mr yam comments on hong kong : from crisis to recovery speech by the chief executive of the hong kong monetary authority, mr joseph yam, at the hkma luncheon on the occasion of the opening of the hkma representative office in london on 28 september 1999. * * * it is a great pleasure to be speaking here in london again, and to do so at this large and expert gathering. some of you may have been present at my last speaking engagement here, in june last year at the 11th dragon boat dinner, which now seems like a very, very long time ago. in that speech i described hong kong, against the background of the financial turmoil in asia, variedly as a pillar of stability, the eye of the storm and the typhoon shelter of asia. my message then was that hong kong, with prudent policies and robust financial structures, had been the last and the least to be affected by the storm. since that time, as you all know well, the tail of the storm has swept through hong kong and it has not been so gentle after all. the painful downward adjustment in the internal cost / price structure under a fixed exchange rate system eventually and inevitably came. this was reflected in plummeting asset prices, declining gdp and rising unemployment. although the fundamentals of the hong kong economy remained sound, these events provided an attractive environment for the launch of speculative attacks. and so during the summer of last year we received a severe buffeting from attacks against our currency and financial markets, threatening a financial meltdown. we fought off these attacks in august 1998 with a dramatic and controversial operation in the stock and futures markets. we accumulated hong kong stocks to the value – at that time – of around us $ 15 billion. since then, the value of that portfolio has increased to us $ 26 bn, a reflection of the greatly improved financial environment and, even for many of our critics, a vindication of our operation. i should stress that making huge profits was not our primary purpose in this operation. but we are not complaining. the 70 % return so far represents a bonus to our reserves : too bad there are no bonuses for those responsible for acquiring the portfolio. it has been a very productive investment for the people of hong kong. and we now have even more resources to safeguard the stability of our currency. but this large holding of hong kong stocks is arguably excessive, having regard to the traditional lack of involvement of government in business, and to the potential conflict of

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