IMF Supports Hong Kong Dollar Peg

November 14, 1998 - 0:0
HONG Kong The International Monetary Fund (IMF) has endorsed Hong Kong's linked exchange rate and supported the government's economic policy framework, the government said Wednesday. In a statement issued following annual consultations with China, the IMF backed continuation of the Hong Kong peg to the U.S. dollar. The IMF predicted a 5.0 percent contraction in gross domestic product (GDP) for Hong Kong this year and continued weak economic activity in the first half 1999, with recovery beginning in the second half.

The government welcomed the IMF's endorsement of our policy framework and their continuous support for the linked exchange rate system, Financial Secretary Donald TSang said. We have successfully demonstrated to the IMF mission our strong commitment to and defense of the link. It has been a difficult year for Hong Kong and the IMF's positive assessment of our strong economic fundamentals and effective economic policy framework came at an opportune time.

This further strengthens our confidence in an early recovery of Hong Kong's economy as the external situation improves. Joseph Yam, chief executive of the Quasi-Central Bank Hong Kong Monetary authority, described the IMF visit as timely and important. I am glad that the IMF, having seen how we withstood the full force of the financial crisis in the region, is confident that the situation in the banking sector will remain manageable, and fully endorses the continuation of the linked exchange rate system, Yam said.

The IMF noted that Hong Kong was not immune from the contagion of the regional financial crisis but said the territory's economic fundamentals were remarkably strong. These developments demonstrate the flexibility of Hong Kong's economy, and that adjustment under the linked exchange rate system is taking place as it is supposed to, it said. The IMF mission, led by David Robinson, division chief of the Asia and Pacific Department, was in Hong Kong from October 21 to November 2. It held discussions with both private sector and government officials.