New Solutions Needed

The Malta Independent on Sunday

New Solutions Needed

Statistics are revealing that our economy is developing serious faults.` Any hopes that the Fiducja calls, which worked so well when the economy had capacity for consumption based growth, will again play the magic wand are disappearing fast.

This is understandably so.` Government spending which was sustaining the feel-good factor artificially propelled consumption. The result is unsustainable public finance deficit which has to be` scaled back before it spirals out of control. This is now probably the only policy on which there exists convergence of thought `between our two political schools.

Scaling back public finances in the context of dull economic growth can only be achieved by rolling back the artificial feel-good factor. Whether by controlling expenditure through trimming recurrent expenditure ( cutting overtime, curtailing new initiatives) and slowing down capital expenditure, or by enhancing revenue (through new taxes and better enforcement of existing ones) the result will inevitably impact negatively on the disposable income, the ultimate source of consumption.

The fact` is that we are slipping into a depressive mode that unless stalled will feed on itself. Whether you talk to retailers or to the estate agents they both have no good things to say about the business tempo.

Unemployment in January 2000 reached 5.5% and where it not for a thousand odd persons truck off the register over the last` 12 months the increase from last year would have been a whole 1%. This in spite of` direct employment in government departments having reached the highest level since December1996,` no doubt indicating that government is resorting to the much maligned direct employment to keep the sensitive jobless figure within the limits of political acceptability.

Tourist figures for the first two months of the year show that after a growth of 6% and` 5% in the previous two years we have dropped again by over 3% with very pronounced drop in the UK market.

Now I am firm believer that things have to get worse before they can get better. So if this was some part of a grand visionary scheme to re-structure out of our weaknesses and shake-off our economic lethargy I would support this change process. I would gladly recommend we hold tight until we can get through the bad patch which would be` a sacrifice worth paying for the prize at the end of the tunnel.

But this is nothing of the sort. This is just crisis management at its best!

New solutions which the country needs cannot simply emerge from empty talk of Fiducja.` The country today stands in front of a re-structuring challenge of a proportion not dissimilar to that of the 1970`s when the economic activity generated by the military base had to be wound down over a seven year period. Only this one is much more difficult as the time scale is much less than seven years and the public finances are running out of the debt capacity needed to finance this re-structuring.

Which means that privatisation is becoming a matter of necessity not of choice or ideology.

This administration`s first foray into privatisation has been a complete disaster. The method was wrong, opaque and had all the fingerprints of a crisis forced sell-out. The 30% private shareholding in the former Mid-Med Bank is now worth more than the 70% which government sold less than 10 months ago. No wonder minority shareholders have been urging me to continue to defend their interest through the Association which I am disbanding in acknowledgement of the fact that its mission has been accomplished with total success.

If Mid-Med privatisation `gaffe were to happen in a commercial environment those responsible for it would have received an instant brown envelope.` Yet the same architects of this financial disaster are preparing the recipe for the next round of privatisation.

Negotiations to unwind telecommunications monopolies in preparation for the eventual privatisation of Maltacom are in a complete state of confusion. One cannot help suspecting that Government is more minded to assist Maltacom`s competitors rather than to give Maltacom a fair chance to compete in a liberalised environment.

I decided not to seek re-election on Maltacom`s board as I need the freedom to defend, if the need arises, the minority shareholders of Maltacom with the same vigour I defended those of Mid-Med Bank.

The country needs new creative solutions.` It needs to address the excessive expenditure which a bloated and inefficient public sector is draining from its productive life blood. It needs to bring its privatisable enterprises in good shape to ensure it gets optimum reward from their disposal. It needs to create the stability to attract real productive investment and not simply an overdose of property speculation which banks are finding difficulty to finance.

This seems well beyond the abilities of the present administration whose free-lunch electoral manifesto is a mill-stone inhibiting its area of maneuverability leaving it with only the EU fast track option as a sort of external discipline to sort us out of this economic mess.

Government`s sterile approach to the country`s mounting problems is typical of the fatigue of an administration in its third term, shorn of creative ideas and loaded with a baggage of compromises accumulated by their overstay in power. Having kept the economy artificially afloat by pumping excessive borrowed funds through its blood streams in the second term, `they are `now attempting to do the same with privatisation revenues. Yet the real problems remain unaddressed while we throw down the drain the resources which are needed `address these problems.

When the Italians realised that their politicians cannot sort out the mess they had created they called in the technocrats like Ciampi, Dini and Prodi to deliver the bacon. Should we not do the same before more damage is done` New solutions are needed because the old ones are just not working.