The wicked month of August

inSight

03 Aug 2000

The wicked month of August

In August 1998 the Hong Kong SAR Government used the Exchange Fund to purchase a large portfolio of shares in the Hong Kong Stock Market to defeat destabilising attacks on the Hong Kong dollar. The operation worked -- and made enormous profits for the people of Hong Kong. Two years on, Joseph Yam recalls these events with mixed feelings.

Yes, it's August again, and its arrival reminds me of the name of a novel by Edna O'Brien called "August is a Wicked Month". Not that I can remember what the novel is about, since I came across it over 30 years ago. I did try to dig it out, but to no avail, and it is also out of print. It is simply that August is indeed a wicked month when disastrous things tend to happen, as unannounced as a bolt of thunder and as severe as a typhoon qualifying for a number ten signal. You have to scramble for cover from the rainstorm, so that you are not washed away. You have to secure all hatches lest your valuable belongings are sucked out of the window. You really wish that you had taken all preventive measures before this one hit. You have to sit at home, well away from the window, as advised by the Observatory, feeling suffocated under the influence of the intense low pressure, as the typhoon took time to find its destiny. And it sometimes presents you with its eye, tempting you with the opportunity to relax and to go out to steal a breath, only to greet you tempestuously again, before tailing off, leaving you to pick up the pieces and repair the damage.

No, I am not suffering from dementia, although I did last month have an attack of the Meniere's syndrome, while attending a meeting in Korea. I was instead remembering August 1998 when Hong Kong was so brutally tossed around by one of its worst financial storms ever. Hong Kong stood tall and bravely braced the gale force winds coming from all directions. We had to make unconventional and controversial moves to defend ourselves and we were successful in doing so. But there was a lot of dirt thrown at us at the time and afterwards. Whether it was luck, the good "fung shui" of Hong Kong, or something else, the profits of the market intervention were a welcome vindication. As of yesterday, we have recouped $72.5 billion of the $118 billion we invested, and we still have about $175 billion in hand at market value - all for the good of the people of Hong Kong.

But it was undoubtedly an unpleasant experience that I simply wish I could forget. I fear that this is not to be the case. I will probably have to carry it to my grave with mixed feelings. A firm believer in free markets being forced into market intervention can find this sort of thing traumatic. It felt like an old and trusted friend turning his back on you and failing you miserably when you needed him most. It felt like discovering your comfortable home being infested with termites. Well, you just have to deal with it. That is what public duty calls for. There can be no "walking under the balcony" and opting for the easy way out. You do what you think is right. The agony, the frustration, the sleepless nights and the cramp in the stomach are all part of the package. And so, the difficult decision - the correct decision as it turned out - to intervene was taken. It is one of those thankfully rare decisions that leave an indelible mark for ever on your face for everybody to see. Some may heap praises on you, and quite sincerely; others may condemn you, and quite vehemently. Times may change, views may change; but the mark remains. These are all, again, part of the package.

Dementia or Meniere's syndrome, I am still sane enough to feel elated, two years on, to read in one of Alan Greenspan's always very perceptive speeches, delivered just last month, in which he included a post mortem of the Asian financial turmoil, with the following concluding sentences. He said: "Official safety nets and interventions cannot be eliminated entirely. There are limits to the size and extent of the shocks that the private sector can manage, at least in the short run, without official assistance." This gave me one of my happiest days in a long time. Thank you, Alan.

Joseph Yam
3 August 2000

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