Moody's ignoring economic reality
Moody's Investors Services did an injustice to Hong Kong by downgrading its short-term foreign currency debts from Prime-1 (the best) to Prime-2 (not so good) and the long-term outlook from stable to negative.
In doing so, Moody's temporarily stopped a stock rally and, worse, toughened the terms at which leading local institutions could borrow from abroad. No wonder Financial Secretary Donald Tsang Yam-kuen was livid and the rest of us equally incensed and befuddled.
Moody's contends that it does not judge economies arbitrarily or with political bias but on the data alone. If so, the move defies our economic figures and prospects, which are far brighter than those of many rated ahead of us.
The agency, for example, handed Australia a Prime-1 rating despite that country's staggering national debt which, on a per capita basis, is among the highest in the world. Hong Kong, in contrast, has fiscal reserves approaching $500 billion and foreign reserves equalling nearly $700 billion.
Moody's also gave Spain a Prime-1 rating despite its 20 per cent unemployment rate versus 2.5 per cent for Hong Kong. Singapore, too, was Prime-1 although its currency has been buffeted by the Asian economic crisis, while our dollar has remained stable because of our unyielding peg.
The downgrade is especially unfair on Hong Kong's corporations whose reputation worldwide as credible and credit-worthy institutions is second to none. The Hongkong and Shanghai Bank, which is immensely profitable and stringently regulated, fell to a Prime-2 rating despite impressive annual results. The same goes for the Kowloon-Canton Railway and the Mass Transit Railway corporations, whose earnings are the envy of all other train operators, including those in Prime-1 United States and Britain.
Never has a Hong Kong public corporation delayed, let alone defaulted on, a contractual obligation. Each has been a model debtor. Indeed we, as a community, have extraordinary pride. We have built into our culture a sense of honour reflected in the meticulous way we discharge our duties. It is no accident that the predominantly ethnic Chinese societies of the mainland, Taiwan, Hong Kong and Singapore have weathered the Asian currency and market difficulties so well.
Much of Moody's assessment was based not on statistics but on sentiment and subjective impression. The agency has lumped Hong Kong with the rest of Asia - including South Korea, Thailand, Malaysia and Indonesia - whose finances have taken a severe drubbing from problems stemming from abuse and mismanagement.
No Moody's economist, even now, seems to acknowledge that Hong Kong has always been a free, dynamic, nimble and resilient economy backed by a prudent public administration. Whereas many other governments in the region tailored expenditure to suit their grandiose schemes, we have never worn economic garments that do not fit our budget. Public expenditure has consistently followed gross domestic product growth, a principle reaffirmed two weeks ago by Mr Tsang. He offered the public a $13.6 billion tax saving and still promised a balanced Budget for the 1998-99 fiscal year.
Moody's misunderstanding is part of a pattern of misconception and misrepresentation of Hong Kong in the Western mass media. With so much besides our reputation at stake, we must stop being passive or simply moaning about having been maligned. Private corporations and our Government must go on a public relations offensive by advertising our community in our major overseas markets, especially the US.
We have to talk up Hong Kong not just with table-thumping rhetoric but with the simple, persuasive, indisputable facts.
