On the other hand, which is this one, does he know what he's doing?

PUBLISHED : Tuesday, 06 February, 2007, 12:00am
UPDATED : Tuesday, 06 February, 2007, 12:00am

On the one hand it's hard to be sure because it all depends and you can't really tell but, on the other hand, taking into account all factors, and while no one can be absolutely positive, or negative, for that matter, on balance ...

Bernard Chan,

Executive councillor

HE DIDN'T PUT IT in those words, of course. That would have been the succinct version. He in fact used several hundred words more and said less.

Mr Chan's topic in an opinion piece published in this newspaper on Friday was what we should do with the net savings of HK$800 billion (HK$832 billion actually) which our government has built up in reserves.

What we should do with the money, he said, is perhaps hoard it - 'government is not sure that any of the reserves can be regarded as surplus' - but then again perhaps spend it - 'government is aware that the people expect budget surpluses to be returned to the community - and, to sum it all up, take a decisive stand - 'This issue will not go away.'

He seems, however, to favour hoarding the money. I cannot be absolutely certain, what with all the hard-to-say and no-one-can-tell talk in which he indulges, but here are the reasons he advances for hoarding the money.

'These reserves can smooth ups and downs in revenue, as they did during the recent budget deficits.'

This reminds me of the story of the princess and the pea. You know the one in which the princess proved she was a princess when she couldn't sleep all night because someone had put a pea under several layers of mattresses on her bed.

It's the same here. How much smoothing of ups and down does Mr Chan think we need in order to rest easy? We put a slight dent in our foreign reserve figures by running deficits for three years but were still more cushioned than that princess was. Do we really need to pile the mattresses higher than she did?

'They [the reserves] cover contingencies that require an unexpected increase in spending, like a natural disaster.'

Mr Chan's thinking follows familiar lines here, I think. He is the legislator representing the insurance functional constituency and here he proposes that we treat these reserves as an insurance policy against earthquakes.

Once again it reminds me of an old children's story, this time the one of Chicken Little who went around shouting that the sky would fall in.

Mr Chan, if the sky falls in we are all doomed anyway and no amount of reserves will save us. We have more than plenty, however, to cover the costs of emergency supplies in the event of a big natural disaster and, if you think we haven't insured our others assets sufficiently against one, well, get busy. You're the insurance man.

'In addition, they are available in the case of a threat to our currency or our financial systems.'

Big reserves are like the Maginot Line, a chain of fortifications that France built at huge expense to stop a German invasion. In the event the Germans just went around it. Currency attackers will do exactly the same.

The biggest strength that the Hong Kong dollar has is the confidence of all the people who deal in Hong Kong dollars that the monetary mechanism under which it operates is a sound one and that the Hong Kong Monetary Authority won't cheat on this mechanism.

If people believe this then we do not need big reserves to protect our currency. If people no longer believe it then no hoard of money built up in reserve will protect our currency.

'What are the chances of such a crisis? In an era of globalised financial markets, it is impossible to say. That is why it is hard to say whether our reserves are too much, about right, or not enough.'

We have one of those hand-wringing Goldilocks complexes here, I see. Is it too hot, is it too cold or is it just right? Oh my, oh my, it's so hard to say.

When in doubt, turn to your Uncle Bob. In International monetary affairs Uncle Bob is called the International Monetary Fund and how lucky we are that he has just given us an answer in a recently issued study on 'Selected Issues' in Hong Kong.

For us, says Uncle Bob, the right level of free fiscal reserves is about 30 per cent of gross domestic product but we can make this an upper limit of 50 per cent if we are concerned about 'historical volatility'. We can also take the figure substantially down if we stop playing silly accounting games.

And here's the punch line. Our free fiscal reserves at present amount to 56 per cent of GDP. We have much more in reserves than the IMF thinks necessary.

What we also have here obviously is a politician who offers thoughts on a subject on which he has clearly not gone to the trouble of briefing himself. His only excuse for it, I think, is that they are not much in the way of thoughts anyway but just a ramble of it could be this, it could be that and it could be something else but, oh my, it's all so difficult and I just don't know.

Mr Chan, why are you in government at all?