Insulting our Intelligence

The Malta Independent 

 

On two separate occasions last weekend, main government exponents, in an endeavour to condition public opinion for the tough budget measures to be announced next Monday, chose to insult our intelligence.

The first occasion was the speech delivered by the Minister of Finance at the Bankers’ annual dinner where the Minister spoke of the tough issues that need to be addressed through specific measures in next budget. He chastised those who argue for re-structuring but always act as barriers to reform as they try to put justice at someone else’s door.

I could not disagree with most of what the Minister said. The insult to our intelligence was his forgetting this will be his 10^th budget in 11 years. He spoke as if this was to be his first pretending he could place the blame elsewhere. If today we are in a situation where everybody agrees that government has no choices but to take tough measures the Minister need look no further than the Cabinet table when searching for culprits. Most participants in the economy inevitably defend their patch and try to shift the burden of adjustment onto others. But government has overall responsibility and it was elected with to lead us out of the trouble it has led us straight into.

Perhaps the Minister should have explained what has gone so awry in less than 9 months considering that this short while ago he was emphasizing so vigorously, in pre-election mode, that government finances were on sound footing and that the economy was growing stably. At that time he often tried to ridicule critics like me who exposed the real situation which government is now forced to accept, as pre-election soft dreams change into hard reality.

The second insult to our intelligence came from none else than the Prime Minister himself. In his closing address to the party general conference he admitted his apprehension at the size of the accumulated national debt. But in a vain attempt for self-justification he proclaimed that there were assets to justify this debt. He mentioned infrastructure investments like energy and water generation, production and distribution, airport development, Freeport, telecommunications, and Gozo Channel vessels. This apart from other investments in social and non-productive infrastructure, like roads, housing, hospitals, education etc.

The truth is that the productive investments mentioned by the Prime Minister were in their large majority not financed through borrowings which accumulated in the national debt. They were financed by separate direct bank loans raised by the para-statal entities concerned. So Enemalta has its own debts with which it has financed the power station development and this does not form part of the national debt. The same applies for Water Services Corporation, Gozo Channel/Gozo Ferries, Maltacom and Freeport Corporation. The Airport was financed by its own debt and has since repaid to the government through the part privatisation deal much more than government had originally invested in it.

Furthermore one has to remember that the government has had special privatisation revenues and special revenues from dismantling of accumulated loan sinking funds which have financed a large part of the social infrastructure. Without these special funds the national debt would be much bigger than it presently is. Just to recall, the special one-off privatisation revenues were generated from sale of 100% of Mid-Med Bank, 75% of Bank of Valletta, 100% of Lombard, 40% of Maltacom, 40% of MIA and others of lesser importance together with an average of Lm12 million p.a which has been drained from the sinking funds since 1999.

No, Prime Minister! The national debt has not financed productive or infrastructure investment. It has financed, tertiary education that strokes students to think that success is equivalent to high consumption but starves the library from funding for new publications, building hospitals we cannot afford, roads that get re-done with monotonous regularity and wasteful subsidies which postpone the problems without addressing their cause.

The best proof of this is that whilst the economy is growing anaemically the national debt is galloping forward at double-digit rates and will take a step increase as hidden debt start being converted into central government debt. The first such step will be taken as shipyards debts with the banks and loans to the shipyards from the Treasury Clearance Fund will unavoidably have to be covered by central government debt paper once shipyards loans are being written off as part of their re-structuring exercise.

The national debt is already 65% of GDP and bound to increase. Nothing will in the next few years bring it back to within the 60% to permit early entry into the Euro. Economic growth is just too slow to balance the equation from its side and attempts to solve it through further tax squeezes, just when other countries are loosening their fiscal screws, will only help to depress the economy and augment the problem.

Whichever way you look at it if we really mean to join the Euro at an early date as the Central Bank Governor has recommended and the Prime Minister stressed he wishes, we unavoidably have to render the economy competitive again through an across the board downward adjustment of our rate of exchange which all have to accept as an unavoidable re-structuring measure to roll-back the excess consumption financed by the national debt and bring it in line with EMU criteria.

Attempts to solve the problem without facing this reality is just more waste of time and resources which we can ill-afford.