscal stimulus to achieve effect.

The Chief Executive stressed that Hong Kong's future was optimistic as our economic fundamentals remained sound and economic developments in China were going well.

Turning to Europe, Mr Tung said that during recent visits to Europe, he was impressed by the achievements of the European Union in its convergence on the Euro and in other areas.

"This will help improve efficiency in trade," he said, adding that Hong Kong would have to be prepared for the Euro as it would have implications on the management of our reserves.

Mr Tung told the visitors that they must not be left with the impression that Asia was going down. Noting that the US had gone through the Savings and Loans difficulties and Europe periods of economic downturn in the early 1990s, Mr Tung pointed out that both the US and European economies have overcome the difficulties and were coming out stronger and more competitive.

"Similarly, Asia will find its way out of the troubles and move forward. We should have confidence not just in Hong Kong, but also in Asia," he said.

"The inherent strengths in Asia have not changed. We still have a young and flexible workforce, a very high savings rate, openness to trade and ideas and an indomitable spirit to improve ourselves," he said.

End/Monday, June 8, 1998

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