Hong Kong's Yam Says Next Few Days Crucial for Crisis

By Nipa Piboontanasawat

Sept. 17 (Bloomberg) -- Hong Kong Monetary Authority Chief Executive Joseph Yam said ``the next few days'' will be crucial to restoring health to the global financial system, ravaged by the credit crisis and failure of Lehman Brothers Holdings Inc.

Yam, who led a HK$118 billion ($15 billion) intervention to prop up Hong Kong markets 10 years ago, also backed the Federal Reserve's decision to leave its key interest rate unchanged yesterday, rebuffing some calls for a reduction in borrowing costs.

``The financial crisis development cannot effectively be handled by monetary policy such as interest rates only,'' Yam told reporters in Hong Kong today. ``The next few days will be key'' to how the crisis unfolds, he said.

Yam's comments came hours before the U.S. government agreed to take control of American International Group Inc. and provide as much as $85 billion to avert the failure of the nation's biggest insurer. Hong Kong's markets have been buffeted by the crisis, sending the Hang Seng Index down about 35 percent this year on concern at credit risks and slowing global growth.

The U.S. government's action will ``mitigate broader disruptions and at the same time protect the taxpayers,'' U.S. Treasury Secretary Henry Paulson said in an e-mailed statement released in Washington.

Hong Kong has a ``healthy'' regulatory system for stocks, banking and insurance, Yam said today, adding there are no structural problems in the city's financial system.

The Hang Seng index fell 0.9 percent to 18148.71 at 11:33 a.m. in Hong Kong.

Hong Kong interest rates track those of the U.S. because the city's currency is pegged to the dollar. The HKMA kept its base rate unchanged at 3.5 percent today, tracking the Fed's decision to leave its main interest rate at 2 percent.

In refraining from cutting rates, Fed Chairman Ben S. Bernanke and his colleagues noted that financial strains have ``increased significantly.'' The Fed signaled it will continue to address the turmoil with emergency lending and aim monetary policy at a longer-term economic forecast.

To contact the reporter on this story: Nipa Piboontanasawat in Hong Kong at npiboontanas@bloomberg.net