IMF Says Exchange Rate Peg Is Correct For Hong Kong

by Mary Swire, Tax-News.com, Hong Kong

26 April 2002

David Robinson, senior adviser of the International Monetary Fund's research department, said in Hong Kong yesterday that the Fund was strongly in support of the SAR's fixed exchange rate regime.

Mr Robinson explained that while for most countried a flexible exchange rate scheme was the best solution, in Hong Kong's case there were special factors which called for a different solution.

"Obviously, under a fixed exchange rate you have to adjust to specific shocks, external shocks through deflation, and that's one of the costs," said the Fund's adviser. "But overall - and that's the important thing - overall, the peg is good for Hong Kong, and we strongly support it. In many other countries I think a resilient exchange regime is a flexible exchange rate regime - but not here."

The currency board was a resilient exchange rate regime because Hong Kong had flexible markets, a strong currency position and a strong and conservatively managed fiscal position.

Commenting on Hong Kong's current fiscal and economic difficulties, Mr Robinson said that Hong Kong's recovery would be driven by the external sector as well as help from fiscal stimulus provided by the Government. Comparing Hong Kong with competitor Singapore, he said the SAR had not suffered from the collapse in information technology orders to the same extent Singapore had.

Mr Robinson was director of the IMF's World Economic Outlook report released in Washington last week which projected below-consensus growth for Hong Kong of 1.5 per cent this year and 3.6 per cent next year.

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