The government will set up a task force to help cope with the impact of the current financial crisis by brainstorming solutions, Chief Executive Donald Tsang said in his policy address yesterday.

The Task Force on Economic Challenges, to be set up in two weeks, will consist of more than 10 members, including top government officials, finance experts, economists and representatives of major industries.

Tsang said that the task force, which he will chair, aims to observe and review the effect of the financial tsunami on Hong Kong in an effort to work out a long-term solution.

He stressed that the government has been adhering to the principles of economic autonomy and embracing the philosophy of "big market and small government", but it will not hesitate to intervene in the market if necessary.

In response to the alleged misleading selling of Lehman Brothers minibonds, Tsang said the city's banks must say this week whether they will buy back the structured products.

He also said the government will inject funds into the Consumer Council's litigation fund, if necessary, so the consumer watchdog can help victims in the minibond scandal take legal actions.

He added that the Hong Kong Monetary Authority (HKMA) will set up an independent group to arbitrate the unsolved cases.

In addition, Tsang said the HKMA and Securities and Futures Commission (SFC) should tighten their supervisions on the banking and securities industries, saying the two bodies have to intensify stress tests for their fellow members.

He urged the SFC to tighten the regulation of fund managers by reviewing the Code on Unit Trusts and Mutual Funds, as well as enhance the disclosure of information to investors.

The Hong Kong Deposit Protection Board, Tsang said, will continue to review the coverage and compensation limit for depositors after Financial Secretary John Tsang announced to use the Foreign Exchange Fund to help local lenders on a special and time-limited basis.

Regarding the insurance supervision, Tsang proposed the establishment of an independent Insurance Authority to give the regulatory body more flexibility in its operations and staff recruitment.

Furthermore, Tsang suggested that the Office of the Commission of Insurance (OCI) and the Hong Kong Federation of Insurers establish a Policyholders' Protection Fund to protect policyholders in the event of insurer insolvency.

About the control of the Mandatory Provident Fund (MPF), he said the government will propose changes to the operational arrangement of the MPF system, allowing employees to transfer their contributions from an MPF selected by their employers to one of their own choosing.

Tsang also noted that the government will push forward with the development of the Islamic bond market and strive to attract new enterprises from emerging markets, such as Eastern Europe and Russia, to list in Hong Kong.

Kwan Cheuk-chiu, a professor at the Chinese University of Hong Kong, called the solutions for the financial tsunami mediocre, but he applauded the establishment of the task force.

Bank of East Asia chief economist Paul Tang said that most of the solutions are not new, but it is understandable because it takes time for the government to implement the policy.

(HK Edition 10/16/2008 page1)