Following is the transcript of the question and answer session by the Chief Executive, Mr Tung Chee Hwa, at the luncheon by Institute of International Finance this (Sunday) afternoon:

Question: My question relates to your reference that no financial centre is an island. There has been much discussion in the last few days about the currency crisis and the causes of it. As a region, SAR is committed to private markets. First I wonder what is your view of the causes of this, number one. And number two, what is your perspective on collaboration among the countries that are in this part of the world with respect to currency stability?

Mr Tung: I think in financial markets really no country, no community, is an island. But I think, first of all, the financial market is now very open. The whole world is moving in that direction. If we are to become a member and to take advantage of a very open market, we must also understand the consequences of that open market. As far as we are concerned in Hong Kong, what we have learned, we learned in 1987 when our stock market halved in market capitalisation overnight. Also in 1983, we pegged the Hong Kong dollar to the US dollar. Since that time, we have learned from these lessons.

We know the importance of financial discipline, we know the importance in the stock market of transparency, of good regulations, of strict enforcement of these regulations, and of quick and orderly settlement, as far as you can, and insofar as the stock market is concerned, let the market take care of itself. Insofar as the currency is concerned, what we are doing in Hong Kong, we do not intend to devalue it to make us more competitive. I think we have a unique product to offer here in Hong Kong and the 14 years of pegging has served us very well and we will continue to do that.

But we're very mindful that this can only be done if we maintain the financial discipline which we have had all these years and if we watch where all the money is going. We will continue to do that, and we think we are confident that we will be very successful in moving forward in this very open environment.

Speaker: Do we have other question? It seems that everybody has been satisfied with your speech. I must say you gave us, Mr Tung, a very strong message. I was, even myself, amazed by the strong words that you expressed on the future of Hong Kong. I have taken a few notes where in fact you confirmed what Joseph Yam told us already last evening. You want to create an environment where business is flourishing. You want to maintain Hong Kong as an important financial centre. You want to pursue sound and sustainable macro-economic policies. You want to achieve budget balance, you have a prudent fiscal policy, you want to have costs under control and you want the Hong Kong dollar - and I'm using your words - "rock solid". I think it's the kind of message that the international community needs. We never doubted about the future of Hong Kong but today, and at the present moment, we are really convinced. Thank you very much.