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Following is a transcript of a press conference by the Financial Secretary, Mr Donald Tsang, at Washington D.C. today (Thursday, Hong Kong time):

Mr Tsang: It's four days now in Washington D.C., including Sunday. I do as many things as I could. The result was not bad. I set out, as you know, to try to forge a consensus among finance ministers that we should look at the question of capital flow and, very luckily, we have got that consensus and it is a question, now, to follow through with specific measures against that consensus. And there will be a number of forums that we will be able to do so, both in the IMF, under the IMF umbrella, and also - going through the Bank of International Settlements as well, and APEC meeting is coming up. So we have lots of occasions when these things could be then, put into concrete measures. That, I think, is the main achievement.

Then, of course, there was a certain curiosity about what Hong Kong did in August, and I tried to explain the best I could. Interestingly enough, I have not had many opposing views disagreeing that we should not have done that, or that we had better options than what we have done so far.

I am going to New York tomorrow and there will be another series of meetings, I'm meeting specialist groups, and there will be other media occasions as well. But I am reasonably happy that I have achieved what I set out to do in Washington D.C. on this occasion. Okay, I am happy to answer questions.

Question: When you say you forged a consensus on capital flow, well, how far does that consensus go towards capital control?

Mr Tsang: No, no, no, no, don't ever use the words "capital control". It is not what we have agreed. That is not what I wanted to do. What we have been trying to do was, let us understand what these capital flows are, where do they come from, where they are going, what is the purpose of the flow, what is the investment instrument they are using, and let's have a fuller understanding of the issue before we even talk about control. And at the same time, we should make sure that there is no systemic risk in allowing these flows to continue. I am talking specifically (about) those financial institutions which lend money to hedge-funds. That is important because unless that is controlled, we are likely to have a problem similar to LTCM, among other things.

Question: The conference started with high expectations that something concrete and material would be implemented to immediately boost liquidity in Asia, immediately alleviate the current world crisis. What, at the end of it, can you point to and say, "Well, that has been achieved", in terms of immediate relief?

Mr Tsang: I saw three main areas of consideration and I think they were set out in my speech. In the immediate term we have to deal with the crisis at hand, that is particularly in the case of Brazil. In the medium term we should be considering ways in which to make capital flows more transparent, and make sure they would not cause systemic problems in our banks. And finally, in the slightly longer term we should look at the so-called architecture or the institutional arrangements which are going to help countries in distress, particularly in dealing with balance of payment difficulties.

Now, I think we have got more or less all these three things in place. Furthermore, in the case of Brazil, there is already a standing arrangement there which IMF can invoke, all that is needed is the US Congress releasing the funds which President Clinton has pledged. Once this is done, IMF can be put into action and hopefully there will be stand-by facilities for Brazil which is needed, and that crisis could be effectively repressed.

Then the medium term issue is a question of monitoring and make monitoring capital flow to make capital flows more transparent, the point which I mentioned earlier on.

And finally, the question of institutional arrangements. This is a matter which we have agreed should be pursued by the IMF under the interim committee, and I think that we will have to look at how effective our present arrangements are and what reform or what improvements could be made, whether or not, particularly, whether the private sector's resources could be mobilised in addressing balance of payment difficulties. So all these things, I think, are covered.

Question: In terms of capital flow, do you see what is happening in Asia, and currently in Hong Kong, do you think that the position, moves by hedge-funds, or do you see it as some kind of ... or just pure panic?

Mr Tsang: I think the truth is somewhere between your two scenarios. I do not think it is panic. The sore situation we've faced, particularly the one in Hong Kong for instance, we took time to understand what it was all about, we did not react properly. We had worked out in fact exit plans. Everything was done very methodically and deliberately. There was absolutely no panic involved. You saw how this was played out in Hong Kong.

Now, the question is where there is a B-risk flow or something of that sort, what we are talking about is certain hedge-funds. I am not talking about the majority of hedge-funds because the majority of hedge-funds are dealing with genuine hedging. It will be perfectly all right. If you are doing arbitraging, I think that is all right too. It is only those who are concentrating on toppling a currency of a country in which it has no investment, and then that is the problematic area. I do not think there was any panic involved in most of the reactions we have seen so far because we are talking about shorting currencies. People tend to be pretty cautious in either doing things or not doing things.

Question: ... at this stage what do you think are the ... to avert global recession? And whatever the size of the economic downturn, in your estimation how long will it last for Hong Kong and how badly will it affect Hong Kong?

Mr Tsang: I think it is a good sign in that there is a general consensus that it is a serious matter. Whether it is going to lead to a global recession there are divergent views on that. But quite clearly we see that Brazil is a matter which needs to be urgently addressed. And if that is addressed, then the problem of or possibility of ... I am sure, our global recession, at least is temporarily reversed.

Now, if the question of capital flows had been tackled too, then I do believe that we might be seeing a certain light at the end of the tunnel. When exactly we are going to come out of it? Well, it is difficult for us to say. It depends on how quickly Japan will revitalise its markets, whether or not there will be further eruption of the kind that we have seen in Korea and in Russia.

Question: I think you mentioned already that the government of Hong Kong will make its contribution to bailout the crisis increasing.

Mr Tsang: Well, we have done that through multilateral agencies. We are making a contribution through the New Arrangement to Borrow (NAB), that we are going to do.

