I have no doubt that they will act equally positively on the proposed $ billion loan guarantee scheme for small and medium enterprises recently announced by the Government. Such schemes, like the various other relief measures announced in the annual policy address a couple of weeks ago, will provide some palliative, and perhaps some stimulus, during hard times. Ultimately, however, sustained recovery will come only when the external situation improves. In the meantime, we should take what measures we can to control the damage, maintain stability and strength in our financial and banking systems, and position ourselves as best we can to get the best advantage out of recovery. BIS Review 88/2001  3  The link One question, raised by a few commentators, is whether Hong Kong would be benefited if we were to change, or even abolish, the Linked Exchange Rate system. Some have simply recommended a thorough, but not urgent, review of the system. Some have suggested a repegging - at a lower value or an abandonment of the peg when times are less unstable or when the economy is booming again. Others have called for action now. Still others, though not very convincingly, and not very constructively either, have criticised the Government for not introducing changes in the 1990s. The reasoning behind most of these commentaries claims that the Link hinders Hong Kong's competitiveness, and therefore our recovery; that the Link removes from us control over our monetary policy; and that the Link is fuelling deflation.
Others present considerable uncertainty: for example, the extent and duration of the collapse in business and consumer confidence, and the question of how far monetary and fiscal stimulus will contain the collapse; and the scope and economic effects of the war against terrorism, which, we have been told, will be long and unlike any other war. The effects on our regional economy are likely to be severe. We are heavily dependent on exports to the USA, at a time when these are declining and likely to continue to decline for some time to come. Capital inflows into the region are falling because of increased risk aversion. Within the region, many countries face persistent internal problems, in some cases - such as Indonesia - both economic and political. The big engine of the region - Japan - continues to falter, with declining exports, rising unemployment, a weak banking sector, and an economy officially teetering on the brink of yet another recession. The latest news from Singapore - in many senses our sister-city in the region - is not good at all. The bright spot in the region continues to be China, which has sustained real GDP growth of 7.6% and export growth of 7% for the first three quarters. It seems inevitable that exports, and in turn GDP, will be affected by the decline in consumer spending in the US, which accounts for around 20% of China's export market: the latest figures already suggest this.