Seven years

The Malta Independent on Sunday

Seven years

Is seven years a long time` The right answer is it depends, of course.` It could be an eternity if you are just measuring how long it takes for boiling coffee to cool down to drinking temperature. On the other hand it might not be a long enough time for quality wine to mature.

In terms of the time needed for economic re-structuring, seven years is ample time for execution of any serious plan. Normally in economic terms we take short term to mean the next 2 years, medium term to mean over 3 to 7 years and long term to mean more than seven years. In the long term we are all dead once explained J.M. Keynes so that any economic re-structuring programme cannot have its final objective more than 7 years away.` It would push it too far into the future to make the re-structuring process sustainable and focussed. It would be bring on the` feeling of maniana. Let`s leave the tough decisions for tomorrow as tomorrow never comes.

And it is this feeling of maniana which emerges clearly if you consider the problem of our public budget deficit. In my last contribution in this column I wrote: `We have been playing around with a public sector debt in unsustainable high figures since 1996 and 2002 will be the 7th consecutive year of such problems. Some stitch in time!` May the Lord spare us an Argentina.`

The situation is serious enough to merit` repetition. For the seven years between 1996 and 2002 the country has been running an average budget deficit of Lm110 p.a. The improvement registered in the year 2000 has been reversed in 2001.` Things are getting worse not better and this is well understandable as the economy has entered into a contracting mode.

Seven years of such deficit has produced a borrowing requirement of some` Lm 800 million which has translated itself into some Lm700 million increase in the public debt and Lm117 million extraordinary revenues from the` privatisation of Mid-Med Bank (lm82 million) and Maltacom (Lm35 million).` Of the Lm1040 million official declared public debt Lm700 million have accumulated over the last 7 years. The speed with which debt is accumulating is worrying.

And the situation gives reason for more concern considering that during this period the fiscal screws have been tightened considerably increasing government fiscal revenues at a rate much faster than economic growth.` Nothing to complain about if the funds were being applied in a way which gives value for the tax-payers money. But considering that no major productive investment projects have been started and that most additional tax revenues have been frittered away in additional and uncontrolled recurrent expenditure than there is ample room for complaints.

Complaints that the resources which could have been the backbone of a serious re-structuring plan have just been wasted away. Complaints that privatisation proceeds of Maltacom and Mid-Med Bank have just been used to plug a small part of the widening budgetary gap and ensuing borrowing requirements.

Complaints that if the deficit problem remains unaddressed even in the face of extraordinary privatisation revenues and substantial increase in the tax take, what is going to be the basis of a serious re-structuring plan which inevitably we have to embark upon sooner rather than later`

In seven years between 1972 and 1979 an incoming Labour administration made the most successful re-structuring plan which Malta has ever undertaken.` 15,000 jobs attached to the military base were gradually run down as the economy started producing new job opportunities at a much higher accelerated rate in tourism and manufacturing.` Private direct investment was the key to this re-structuring process.` Foreign investment mostly in case of manufacturing and local private investment in case of tourism. That this was achieved in an orderly manner in less than seven years, without incurring any serious increase in the public debt and as the standard of living of the population underwent the most dramatic improvement and transformation bears witness to the success achieved by that re-structuring process.

Seven years were more than enough time to plan and execute that economic re-structuring undertaken with little or no resources.` But seven years have not been anywhere near enough time to address the worrying budget deficit which first came to light in 1996 and which we have been just nibbling at for the last seven year without devising a serious plan to attack it at its core.

An attacking the problems at its core compulsorily has to have the following ingredients. A tremendous increase in private` direct investment in outward looking projects in order to create productive job opportunities at a rate faster than jobs are lost in the problems sectors which are pulling the economy down. A national effort with clear objective to ensure that the burden of re-structuring is shouldered in a socially just manner and to ensure that the fruits of real restructuring are not long in coming. While undergoing the re-structuring pain the population at large has to be motivated by the benefits of seeing the light at the end of the tunnel.

Failure to manage the re-structuring process will by default mean that economic re-structuring will manage itself, the Argentina way. That would be really painful and still avoidable unless we waste another seven years!