It was a somewhat sombre Financial Secretary who entered the interview room. However, it soon became obvious that his mood had more to do with the severe cold he was nursing rather than the flak he had been attracting since unveiling last week's emergency economic package. In fact, Donald Tsang Yam-kuen brushed off much of the criticism as ill-informed and misjudged and, between sips of restorative lemon tea and coughing bouts, launched a robust case in support of Hong Kong's economic future. Yet, filtering through a typically frank assessment - which as usual was a white-knuckle experience for his press adviser - were clear signs that the past 12 months had been a period of what he called 'considerable soul searching'. It could be little less given that Hong Kong has become ensnared in an unprecedented regional crisis; and that he has presided over an economy which has slid into recession while property prices have fallen at least 40 per cent and the stock market has halved in value. 'I've tripped up on this several times,' he says. 'If you look at this from a narrow viewpoint of our ability to defend our currency, the Government would get an A-plus, in terms of international assessment we get A-minus, from a local perspective, in terms of our ability to deal with the situation, we get a C-minus. Take your pick.' Mr Tsang returns constantly to the issue of the personal hardships suffered by Hong Kong's people as a result of the property-market collapse and admits that on occasion the Government has been 'less than sensitive' about their financial plight. He describes the Government's response as 'gauche and clumsy in dealing with practical issues from time to time'. But the crisis had 'galvanised' the Government, making it work as a team. 'We have been pretty effective in holding the fort. We get generally a good assessment internationally. We are getting up to somewhere above pass mark. 'I can promise everyone we have been working very hard. We have not been sitting on our hands.' Most notable among the public trip-ups he has made was his forecast shortly after the crisis began that it would be over by last Christmas. Despite this, he could not resist tempting fate again during the interview with a prediction that Hong Kong could emerge from the mire by next spring, although experience has taught him to lace such comments with heavy qualifications. 'I wish to see Hong Kong come out of this crisis in hopefully next spring - or whenever next year - as a leaner, sharper, far less self-centred economy with a much more well-developed relationship with China and with a better relationship with its Asian neighbours.' This forecast is premised on two key developments taking place, each of which could have significant implications for the rest of the world. In what the Financial Secretary calls the 'penultimate' development, Japan will rapidly solve its banking crisis; then finally, in quick succession, Wall Street will go through a large correction. Mr Tsang wavers slightly in his belief that Japan will sort itself out. However, he steadfastly maintains that Wall Street faces a tumble. 'In the short term, we could be in for a bit of a shock. I have been warning our brokers that there are things out there to beware of,' he says. However, he feels the massive decline local equities have already suffered will allow the market to absorb the impact of a Wall Street slide the Financial Secretary says could be up to 20 per cent. '. . . In the long term, there would be good effects [of a correction on Wall Street] as there would be some redistribution of wealth and funds would flow back into the region when the adjustment process has taken root. 'So it would be good for Hong Kong,' he contended. Referring to the subject of Japan and the role it is playing in the current phase of the crisis, Mr Tsang summons considerable self restraint, although the impression is conveyed that he feels the country is failing in its responsibility to the region. 'I want to be courteous,' he says. 'The whole of Asia buys Japanese goods but we do expect portfolio investment and direct foreign investment. 'If such investments are not forthcoming and at the same time you have a withdrawal of liquidity from the banking system, this is not fair play. 'I am very concerned about the free-fall of the yen. If this continues it means the Japanese banks could go belly up and cause another round of turmoil in Asia. But hopefully there are better days next spring.' When and if this spring recovery occurs, the Financial Secretary repeated his belief that the large-scale asset devaluation, coupled with the measures which the Government and business have taken, will allow Hong Kong to emerge more rapidly than its Asian neighbours. He is firmly of the view that the Government is making a virtue, albeit one forced upon it, of the crisis. 'The economy is in a rapid state of adjustment particularly in asset prices and it is running smoothly. 'There has been a lot of downsizing among companies and wage and labour costs have come down to make us more competitive. 'We have been taking this opportunity to reinforce our architecture.' Distancing himself from some counterparts in other Asian countries, Mr Tsang believes this is a time for greater globalisation and self-criticism in a bid by the region to 'clean up its house'. 'One lesson we all have to learn is that we have to all get globalised. If you look around the region there are two economies which are less affected than others by the crisis. 'They are Singapore and Hong Kong because they are more globalised and open to the rest of the world. 'But before you can open up you have to clean up your own house. So the first lesson is that all of us have to clean up our own houses, even Hong Kong,' Mr Tsang says. The cleansing process in Hong Kong should feature increased transparency. In this respect the Financial Secretary mentioned the possibility of banks reporting their aggregate balance positions 'several times a day'. This would follow on from measures that have been taken to extend transparency in the interbank market and have been deemed a success. Margin trading, the root cause for several high-profile collapses which have severely dented the Government's public image, should face stiffer legislation to bring it 'into line', as he puts it. His belief in transparency also extends to hedge funds, which he feels should be compelled to participate in greater disclosure. 'They should not be tamed but they should be more transparent. Hedge funds should be identified. It's subterranean and it's not clear what they are doing, and it's not very fair. But I do not believe they can be bottled up and controlled. If we want development of markets and new products I think we should allow this flow to continue but those flows should become apparent in somebody's accounts,' he argues. On the inevitable question of the peg and its future, Mr Tsang takes a heavy sigh and delivers a now well-rehearsed response that he holds a complete commitment to its continuation. 'If the basic parameters of the monetary system change then I believe that someone else should run the economy of Hong Kong. 'I can only work under certain conditions, such as a prudent financial management, non-intervention in market conditions and a linked exchange-rate system.' He dismisses as 'rubbish' the widespread suggestions that last week's package, which included a nine-month moratorium on land sales, represented a break with Hong Kong's professed non-interventionist policies. 'For 40 years, we have been in the housing market. The Government is the largest landlord in the world. Fifty per cent of the population lives in government housing. 'For people to accuse us of intervening in the housing market is rubbish. I'm sorry to say this!' He says the package was motivated by the desire to arrest the impact of the 'secondary and tertiary effects' of the crisis and he adds that the interests of real-estate developers are not his concern. 'I have not really been their friend all these years', although he admits they regularly come and 'bend his ear'. The pressure from this and many other sources during the past year have made the past 12 months the most arduous and 'stressful' time in Mr Tsang's long period in public office, but through his cold he professes confidence and certainty in the course he is taking. 'I have been sleeping very well. I still go to church. 'I have not lost my faith. I have not lost my faith in the Hong Kong people. 'In many ways it has re-invigorated my faith in them. It is an efficient economy and much more efficient than it was two years ago. 'The adjustment process has been heroic to say the least.'