Keeping peg a vital sacrifice, says Tung

Tung Chee-hwa said last night Hong Kong was making a 'tremendous sacrifice' to keep the dollar peg, but it was essential for an Asian economic recovery.

The Chief Executive said Hong Kong had reserves of eight times the currency in circulation - US$96.2 billion (HK$744.5 billion) at the end of April. The stability of the dollar and the yuan was among the 'essential conditions for an Asian recovery', Mr Tung told the Asia-Australia Institute of the University of New South Wales.

Other conditions included: The presence of clear signs that the Asian economies were generating trade surpluses instead of deficits; The provision of funding and conditionality, in combination with voluntary roll-overs by private sector banks, by the IMF; Efforts by Japan to maintain positive growth and stabilise the yen, and; The implementation of reforms in Asia to cut out the inefficiencies and post-bubble effect that led to the turmoil.

Mr Tung called on the world to urge Japan to stabilise the yen.

Describing the yuan and Hong Kong dollar as 'the anchors of currency stability in Asia', he said: 'No one should doubt the tremendous sacrifice both Hong Kong and the mainland are bearing to prevent the problem from escalating.' However, he was confident the SAR's competitiveness could be maintained without devaluation.

It was crucial to have certainty in exchange rates, while other factors such as the rule of law, clean government and predictable policies also added to the competitiveness of Hong Kong.