Asiaweek.com | Volatility Is in the Air

NOVEMBER 3, 2000 VOL. 26 NO. 43 | SEARCH ASIAWEEK

Lucas Oleniuk for Asiaweek.
" I don't have the blood to be a politician."

Volatility Is in the Air
But Yam doesn't see a repetition of 1997

Joseph Yam came into the spotlight two years ago when the Hong Kong Monetary Authority's chief executive teamed up with Financial Secretary Donald Tsang Yam-keun to intervene in Hong Kong's stock market and thwart speculators. The government's huge investment — $15 billion worth of equities at the time — was criticized for its apparent repudiation of the SAR's commitment to laissez-faire capitalism. Yam may have thought the criticism was behind him. But recent market turmoil and attacks on the peso and baht have revived the question: How should governments react to market pressure? Yam recently spoke with Asiaweek's Yulanda Chung about this and more. Excerpts:

Are we seeing a return of the speculation that brought down Asia's currencies and economies so dramatically in 1997?
The weakness of some Southeast Asian currencies is mainly due to their own economic or political circumstances, and the extent of volatility is moderate compared with the Crisis. There is no evidence of an impact on the Hong Kong dollar.

How do you answer critics who say you have tried to claim credit for the profits earned from the 1998 market intervention?
Hand on my heart, to tell you the truth, I hated it. Okay we are richer, but I wish we hadn't had to do it.

If people lose confidence in Hong Kong Chief Executive Tung Chee-hwa, how will it affect confidence in the currency?
There is very little scope for political interference [in Hong Kong's monetary affairs]. But I wouldn't take that too far, because I'm ultimately appointed by the financial secretary and he reports to the chief executive.

Why are you so insistent that Hong Kong have an exchange rate pegged to another currency like the U.S. dollar?
Look at Australia. The economy is doing quite well. [The government] is doing all the right things. But the Australian dollar is at its all-time low. I cannot find the reason.

Economist Milton Friedman accused you of being merely politically correct when you said you had faith in China's promise not to meddle in Hong Kong's monetary affairs.
Well, it is faith. But it's faith backed by many factors. I don't think [China] has anything to gain. Hong Kong is the international financial center for China. Interference would undermine Hong Kong's status, and adversely affect China as a whole.

Currently the exchange rate policy of China's currency, the renminbi, fluctuates only slightly. Is China ready to let its currency float in a wider band?
China now has a [large] balance-of-payments surplus. But in the future with the World Trade Organization, imports should grow faster than exports. The balance of payments could go into deficit. Allowing the renminbi to fluctuate may help that adjustment. But it's not clear whether it would have a favorable effect on the balance of payments. I'm not too sure [what is best].

How would it affect Hong Kong?
The market sentiment now is such that the two [renminbi and Hong Kong dollar] ought not to be correlated.

Are you interested in being the next chief executive?
I'm a very shy person. I'm a technician. I want a private life. I like punching away at my computer. I'm not very good at interacting with people face to face. I don't have the blood to be a politician.

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