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The unique spirit of the people of Hong Kong in helping ourselves and each other as demonstrated in yesterday's torrential rainfall shows that we are able to meet the challenges posed by the Asian financial turmoil, the Chief Executive, Mr Tung Chee Hwa, said today (Wednesday).

Addressing the annual conference of the Far Eastern Economic Review, the Chief Executive said that in yesterday's rainstorm, we saw people risking their own lives to save others who were not related to them and members of the disciplined forces spending all day out to pull people out from the floods and from other difficult situations.

"The whole community was in action to demonstrate in full our ability and commitment to help ourselves and each other.

"This spirit is not only with us in meeting challenges from the nature. It is also with us in meeting challenges posed by the Asian financial turmoil," Mr Tung said.

Noting that Hong Kong's economy might have taken a tumble as a result of years of high property prices, high inflation and negative interest rates as well as the Asian financial turmoil, the Chief Executive stressed that we should not underestimate the resilience of Hong Kong people. " We will come back strongly from any adversity as we have done before."

Mr Tung said that the Government welcomed suggestions from the community as to how we moved forward with our economy . "The Financial Secretary is actively listening and consulting members of the leading political parties and Legislative Council for their views. We need to work together to overcome this enormous challenge."

Referring to calls for additional spending and tax cuts in order to help the economy, the Chief Executive said that tax cuts equivalent to one per cent of our GDP and investment in expenditure increases equivalent to three per cent of our GDP were made in the budget presented by the Financial Secretary in February.

"I must emphasise that the budget was prepared in line with our long held tradition of fiscal prudence. Any deviation from our long held philosophy of fiscal prudence may well give rise to speculative attacks against the Hong Kong dollars.

The result of which may well be another increase in our interest rate.

"This is not something we want. Indeed, with the weakening of the yen this week, Hong Kong currency is already under pressure in the form demonstrated in the higher interbank interest rate in the last few days."

Mr Tung said that the Asian financial turmoil had resulted in a much higher interest rate and a much tighter liquidity situation in our banking system.

"We believe an effective way to relieve the credit crunch is to mobilise existing liquidity in the banking system.

"To that end, the Hong Kong Monetary Authority is implementing the proposal to develop a Hong Kong dollar repo market to facilitate interbank lending, especially at the longer end; and a facility under which the Hong Kong Mortgage corporation will streamline its mortgage purchase programme to make it more attractive for banks to sell mortgages to the Corporation.

"This would give banks more assurance about their access to liquidity and make them more confident to lend. Without interfering with the normal operation of the currency board, we will continue to look for whatever means and ways to improve the liquidity of our banking system."

Turning to Hong Kong's reunification with China, the Chief Executive said that before July 1, 1997, there were many skeptics in Hong Kong and around the world about the "one country, two systems" concept, but "we proved them wrong".

"Fundamentally, it is in China's national interest, as a whole, that 'one country, two systems' becomes a reality here in Hong Kong.

"Not only because a successful Hong Kong can contribute to China's modernisation, equally important is that successful implementation of "one country, two systems' concept here in Hong Kong can help the realisation of the early reunification of the entire country. This is a common aim of Chinese people everywhere."

Mr Tung added that the Chinese leaders today had a very clear vision in the direction to which China would be moving in the 21st century.

"Many of the challenges they are currently undertaking will be difficult but I have full confidence in their ability to ensure the realisation of their vision. And just as important, they have the support of the entire people."

End/Wednesday, June 10, 1998

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