Secret bank: The government and the HKMA

The government needs to be far more transparent about recent dealings at the Monetary Authority

SCMP June 02, 2009

I make no apologies for returning to the subject of my last column: official silence on the Hong Kong Monetary Authority's HK$33 billion commitment as part of China's contribution to a regional stabilisation fund known as the Chiang Mai Initiative Multilateralisation (CMIM). It goes to the heart of the government's use of the HKMA as a slush fund circumventing the Legislative Council and the proper budgetary process.

Since that column appeared, it has also been revealed that the government conducted a phoney head-hunt for a successor to HKMA chief Joseph Yam Chi-kwong. This has long been expected to be Norman Chan Tak-lam, head of the Chief Executive's Office, so the use of a bunch of allies to go through a secret "selection" process illustrates the contempt with which Donald Tsang Yam-kuen views the public. (It also demeaned Victor Fung Kwok-king and Sir John Bond to be part of this charade).

But, back to the tortuously named CMIM. The government now says that it was not announced because it was merely an "agreement in principle". In that case, one wonders why Asean plus three - the 10-member Association of Southeast Asian Nations, together with China, Japan and South Korea - made such a fuss of an agreement that has been given much coverage in the global and regional media. There was no sign of any Hong Kong presence at the time ministers and central bankers made the announcement in Bali.

To my suggestion that Hong Kong was simply told of its contribution by Beijing, the government now says that Hong Kong was "part of the Chinese delegation" and was "fully consulted".

If so, why has the government not told the people who was there as Hong Kong's part of the Chinese delegation and, also, what gave him or her the authority to make even a "commitment in principle" to laying out this huge sum?

While Hong Kong does have separate representation in bodies such as the Asian Development Bank, the World Trade Organisation and the World Health Organisation, it does not have any formal connection to the Asean plus three group. So the public must be told who has been, as claimed, participating in this group's discussion and on what basis. For sure, the fund is a good idea. But if Hong Kong is contributing so much, its role as a separate entity should be known. As it is, it has hidden itself behind Beijing's skirts.

The government's claim to having been consulted does not fit very well with accounts from one Asean delegate. According to that source, Hong Kong's contribution was introduced as a separate item, to paper over a dispute between China and Japan over precedence. Bringing in Hong Kong as part of China created a useful ambiguity as to whether China was contributing the same as Japan.

The government is also pretending that the departure of the International Monetary Fund representative for Beijing is simply a "cost-cutting" measure of no significance for Hong Kong's separate financial status. Dream on.

At one level, the transfer of Mr Chan back to the HKMA, where he was once deputy to Mr Yam, is no problem. He clearly knows the job. But his recent performance suggests that he is even more the secretive bureaucrat than Mr Yam, who has excelled at his own public relations, as well as empire-building.

That makes it all the more urgent that Legco - not just the pro-democracy camp but anyone who cares about accountability - take an in-depth look at the HKMA and its functions. After all, this is not an independent central bank, but comes directly under the financial secretary.

The CMIM payment should be agreed by Legco (if given the chance), but only provided that the government agrees to the following reforms of the HKMA:

First, transfer the HK$300 billion or so of its retained profits to the fiscal reserves, where they belong. This will allow the public a more accurate picture of reserves and limit the HKMA's ability to act as a slush fund. It should be accompanied by the transfer of all government funds lying idle for more than two years to the fiscal reserves - roughly another HK$300 billion.

Second, require the HKMA to cease expansion of all its trading activities, most notably the Mortgage Corporation, and agree a timetable for privatising them.

And, third, bar the HKMA from using its public funds for political objectives - as in its acquisition of a big block of shares in Hong Kong Exchanges and Clearing .

For sure, the salary currently paid to the HKMA chief is outrageous and will attract debate. But let us hope that discussion gets beyond what is a marginal issue to the key point: making the HKMA accountable.

ends