Hong Kong Monetary Authority Annual Report 1997
INTERNATIONAL FINANCIAL CENTRE
1997 was an eventful year with the transition followed by the Annual Meetings of the World Bank Group and the IMF. Overseas financial communities have been well briefed on the financial and monetary autonomy enjoyed by Hong Kong after the reversion of sovereignty. Moreover, with global financial integration, enhanced central banking co-operation and participation in the international financial arena have become even more important. The advent of the financial currency turmoil in Asia has in fact made such co-operation more real and meaningful.
OBJECTIVE
The need for maintaining the status of Hong Kong as an international financial centre is clearly enshrined in the Basic Law. In the run-up to the transition, the HKMA stepped up its profile in the international financial arena, particularly in the central banking fraternity to promote understanding of China's commitment to the "one country, two systems" principle and of Hong Kong's ability to maintain monetary stability. The HKMA has also devoted considerable efforts in fostering central banking co-operation to reinforce regional monetary stability.
To educate the public at large, a transparent and pro-active information policy has been pursued to improve understanding of the HKMA's policies and the monetary arrangements of Hong Kong after 1997. Specific roadshows and talks have also been organized for overseas financial communities to assure them of the monetary and financial autonomy enjoyed by Hong Kong after the reversion of sovereignty.
ACHIEVEMENTS
PROMOTION OF HONG KONG'S STATUS AS AN INTERNATIONAL FINANCIAL CENTRE
In promoting Hong Kong as a premier international financial centre, the HKMA has successfully used conferences, roadshows and publications to bring the message across to the global financial community. With the assistance of the hosts, as well as the joint participation of the People's Bank of China and the three note-issuing banks, the HKMA organized three roadshows in New York, Tokyo and Frankfurt in February and March 1997. The overseas financial communities were fully briefed on the monetary and financial arrangements for Hong Kong after the transition, with favourable press coverage.
As part of the promotion of the 1997 World Bank Group/IMF Annual Meetings, the HKMA co-organized with the IMF the Conference on "Financial Integration in Asia and the Role of Hong Kong?in March 1997. This high-powered regional conference was addressed by finance ministers, central bank governors and other prominent guests who expressed strong confidence in the future role of Hong Kong in regional financial integration.
In the light of the introduction of the Euro in 1999 and its important implications, the Second HKMA Distinguished Lecture was held in January 1998 to review the process for the transition and the international role of this single currency. Dr Willem Duisenberg, President of the European Monetary Institute, delivered the keynote address, with Mr Akira Nagashima, then Deputy Governor of the Bank of Japan as the discussant. The event was very warmly received by the financial community.
On press and publications work, the HKMA enhanced its website by adding new features and making it bilingual, and produced a CD ROM and a corporate video to widen public access to information on the HKMA policies and monetary/banking statistics. Besides the bilingual Monthly Statistical Bulletin and the Quarterly Bulletin, the HKMA also published three books on monetary and banking issues in Hong Kong. On the occasion of the Handover Ceremony, the HKMA took the opportunity to arrange informative briefing programmes for a large number of foreign media present in Hong Kong.
REGIONAL MONETARY CO-OPERATION
The HKMA is an active advocate of central banking co-operation to reinforce regional financial and monetary stability. Towards that end, the HKMA has fostered bilateral relationships with a number of regional central banks. Periodic meetings were held to exchange views on regional economic developments, discuss supervisory matters and explore co-operation in the development of financial infrastructure and other areas. Two other bilateral repos were entered into by the HKMA with the Bank of Korea and the Reserve Bank of New Zealand in early 1997.
On the regional front, the HKMA continued its active participation in the EMEAP. The three working/study groups formed under the EMEAP to examine issues relating to banking supervision, financial market development and central banking operations respectively completed comprehensive studies in their respective fields. The HKMA chairs the Study Group on Banking Supervision. Hong Kong also hosted the 13th EMEAP Deputies Meeting in March 1997.
The tempo for regional monetary co-operation increased as financial turmoil in the region spread in the second half of the year. At the meeting of EMEAP Governors in Shanghai in July 1997, chaired by the People's Bank of China, EMEAP Governors decided to study, in consultation with the relevant domestic authorities and in co-operation with the IMF, arrangements for facilities to assist EMEAP members, where necessary, to implement adjustment programmes. That decision was crucial in paving the way for the participation of many EMEAP economies including Hong Kong in the financing package for Thailand in August. Hong Kong extended a bilateral swap facility of US$1 bn to the Bank of Thailand with the facility being drawn down in parallel with Thailand's drawdown of loans from IMF. The terms and conditions of Hong Kong's facility are the same as that for other bilateral creditors.
Subsequently, the HKMA actively participated in a series of meetings to explore resolutions of the financial crisis. The HKMA contributed to the preparation of the Manila Framework Agreement concluded by finance and central bank deputies representing 14 economies including Hong Kong, in November 1997. The Agreement underscored four initiatives: (1) regional surveillance; (2) enhanced economic and technical co-operation; (3) examination and establishment of a new mechanism to provide short-term financing by the IMF; and (4) a co-operative financing arrangement for the region that would supplement, on a case-by-case basis, IMF resources. The Manila Framework Agreement has been endorsed by the APEC economic leaders in November in Vancouver and by the finance ministers of ASEAN plus Six (Association of South East Asian Nations plus Australia, China, Hong Kong, Japan, Korea and the US) who met subsequently in Kuala Lumpur in early December to review the Asian financial turmoil.
