Slowly but surely, every major government which can afford to do so has put forward a big economic stimulus package or two. With the world economy staring into the abyss, talk of fiscal caution and moral hazard, understandably, take a back seat. Deficit spending is in; fiscal prudence is out. Hong Kong, however, is likely to be an exception. Even Germany, long reluctant to launch a major stimulative programme, has jumped on board the Keynesian train. And, after watching for months from the sidelines, Japan has announced this week that it, too, will launch a US$17 billion industrial bailout to help struggling sectors and companies. Even so, Tokyo, long chastised by the United States for its interventionism, finds its rescue efforts being dwarfed by the mother of all stimulus packages, proposed by the new US president, Barack Obama. The US$819 billion plan is making its way through the US congress and will probably survive a Senate showdown. In Hong Kong, the picture is murkier. We may feel somewhat left out. Our government still professes fiscal responsibility. The Basic Law, after all, requires the government to balance the books. Having projected a deficit, finance officials yesterday announced an unexpected net surplus of HK$30.9 billion to the end of December. This opens the way for trade unions, political parties and other lobby groups to demand relief measures. Some point to the plight of the poor, others argue that money should be put into people's pockets to boost confidence and encourage them to spend. If everyone else around the world is doing it, why can't we? While the government must strive to help the needy, create jobs and combat the financial crisis, it should think carefully before acting on the various demands for extra spending. It is likely to find itself staring at a significant shortfall this time next year. And the full destructive impact of the global economic crisis may not be felt until the next financial year begins in April. Unlike other parts of the world, we do not have a stimulus package as such. This may be a good thing. For it would be likely to create white-elephant projects, market inefficiencies and unproductive jobs down the road, when the economy has finally recovered. The 10 major infrastructure projects in the pipeline, which will boost the economy and create jobs, were announced in 2007 and finance chief John Tsang Chun-wah gave away HK$125 billion last February, before it became apparent the subprime-mortgage crisis would spawn the global crisis we are now facing. Rather than being driven by economic necessity, the infrastructure spending and tax giveaways were a response to political pressure; the government found itself with an embarrassment of riches and needed to return some wealth to the people. The government's loans programme to small and medium-sized businesses is minuscule compared to what other economies are offering their companies. By not straying too far from our traditional adherence to fiscal responsibility and minimal market intervention, Hong Kong will be in a better position than most other economies when they eventually turn. If overseas efforts succeed in recapitalising broken banks and boosting markets, credit will eventually expand and deflationary pressure will turn inflationary. Governments will then need to move quickly to mop up excess liquidity. Extraordinary times call for extraordinary measures, but such time-honoured principles as fiscal discipline and avoiding intervention in free markets are worth upholding.
