Truth and Objectivity

The Malta Independent on Sunday

Truth and Objectivity

For making the simple statement that the PN in 1987 inherited a debt-free economy and that our country following 154, bar 22, months of Nationalist administration is in an economic mess I earned myself such titles as being economic with the truth and lacking objectivity.

I have a natural respect for those who whilst disagreeing` with me argue their case convincingly even though probably unsuccessfully. But I do not take lightly to charges of lack of objectivity` `or misrepresentation.` I do on the other hand elate at` unfair criticism to` my arguments, proof of` nothing more serious to respond with.

The criticism` can be condensed as follows:

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Whilst in 1987 the economy inherited by the PN was relatively debt free the country was in desperate need for an investment upgrade to its infrastructure.

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The accumulated debt which is burdening our economy results from the investment undertaken post 1987 and the need to carry 8000 persons engaged by Labour in the run-up to the 1987 elections in public service employment.

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Our economy is not in a mess as it is growing by a real 4% p.a., inflation is at around 2% and unemployment is at around 5.3% which are respectable numbers compared to EU economies.

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Malta would not lose sovereignty by joining the EU because small countries like Luxembourg and Ireland have not lost their sovereignty.

This is quite a mouthful especially considering that my original contribution was condensed in a mere 500 words and that this criticism comes signed from a minister and an ex-minister.

Firstly it`s good to see that the claim that the PN inherited a debt free economy when they took over administration in 1987 is unchallenged. I stated this as a fact. I did not justify that this was an overly good thing when confronted with the sub-standard infrastructure the country was let in during the mid-80`s recession.

I have no problem in opining that Labour was then excessively cautious in allowing the country to overcome the recession by the slow-responding wage and price freeze rather than by stimulating the economy through infrastructure investments for which the economy had ample debt capacity. This was economically wrong and politically unwise. Stretching this to mean that the national debt amassed by the PN since then is the result of infrastructure investment is illogical and untrue.

Most of the infrastructure investment was not financed by central government and is not represented in the national debt. Most of the infrastructure, be it airport, power station, telephone exchanges, or water producing plants were financed by direct debt incurred by the corporations or government owned commercial companies often` guaranteed by central government.` But this is not part of central government debt. A look at the financial statements of Freeport, Enemalta, Maltacom, MIA will confirm this.

Furthermore privatisation revenues from sales of Bank of Valletta, Mid-Med Bank, Lombard Bank and Maltacom, all investments which did not drain one lira out of central government funds following the 1987 change of government, produced exceptional revenues to central government. Yet during this period we have amassed close to one billion lira central government debt and this went to recurring expenditure, fictitious investment ( dockyard subsidies) and social investment which leave no direct economic return.

Blaming a condemnable event which occurred 13years ago for amassing this debt gives little consolation.` If government cannot solve a problem like this in 13 years after so many thousands more left and joined the public sector then we hardly need one.

Denying that the country is in a financial mess is a very bad start to addressing the problem. Problem identification is the first crucial step towards a solution and it seems we have not yet even taken this first step. Do we need a total collapse to spot the problem` Our inflation and unemployment are rising, structural deficit remains obstinately out of control and real productive investment is nowhere near comfortable levels. We are heading for stagflation just as EU countries have shed it off and are rediscovering the good sense of being in control of the economy by re-establishment of the price / employment trade-off of the Phillips curve.

Taking consolation that Luxembourg and Ireland have managed to preserve their sovereignty has two flaws.` Firstly it overlooks that none of these is a small island in the periphery bordering the Islamic world. Secondly it is like driving the car by looking at the rear mirror.` Tomorrow`s rules of the EU which Malta will be invited to join will be substantially different from the rules which have preserved present members sovereignty so far.` It`s like the` warning on advertising of financial investment products ` past performance is no guarantee of future results!

Truth is the first casualty of war.` Much worse is that truth is a casualty even when there is no war,` when our Don Quixotes interpret hard plain unpalatable truths as a declaration of war.