Question: ... any extra funding?

Mr Tsang: We are working on a multilateral thing. In particular Hong Kong will do something extra about this. Well, as I said, I am doing as much as possible as an economy of our size and I will not stand idle in this, and we have been doing what we need to do.

Question: If I can't use the words "capital control", can I use the words "regulation" and "supervision"? And what might that entail, in your view?

Mr Tsang: I do not like those words. I like the word "monitoring".

Question: "Monitoring?

Mr Tsang: "Monitoring". That is what is recommended at the moment and that is what has been agreed.

Question: What is the implications for Hong Kong's economy of what has happened with GITIC?

Mr Tsang: What happened to what? Sorry.

Question: The Guangdong international company that has been caught.

Mr Tsang: Well, what happened to it?

Question: It was shut-down by the government.

Mr Tsang: So, Peregrine was shut-down, wasn't it? So what's wrong with it?

Question: ... by the Chinese though.

Mr Tsang: Come on. Financial institutions come and go. It is a free market and it is a good sign in that from my perspective, it is now seeing that the Chinese economy is strong enough to allow bankruptcy to take place. I do believe that the financial entities should be allowed to do that.

Question: How about Japan? I mean this meeting was actually keen to produce some policies about ... Japan. What is your view now? Are they ...?

Mr Tsang: I think it is a good sign that the Banking Bill is going through the Japanese Diet. My friends in Japan are saying that it most probably will be passed in its present shape. If that is the case, then we will see the beginning of a major banking reform taking place. That will then re-instil confidence into the market. I think that is a good thing. Of course we still need complementary effects, like tax-cuts and other things.

Question: How about Brazil?

Mr Tsang: Well, Brazil is an immediate issue. It needs to be tackled not next month but now. I hope that is important. As far as the Japanese situation is concerned, it is equally important but this is not an immediate job. That takes a bit of time in any case, because you are talking about the revival of the economy, you are not talking about a fire-brigade job.

I am sorry, I seem to be shouting. The room is such, it is not that I am too excited or panicky, okay? My colleague said - I was tired - so I was to make sure I raise my voice. So that is a consequence of it.

Question: On Monday, in the National Press Club, you talked about using Hong Kong's debt market to take part in the Japanese package ...... Miyazawa. Has that done anything you are worried about?

Mr Tsang: I understand the Japanese Government will be shortly conducting bilateral talks with the four economies concerned. We are talking about Indonesia and Korea, Thailand and Malaysia, and flowing from that there will be a specific aid to these countries concerned, either in the form of bank loan or in the form of bonds to be floated in currencies, whether it is the yen or the currencies of the countries concerned. What I have offered to do is, if we find it attractive, we are quite happy to make the Hong Kong market available for the flotation of such paper. And of course it will have to take place after the bilateral talks have taken place.

Question: What was the response?

Mr Tsang: Well they are.... for instance I have spoken to the Malaysian Minister of Finance and he welcomes that. When I talked to Mr Sakakibara he found it exceedingly helpful. But of course it will take weeks for this - and I think the coming months - for these things to fall in place.

Question: Could it be the basis for more co-ordinated action with Indonesia, perhaps just using APEC - next month APEC as a platform for other co-ordinated monetary or fiscal response to the crisis in the area to boost liquidity?

Mr Tsang: Well, let's talk about Asia. The Asian crisis is probably a crisis running to its natural end in that it has reduced the economies of Korea, Thailand, Indonesia and so on, and I believe that most of the economy now has been adjusted to what is actually required by the markets. So I think we are now seeing, probably, the end of that phase, that episode, that segment. What we need to do is make sure that what earlier started in Asia will not spread too wide and would stop somewhere in Brazil.

Question: Your currency board - sorry - revising the exchange rate backwards(?) during the coming months - as a ... wouldn't that be an effective devaluation?

Mr Tsang: What are you talking about? About the currency board removal?

Question: The Monetary Authority's ...

Mr Tsang: Oh! You are talking about the reversal of 7.75 to 7.8. Is that what you are talking about?

Question: Sure.

Mr Tsang: But so it is what you are talking about. That won't start now, it will start some time in April next year and it will take one basis point a day, it will take 500 days. So, just think about it, if you talk about that is called a devaluation, tell what you may.

Question: Two days ago you mentioned that the Hong Kong market is now stable and trading well. Does it mean that the speculators are no longer there and it is time for the government to reveal how much it has bought?

Mr Tsang: Well, there are two things. Don't use the word "speculators" ... Speculators are good guys. What we are concerned about is the manipulators who work in double markets and so on. Now, as far as I see it, there is certainly no pressure on the Hong Kong currency. If that is the case, then of course we will never be in the securities market and the markets have been behaving as the markets should, quite normally.

Then as far as the disclosure of our stockholding is concerned, quite clearly I made a commitment to do so. I am now setting up a company. Once we have the directors appointed - and I hope the directors will advise us how we are going to reveal the holdings - I have already said that I am quite happy to do a full disclosure. I am subjecting this company to the full supervision of the Securities and Futures Commission and I will not be claiming any government privileges in the operation of this company. It will be operating at arms-length from the Monetary Authority and all the regulators. I don't think I can make any more commitments than that, I think that is very clear.

Financial Secretary's transcript (Chinese)

End/Thursday, October 8, 1998

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