HK not to tap reserves to ease economic pain

hong kong: hong kong's financial chief on saturday said that he was not optimistic that the territory's sputtering economy would recover in the near term, but rejected calls to tap the territory's huge reserves for public handouts. "japan has been handing out money for the past decade, yet they are still in a very difficult situation economically," financial secretary antony leung told government radio station rthk."i believe hong kong will have the last laugh in the long run. but in the near term one cannot be optimistic," he said. leung told reporters after the radio interview that he would rather spend money on creating new jobs, improving education and re-training. hong kong reported on friday worse-than-expected second quarter growth of just 0.5 per cent and slashed its full-year outlook as the global slowdown clobbered exports. government economists said second half growth would be near zero. ominously, the economy contracted 1.7 per cent quarter-to-quarter on a seasonally adjusted basis in april-june, after staying nearly flat in the first quarter. analysts said that the weak data indicated hong kong was on the brink of its second recession in less than three years. a recession is most often defined as two consecutive quarters of negative growth. but leung told a government radio programme that using the government's huge reserves to fund stimulus measures would not necessarily produce the desired results. leung said that while some economic forecasts had predicted hong kong's economy might climb out of its trough in the second or third quarter next year, it was unlikely everyone would share the benefits. "if anyone is going hungry, we'll help," he said. "but if they're not outside the safety net, the government should not distribute rice (give out handouts)." some local newspapers on saturday urged the government to take the lead and announce pump-priming measures for the economy. but others said that the government should not succumb to the temptation to meddle, noting there was little it could do but wait until the economies of key trading partners, most notably the us, began to recover. the imail newspaper said that although the government will come under mounting public pressure to intervene, it should lead by "letting things run their course" as far as the economy is concerned. "there is nothing the government can really do, and anything it might choose to do could simply make things worse. now is not the time for new projects and big spendings," it said. hong kong holds the world's largest foreign currency reserves after japan and china, but the reserves are used to back its currency peg to the dollar. tapping them would be politically sensitive and could make the local dollar vulnerable to attacks, which could devastate the economy. the hong kong economic journal said that the government should put forward measures that would help ease difficulties faced by its population. "we should not only put the blame on external factors and just sit there and do nothing," it said.