Chan defends `special action'
to prevent currency chaos
CHIEF Secretary of Administration Anson Chan Fang On-sang backed
Financial Secretary Sir Donald Tsang Yam-kuen's use of the Exchange
Fund to defend stock and futures markets and the Hong Kong dollar
But Democratic Party leader Martin Lee Chu-ming warned that the
unprecedented foray into the stock and futures market meant that Hong
Kong was no longer a free-market economy.
Academics also warned about the long-term repercussions.
Mrs Chan denied criticisms that the government was interfering with
the free market operation.
"We definitely are not interfering with anyone who wishes to sell out
the index, but we cannot allow someone to create chaos in our foreign
currency market, which will cause losses to our businesses," she said
yesterday on her return from an official visit to Singapore.
"It was a special action aimed at those attacking the Hong Kong
dollar and the interest rate."
The government was sending a strong signal to certain investors and
had no intention to deviate from its non-intervention policy, she
Mrs Chan also met senior government officials, including Singapore's
Senior Minister Lee Kuan Yew, and business leaders.
Democrat Mr Lee, however, warned that the move had damaged Hong Kong's
reputation as a financial centre.
"The invisible hand of Adam Smith has been replaced by the invincible
hand of Tung Chee-hwa, but how long can he remain invincible?
"It is highly dangerous. I think this is a huge cost to our
reputation as one of the world's financial centres, because now
instead of the government being a regulator, you find that the
government is now a player, a very key player."
Academics in a forum said the use of the Exchange Fund to prop up the
market could not ward off attacks in the long term.
"The method of attack is to short the Heng Sang Index but if the
index is already very low, it would be much harder for them to push it
down further," said Francis Lui Ting-ming, association professor at
the University of Science and Technology.
"Some speculators may even welcome the opportunity when the
government pushes up the index _ they will have a better chance to
make a profit by selling short," he added.
But Prof Lui and Leung Wai-kin, associate professor at the University
of Hong Kong, both believed the government's apparent abandonment of
the high interest rate policy "is an improvement". There was also
consensus at the forum that speculators would resume their attack.
But Executive Councillor Leung Chun-ying said: "The measure is to
give speculators a strong message _ that the government will not stand
aside or turn a blind eye to it."
All rights reserved.