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The Hong Kong Monetary Authority (HKMA) has today (May 2) published its Annual Report for 1999. The Report explains the HKMA's work and achievements over the past year and sets out the challenges and objectives for the year ahead.

"During this year of stability and recovery the HKMA focused its energies on reviewing and strengthening its policies, particularly in the light of the lessons learned during the financial crisis, and on preparing the ground for major reforms in the years ahead," said Mr Joseph Yam, Chief Executive of the HKMA, in his Statement in the Annual Report.

Mr Yam noted that in 1999, the recession that had afflicted Hong Kong for 15 months lifted and the economy began to grow again. Against a background of market stability and renewed confidence, the recovery gathered momentum towards the end of the year, said Mr Yam.

"Having weathered the financial storms of the preceding two years without serious damage, Hong Kong's banking sector enjoyed a better year in 1999 than it had in 1998," Mr Yam said. "Banks as a whole saw improved results for the year, and some enjoyed remarkable growth in profits."

Mr Yam noted that the assets of the Exchange Fund rose by 10% during the past year. He said much of the increase had come from windfall gains on the Hong Kong equity portfolio acquired during the market operation of August 1998. But, he added, "a windfall of this kind is unlikely to be repeated in the future."

Mr Yam noted that the year saw a number of further reforms to the Currency Board system aimed at increasing transparency and further entrenching rule-based, non-discretionary principles. He said the measures to improve the transparency and stability of the monetary arrangements within Hong Kong were echoed in the international sphere by the HKMA's strong advocacy of greater disclosure and better risk management in the global financial market.

"While considerable progress has been made towards achieving international consensus about the nature of the problem, and in drawing up preliminary proposals to tackle it, much work still remains to be done before concrete solutions can be put in place," said Mr Yam.

In 1999, the HKMA initiated a programme of supervisory reforms aimed at supporting the development of Hong Kong's banking sector into the twenty-first century. Mr Yam said the process of reform would continue in 2000 and 2001, with the role of the HKMA being to facilitate - but not to direct - the development of Hong Kong's banking sector in a rapidly changing, increasingly competitively local and global environment.

Mr Yam noted that preparatory work had been carried out by the HKMA in the second half of 1999 for the introduction of an advanced US dollar clearing system in Hong Kong. Expected to be brought to fruition in 2000, Mr Yam said the major infrastructural project promised to mark an important stage in Hong Kong's development as a financial centre.

Concluding his statement on the 1999 Annual Report, Mr Yam looked forward to new opportunities on a number of fronts for Hong Kong's further development as an international financial centre. But, he cautioned, "we should be mindful of the risks and uncertainties that accompany these opportunities. The main risk is that, in our enthusiasm for innovation or in our complacency with things as they are, we cease to see clearly the weaknesses in our global financial system and fail to take the measures to remedy them."

End/Tuesday, May 2 2000

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