Addendum

In a major response to the effects of the Asian financial turmoil, the government on June 22, unveiled a four-part stimulus package to relieve hardship and revive Hong Kong's economy. It is designed to address the credit and liquidity crunch, falling property prices, business and domestic costs and declining public confidence.

The measures cover :

Easing the credit and liquidity crunch-

Exempt 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. This measure could bring in an estimated $200 billion (US$25 billion) to the Hong Kong banking sector.
Set up a new $2 billion (US$256 million) 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 processing of six private treaty grants earmarked for a special category of housing development.
Double the 1998/99 allocation for the Home Starter Loan Scheme from $3.6 billion to $7.2 billion (US$460million to US$920 million) 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 return some $3.9 billion (US$512 million) to residential and commercial ratepayers.
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 (US$26 million) annually ($130 million for 1998/99) the charges paid by importers and exporters.

Senior civil servants' pay adjustment freeze-

A freeze on the pay adjustment of about 330 senior directorate officers 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 (US$9 million).

The Chief Executive, Mr Tung Chee Hwa, said: "As a result of the 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 of China as backup, Hong Kong will complete its economic adjustments very soon and emerge from this difficult situation."

The package has 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.

It will result in a $21.4 billion (US$2.7 billion) deficit for 1998/99, as opposed to the budget forecast of a $10.7 billion (US$1.4 billion) surplus, which has been described by the Financial Secretary, Mr Donald Tsang, as 'acceptable' in relation to the overall size of the budget and the size of Hong Kong's reserves.


Last updated: June 1998