Normally it would be wrong for the government to pledge public money to prop up cash-strapped businesses. But these are far from normal times. Small and medium-sized enterprises that are otherwise sound face an uncertain future because they cannot get access to their usual lines of credit. With a painful recession likely to get worse next year, the prospect of early business failures and job losses calls for decisive intervention. The government has rightly made an exception to its small government, big market philosophy. The result is a 10-fold expansion in its loan guarantee scheme for SMEs to HK$100 billion, the centrepiece of an economic stimulus package to counter the effects of the global financial crisis.
These are indeed extraordinary times. Just as the US government has poured hundreds of billions of dollars into business bailouts, the Hong Kong government has been compelled to do what would once have seemed improbable. And like the US, it faces having to do much more as the recession bites. Chief Executive Donald Tsang Yam-kuen acknowledged as much yesterday when he unveiled the stimulus package, saying the government would take a more active role in intervening in the economy.
The revamped loan guarantee scheme is a reflection of the size of the challenge to the city's social and economic resilience. Government guarantees for credit-starved companies are not to be entered into lightly, given the moral hazard of creating expectations of bailouts. The government has therefore been prudent in limiting its exposure to 70 per cent of loans of up to HK$6 million, with banks to bear the remaining 30 per cent of the risk. While the priority is to unfreeze credit lines for SMEs, it is to be hoped this will help ensure the banks advance money prudently to genuine, viable enterprises.
The stimulus package is an interim response to hard times ahead aimed at stabilising the financial system, helping enterprises work through their liquidity problems and maintaining employment. We are fortunate that unemployment remains low. But the concern is that around the Lunar New Year, at the end of next month, many businesses might fail. Hopefully the new measures will help them to hold on. That will buy breathing space before recession tightens its grip in the summer as a wave of fresh job seekers hits the market.
The package also includes plans to create 60,000 jobs next year by speeding up infrastructure projects, fast-tracking the hiring of civil servants to fill vacancies and creating 4,000 temporary posts. The government is expediting bureaucratic procedures to see that money earmarked for various projects is spent quickly.
Referring to a silver lining in the economic clouds, Mr Tsang said he believed there were better times ahead in 2010. But more needs to be done. The year ahead will be a test of leadership as well as economic management.
