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Hong Kong To Help Small Companies

August 23, 1998

HONG KONG (AP) _ In an effort to help businesses survive the protracted financial turmoil, the government Monday will launch a 2.5 billion Hong Kong dollar ($320 million) loan scheme for small and medium companies.

The government said in a statement Sunday that it will provide guarantees for private loans to small and medium enterprises approved and provided by one of the 26 banks and financial companies that have joined the plan.

The risk of default will be shared among the lending institutions and the government, it said.

The scheme is part of a stimulus package the government announced in June to jump-start the ailing economy.

Small and medium companies form the backbone of the territory’s economy. While profits are generally down, these companies also are having trouble getting new loans as banks tighten their purse strings because interbank interest rates remain high.

High interest rates are the government’s key tool to fend off speculators to keep Hong Kong’s currency link with the U.S. dollar intact.

Hong Kong’s economy contracted 2.8 percent in the first quarter, and officials have said it will shrink further in the second quarter. A recession is generally defined as two quarters of negative growth.

Unemployment is at a 15-year high of 4.8 percent, and is expected to rise further in the coming months. To fend of speculators, the government last week bought blue chip stocks to lift the stock market.

The main stock index had lost 60 percent of its value since last August before last week’s government intervention.

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