FORMER financial secretary Sir Piers Jacobs says history has vindicated the rescue and reform packages his government put in place following the closure of the stock exchange in October 1987.
'It has all worked. I haven't seen anyone giving government much credit for it but the truth of the matter is, the rescue of the stock exchange didn't cost the public purse a cent.' Following the market crash, the Government organised a $4 billion rescue package based on commercial loans. Most has been repaid through trading levies.
The Government also set up a review committee headed by British accountant Ian Hay Davison to draft a blueprint for the overhaul of the stock and futures exchanges. That report laid the basis for the modern systems.
Sir Piers said the crash and closure of the market had provided the catalyst for reform: 'All markets tend to move forward because there has been a crisis or some major event. It is very difficult to develop the political will to do anything about a market that is just trundling along and performing. You don't get the opportunity to do anything dramatic unless something dramatic happens. It is not as though anyone enjoyed it - it is just a fact.' The exchange was closed on Tuesday, October 20 after a 420-point fall in the Hang Seng Index on October 19, dubbed Black Monday.
The closure had been defended for insulating Hong Kong from the global crash but it bottled up selling pressure and when the market reopened the following Monday, it crashed a further 1,120 points, or 33 per cent.
Sir Piers said the current stock exchange and regulatory system was a vast improvement on the situation in 1987: 'People forget. They say the closure did terrible damage to the reputation of the Hong Kong stock market. The fact of the matter is, it didn't have a terribly good reputation at the time.
'The Hay Davison report described it as a club. A lot of people were trading it of course, it had a large volume, but its reputation was nothing like it is today.' Sir Piers said the speed of the Government's response to the crisis was critical to its success: 'We didn't dither; we acted quickly. Hay Davison came over quickly and produced his report within six months. And the results have been very good.
