The IMF Article IV Consultation

The IMF's annual health check on Hong Kong once again gives high marks for economic management and for monetary and fiscal policies. It also offers a timely reminder about the dangers of anti-competitive behaviour.

Readers may be aware of the concluding statement issued by the International Monetary Fund earlier this week on its Article IV Consultation on Hong Kong. The Article IV Consultation is an annual exercise, and we see it very much as a health check on how we run the economy. If we do anything wrong, the team of experts will blow the whistle; and if we do everything right, the team will give us a pat on the back. We have a policy of being transparent about these Article IV Consultations: the Concluding Statement is published every year so that the whole world can see our 'medical record' and the prescriptions, if any, for the coming year.

These health checks are very useful to us. They are conducted in a highly professional manner. The team of experts has no political axe to grind. It speaks its mind and does so frankly. That is why it has been a pleasant experience working with the team annually.

Readers who have seen these Concluding Statements will notice the predominantly favourable comments that Hong Kong has received over the years. I was told that this is quite rare in the totality of Article IV Consultations conducted by the IMF on other economies. It is like consistently scoring top marks among the large class of economies in this world in economic management, and specifically in monetary and fiscal policies. Hong Kong people should justifiably be proud of this achievement, although the sufferings they have had to go through as a result of the financial turmoil of the last two years have been severe.

The Concluding Statement for this year's IMF Article IV Consultation is no exception. As usual the comments are most favourable. There is, for example, praise for our exceptional well-preparedness for the Year 2000 and strong support for our continuing adherence to the linked exchange rate system. But there is also an interesting point about the extent of domestic competition in Hong Kong, specifically the extent to which activity in certain sectors is dominated by a relatively small number of participants. The question is raised as to whether in practice market concentration leads to abuses. The team offers the advice that domestic competition issues should continue to merit close attention, especially since – with the exception of sectors which are subject to specific regulations or ordinances - there are no substantive penalties if firms engage in anti-competitive behaviour.

I find this advice very sensible and I am sure the relevant Government Bureau will make an appropriate response. But I would like to draw particular attention to the relevance of the advice to the operation of financial markets. We have seen in this region over the past two years how leaving markets to operate freely in a competitive environment can, in extreme volatile conditions, lead to market failure of one type or another. This has often appeared in the form of anti-competitive behaviour, as described in the Concluding Statement of the recent Article IV Consultation, in a sector that is especially prone to manipulative practices. When market failure occurs, or threatens to occur, the government, or the regulator where one exists, has the responsibility to act to correct that failure. We should all be alert to the issue, and we should be absolutely clear about the objectives of government action, which are to make markets work better and enable genuine competition to flourish.

Joseph Yam
2 December 1999

More information on the IMF can be found here.

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