Sadly, the bucks still stop with HKMA
The reports of the Director of Audit on government waste always make amusing reading. However, like much of the work of the Independent Commission Against Corruption, while they seem designed to give an impression of effective self-cleaning within the bureaucracy, in practice they focus on small issues. The big problems of waste of public money and lucrative sleaze from manipulation of land and buildings rules are treated as too sensitive. Thus, we hear about the waste of a few million dollars on pedestrian bridges to nowhere rather than multibillion-dollar road bridges to nowhere.
The need for the Director of Audit to investigate the Trade Development Council has been clear for long enough. But an even bigger candidate is one that arrogantly sees itself as being beyond the reach even of Hong Kong's limited accountability system.
I refer to the Monetary Authority, since last year run by Norman Chan Tak-lam, formerly director of the Office of the Chief Executive. The HKMA is not merely the supervisor of Hong Kong's banking system and manager of the fiscal reserves (HK$549 billion) and other government financial assets. The HKMA itself has HK$542 billion in accumulated surpluses. These properly belong to the Treasury and, hence, to the public. Yet they are treated as though they are HKMA private property, to be played with as Chan and his over-remunerated friends determine without reference to the public interest or accountability to the legislature.
The latest example of HKMA arrogance is the revelation that it is getting into bed with elite members of the Wall Street gang of hedge fund and private equity names. According to a not-denied story in the Financial Times, these include Blackstone, Bain and KKR. Chan and co have apparently learned nothing from Singapore's experience in trusting Wall Street's judgment and self-interested investment proposals. But there is a bigger issue here. Singapore believes in the corporate state, the right of the government to accumulate long-term investments rather than leave investing to the private sector, which is supposed to be the Hong Kong way. Even Singapore keeps a proper separation between its monetary authority and its two big investment funds, Temasek Holdings and the Government Investment Corporation, both models of transparency compared with the HKMA.
The HKMA has long insinuated that it needs all these retained profits to keep the HK dollar and the financial system stable. But even long-time boss Joseph Yam Chi-kwong now admits that 'you don't need all of the funds to keep the HK dollar stable'. Quite so. The note issue is already fully backed by foreign currency deposits made by banks and the peg is mainly sustained by interest rates and base money supply, not by intervention using reserves.
The way that the HKMA is allowed to keep its surpluses rather than remit them to the Treasury is a scandal in itself, enabling the government to pretend that reserves are much smaller than is actually the case. But now to give Chan and co free rein to move away from liquid asset investments appropriate to fiscal reserves to hedge-fund and private-equity investment is not merely an invitation to speculation with public funds. It opens the way for the kind of dubious relationships seen in banking on the mainland.
The HKMA has, for several years, been allowed to become a player in the financial markets it is supposed to be regulating, via the Mortgage Corporation that simply uses the government's credit quality to compete in a lending arena that has many players. The Mortgage Corporation has even been expanding overseas, providing more high-paying jobs for friends of the bureaucracy. And now it is into financing taxi licences!
The HKMA has moved far beyond its proper remit to become a slush-fund plaything for insiders. Go at it, Director of Audit. And go at it, legislators: demand at least half its surplus be credited to the fiscal reserves.
Philip Bowring is a Hong Kong-based journalist and commentator