To forestall such crisis in future, a consensus is forming among financial authorities that further work is required in the following areas: (a) increased transparency and disclosure of data from both the public and private sector; (b) increased surveillance; (c) strengthening financial stability in the region; and (d) development of a deep, liquid and mature debt market in Asia to address the intermediation problem in the region.
As a leading international financial centre, Hong Kong actively supports the above initiatives. For example, the HKMA participated in the Working Party on Financial Stability in Emerging Market Economies last year which completed a major study on the sound principles and practices in strengthening financial systems. The HKMA also convened the first meeting of "Technical Experts on Development of East Asian Debt Market" in December 1997. This meeting was represented by central bank and finance ministry experts from EMEAP and ASEAN economies, Canada, France, Germany, the UK and the US. International financial institutions also participated in the discussions. The technical discussion was useful in paving the way for further work in the area.
ENHANCED PARTICIPATION IN MULTI-LATERAL AGENCIES
Throughout the year, the HKMA has continued to maintain a close and cordial relationship and technical co-operation with multi-lateral organizations. Since becoming a member of the BIS in late 1996, the HKMA has intensified its participation in various BIS activities. These include regular meetings and committee work of the BIS on financial issues with global implications, such as by the Committee on Banking Supervision and the Committee on Payment and Settlement Systems.
To ensure that Hong Kong is keeping close track of the developments in international finance, the HKMA continued to participate in the annual meetings of the Asian Development Bank, the IMF and the World Bank. The HKMA is an observer in the Financial Markets Committee of the OECD to monitor developments in international financial markets. The HKMA also attended the Finance Ministers?Meetings of the APEC. Given its expertise in payment systems and securitisation, the HKMA contributed to APEC's work by being the co-ordinator for APEC's initiatives in these areas.
WORLD BANK GROUP / IMF ANNUAL MEETINGS
The 52nd Annual Meetings of the Boards of Governors of the World Bank Group and the IMF were held in Hong Kong from 23 to 25 September 1997 at the Hong Kong Convention and Exhibition Centre. Many ancillary meetings and seminars were held from 16 September to late September 1997.
The 1997 World Bank Group/IMF Annual Meetings were the first major international event in Hong Kong after the handover on 1 July 1997 and an important landmark in the HKSAR financial history. That World Bank Group and the IMF met in Hong Kong was evident that the financial community cast a strong vote of confidence in the stability and prosperity of Hong Kong and its continuing success as a leading financial centre - not only in the Asia Pacific region, but globally.
Compared to past Meetings, the 1997 Annual Meetings were the largest in scale in terms of the number of participants. The total number of delegates from the 181 member countries, observers, special guests, visitors, staff of the World Bank Group and IMF, press and local staff registered for the Meetings exceeded 19,000, a record attendance. With the gathering of almost all Finance Ministers and Central Bank Governors of the world in Hong Kong, the Annual Meetings provided a valuable opportunity to show these opinion leaders how Hong Kong has continued to flourish after the handover. After coming to Hong Kong, the participants could see and satisfy themselves that the lifestyle and freedom enjoyed previously by the people of Hong Kong would remain unchanged. The occasion also gave the Chinese Government an excellent opportunity to reaffirm and demonstrate its commitment in the "one country, two systems" principle.
Comments by many participants as well as the World Bank Group and the IMF indicated that the highly successful 1997 Annual Meetings were the best organized ever. The excellent facilities at the Hong Kong Convention and Exhibition Centre were much appreciated by all the participants. In fact, it was also the first time that all the meetings and functions of the Annual Meetings were held under one roof. New facilities such as the barcode access control system, the electronic message system and the real-time financial information display were some of the high-tech facilities used for the first time in the history of the World Bank Group/IMF Annual Meetings.
The success of the event was the result of more than three years of detailed planning. The HKMA, as the planning and implementation agency, co-ordinated closely with various Government departments and relevant organizations in operational and logistical arrangements such as airport reception, hotel accommodation, security and accreditation, transportation, escort, social events, cultural and spouse programmes as well as media arrangements and publicity.
The HKMA managed to fully satisfy the stringent requirements of the World Bank Group and the IMF, and contained the total expenditure well within the original budget. The budget approved in 1995 for the organization of the 1997 Annual Meetings was $485 mn. The total expenditure which has to be met from the public purse turned out to be $332 mn. The bulk of the savings came from strict budgetary control, cash sponsorship and also sponsorship in kind. Substantial tourism income, estimated at $400 mn, was also generated during the course of the Meetings.
CHALLENGES
As financial markets become more and more interdependent and globalized, the HKMA needs to be very alert to the changes and developments of the global financial environment which might impact on the domestic monetary stability of Hong Kong. Therefore, the establishment and maintenance of a close working relationship with multi-lateral organizations still commands a high priority in the HKMA's external strategy. In particular, the HKMA will strengthen its technical co-operation with the IMF and the BIS.
The HKMA will continue to strengthen central banking co-operation to explore ways and means to maintain domestic as well as regional monetary stability.