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A special, four-part stimulus package to relieve hardship and revive Hong Kong's economy has been unveiled today (Monday) by the Chief Executive, Mr Tung Chee Hwa.

The package is designed to address the credit and liquidity crunch, falling property prices, business and domestic costs and declining public confidence.

The thrust of the measures are:

Easing the credit and liquidity crunch:

* Exempting interest income earned locally from profits tax with immediate effect. This will provide additional liquidity and improve the lending appetite of the banking system through the repatriation of offshore deposits to Hong Kong. Hopefully, this measure could bring in an estimated $200 billion to the Hong Kong banking sector.

* Setting up a new $2 billion scheme modelled on the pilot Credit Guarantee Scheme to help non-export related small and medium enterprises to obtain loans.

Stabilising property prices:

* Suspend all land sales by auction or public tender for the remainder of the 1998/99 financial year and freeze private treaty grants for Sandwich Class Housing sites.

* Double the 1998/99 allocation for the Home Starter Loan Scheme from $3.6 billion to $7.2 billion which will increase the number of eligible families from 6,000 to 12,000.

* Increase the 1998/99 quota of families eligible for the Home Purchase Loan Scheme from 4,500 to 10,000.

Easing costs burdens on families and business:

* Rebate the first quarter rates paid for 1998/99. This will be credited against the 1998/99 third quarter rates bill. This will mean an average rebate of $540 for a public housing unit, $5,600 for a large domestic unit and $5,100 for a commercial unit.

* Reduce duty on diesel by 30%, down to $2 a litre from $2.89 a litre for the remainder of the financial year. This will provide immediate relief to more than 22,000 taxi and public light bus drivers as well as reduce the transportation costs of 127,000 goods vehicles.

* Reduce by $200 million annually ($130 million for 1998/99) the charges paid by importers and exporters. The Government hopes the Trade Development Council will bear this reduction through an adjustment of its subvention from the Government.

Senior civil servants' pay adjustment freeze:

* A freeze on the pay adjustment of about 330 senior directorate officers at D3 rank and above in the civil service as well as staff of the equivalent seniority in the Judiciary, ICAC and subvented sector. This will save about $70 million.

The measures were approved this afternoon at an extraordinary meeting of the Executive Council and were later presented to a joint meeting of the Provisional Legislative Council and the Legislative Council-elect.

The Chief Executive, the Chief Secretary for Administration, Mrs Anson Chan, and the Financial Secretary, Mr Donald Tsang, explained the measures at a press conference. They were supported by the Secretary for Financial Services, Mr Rafael Hui; Secretary for Housing, Mr Dominic Wong; Secretary for Planning Environment and Lands, Mr Bowen Leung; Secretary for the Treasury, Miss Denise Yue; Secretary for the Civil Service, Mr W K Lam; acting Secretary for Trade and Industry, Mr Tam Wing-pong; and the Government Economist, Mr K Y Tang .

In a statement, Mr Tung said: " The government of the Special Administrative Region has to be a government accountable to its people. Ever since the outbreak of the Asian financial turmoil, I and my colleagues in the administration have constantly kept a very close watch on its development and its impact on Hong Kong. Some measures are already in place.

"We fully understand that our economic situation now is very critical. Therefore, we need to adopt a pragmatic and timely approach by providing all responsive strategies, proposals and measures that are necessary to relieve the economic difficulties, and to brave the challenges with unreserved determination.

"As a result of this financial turmoil, it is certain that the days ahead will be very difficult. But I can say for sure that our financial foundation is very solid, our monetary system is robust, our currency, backed up by the currency board arrangement, is stable.

"Our policies to stick to the linked exchange rate system and prudent fiscal management will remain unchanged. Given this, and coupled with our advantages of the strong economic development in the Mainland as backup, Hong Kong will complete our economic adjustments very soon and emerge from this difficult situation.

"In times of prosperity, we have to be prepared for adversity. And at times of adversity, we have to equip ourselves better and remain optimistic. Since Hong Kong is an international city, the inflow of overseas capital will depend on investors' confidence in Hong Kong as well as our confidence in ourselves," Mr Tung said.

Mr Tung earnestly hoped that the whole community will face the challenges with courage, firmly believe that our joint efforts and confidence in our future will help us overcome any difficulties. "And we are going to have a brighter future ahead of us," he said.

The Financial Secretary, Mr Donald Tsang, said the package had been drawn up under the guiding principles of maintaining the confidence of investors and the international community in Hong Kong; observing market discipline and upholding prudent business practices; ensuring no adverse impact on the linked exchange rate system; and, upholding prudent management of public finances.

Mr Tsang said the package of measures would result in a $21.4 billion deficit for 1998/99 as opposed to the Budget forecast of a $10.7 billion surplus.

"In relation to the size of the 1998/99 Budget of nearly $500 billion and the size of our reserves of over $450 billion, the deficit out-turn of $21.4 billion is acceptable," Mr Tsang explained.

But he emphasised that the implementation of the measures in no way signalled a departure from the Government's policy of prudent fiscal management. "This is an exceptional year and it justifies exceptional treatment," Mr Tsang told the joint meeting of legislators-elect and provisional legislators.

"The measures we have outlined are intended to provide immediate relief and address the most pressing issues. It is a pragmatic and targeted approach which has taken into account what may be a more difficult situation to come.

"Dipping into our reserves to provide the relief much-needed by our economy and community is understandable."

Regarding the pay adjustment freeze for senior civil servants, the Chief Secretary for Administration, Mrs Anson Chan, said she recognised that the community looked to the senior management of the Administration for leadership in such testing times.

"Given the exceptional circumstances we wish to demonstrate that those responsible for decision-making in the Government understand, and are prepared to share, the hardships caused by the current economic turmoil," she said.

However, she emphasised that this move did not indicate a change of the well-established mechanism for civil service pay adjustments - it was simply a recognition by senior civil servants that they needed to play their part in helping the community to ride out the current storm.

[Note to Editors: The full details of the package follows in a separate press release.]

End/Monday, June 22, 1998

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