Friday, 27 August 2004

Diabolical Exercise in Warped Logic

The Malta Independent
27th August 2004
Government`s handling of the Dar Malta in Brussels affair is quickly becoming a diabolical exercise in warped logic.

A DOI press statement this week attempted to rebut criticism coming from several quarters, including sources that are generally benign towards the government and who were four square behind government`s policy for EU accession, by focussing on the MLP criticism. It stated that MLP was reacting in a contradictory manner as whilst stating that government must now squeeze out the best opportunities from EU membership on the other hand it is attacking the process of the acquisition of Dar Malta.

So according to the DOI whoever is criticising the acquisition of Dar Malta and the opaque process used for it, is against Malta`s squeezing the best opportunity from the EU. According to government`s logic without spending Lm9 million plus on a Brussels property we just cannot get the best out of EU membership.

This is warped logic at its best and gives more credence to voices clamouring for independent investigation.` If government is constrained to adopt such puerile reasoning to justify the unjustifiable then something is seriously wrong somewhere.

And basically what is wrong is the culture, imbued over four PN legislatures, that success is measured by how much we spend not by how we produce or how much we earn.

I well remember that when in 1996 the new Labour government had briefed me to do a critical strategic assessment of the then MSU, the most evident weakness was the management mission to spend a given budget so as to claim that a certain percentage of the GDP was being spent on IT development. There was little evidence of genuine efforts to ensure that what was being spent was really delivering fair value and little concern that a significant part of the funds were being spent on foreign consultants writing useless reports and on the refurbishing of Villa Portelli.

This same trait still pervades the public sector. Just see how the new hospital project this is becoming an expensive, very expensive, certificate in incompetence in project management and scandalous way of spending public money without obtaining fair value.`

Two major projects were started in Malta just about the same time somewhere around 1995.` The San Raffaele Hospital was started by the public sector and the Portomaso project was started by the private sector (Tumas Group).

As quite often happens, both projects had initial problems to gain the necessary momentum.` The San Raffaele was subjected to several reviews until in 1999 it was decided to re-configure it to absorb the whole operation of St Luke`s. Portomaso could not really start serious development before 1997 until the old hotel was dismantled and the Planning Authority issued their final permits following extensive model testing of the breakwater, logistics and infrastructure.

Comparisons are odious but necessary. The new hospital is still a building site, draining millions well beyond what was budgeted for without any clear indication of when the project is to be completed and become operational. It is even less clear how once operational, the cost of operating such project is to be fitted within the macro-economic objective of containing the operational costs of rendering essential public services. Controversy surrounds this project and the least that can be said is that Skanska`s involvement in project management, in spite of their reputation and experience for handling such large projects and the evident cost to us for using such reputation and experience, has not delivered.

Per contra Portomaso, which in terms of overall development cost would be within a close range to the New Hospital project, is now largely complete with the new Hilton entering its 5th year of operation and several residents celebrating anniversaries of their moving into their new property which has multiplied in value since they bought on plan.` One could well surmise, given the level activity evident, that the project is a commercial success in all its elements. Frankly I think the Portomaso project was technically more difficult to execute given that it involved major excavation work in the heart of an urban spot whilst the New Hospital involved a site on the urban periphery with very minor excavation work.

Given this stark difference in ability in handling large projects it is little wonder that those whose expertise is for spending rather than producing take full control of Dar Malta project in Brussels. The former Minister of Finance has declared that his only involvement in the project was in deciding that acquisition was more economically than renting, an argument which would find very little disagreement. But he made it clear that the choice of the property itself was driven entirely by Malta`s special ambassador for the EU who also has a seat in cabinet. The Prime Minister declaration that the project was endorsed by Cabinet has not clarified whether the Cabinet purely endorsed the Minister of Finance recommendation that acquisition was more economical than renting or whether the Cabinet has examined the whole process for choosing the property in question and takes full responsibility for such a decision.

Rather than waste time in useless Press Statements government should take heed of public opinion and without waiting any further minute pass on the whole process to the Auditor General for an independent inquiry into the whole process leading to this acquisition.

And it would not harm the taxpayers if the Auditor General should show a bit more sensitivity to public opinion and use the autonomy granted to him by the Constitution to take initiative in conducting inquiries in clear cases like the New Hospital and Dar Malta, where there is broad based presumption that public funds are being used in less than optimal manner, to say the least.

Sunday, 22 August 2004

Don`t pop the Champagne

The Malta Independent on Sunday
22nd August 2004

The government friendly media nearly popped the champagne this week when the NSO issued the GDP figures for the first quarter of 2004 showing growth of 2.3% in real terms over the same quarter of 2003.

For objective economic analysts the figures released provide no cause for celebration and in the interest of prescribing the right medicine following accurate diagnosis of our economic ills, the country should not be fed false illusions that we have hit the bottom and the worst is now behind us. The jury on this is still out and my personal view is that the worst is yet to come even though the international economic scenario is brightening up increasing foreign demand for our exports

Let`s first set some background. The reported 2.3% real increase is benchmarked against the first quarter of 2003 when the economy had contracted 1.9% in real terms over the same quarter of 2002.` So basically we are comparing against a very low benchmark and effectively in real terms we are still largely where we were in the first quarter of 2002.

If one takes the Income approach to GDP one finds that compensation to employees has reduced even in nominal terms and effectively it has contracted some nearly 3% in real terms. It is therefore no wonder that even if there truly is productive growth in the overall economy this is not cascading down to the consumer. It is therefore little wonder that in spite of the reported overall growth, household final consumption expenditure has dropped 2% in real terms over last year.

The increase in income from the growth of the economy has benefited mostly the government that has pocketed the bulk of the increased growth through taxes on production and imports. I suggested elsewhere that this is not just due increased VAT rate but also due special concession for registering onshore yachts that were previously offshore and an exceptional fee for a license given to a foreign company granting a seven year monopoly for the operation of public lotto and gaming. Obviously government needs all income it can lay its hands over, and this is not meant as criticism for raising revenue from such one-off sources. But statistics need to be interpreted realising that these are one-off sources and not a solid basis for recurring growth for the GDP or for permanent improvement in government finances.

Operating surplus of the business sector enjoyed very marginal benefit from the overall economic growth and mostly this growth is concentrated in the Financial Intermediation section.

And this is a very interesting notion that requires further analysis. Financial Intermediation in layman`s language means the banking and financial sector.

How is it therefore that whilst the general economy is performing well below its capacity, our credit and financial institutions seem to be performing exceptionally well increasing their individual operating performance in step change not just in incremental terms`

It is important that this concept be well understood as it would be difficult otherwise, without such understanding, to make the connection between the overall economic growth reported in the GDP figures and the rather negative first-hand economic experience that most people are having to contend with day in day out.

My interpretation is that the oligopoly that has long existed in the banking sector has, since the arrival of HSBC, been freed of its social obligation to keep a fair balance between maximising profits and helping macro-economic stability and growth. Banks are now fully focussed on maximising profits whilst dishing out well publicised donations to wash their well brazen conscience in public.

Their oligopoly power is being used to drive up interest rates margins. Banks have reduced the interest rates paid on deposits in line with reduction in interest rates announced by the Monetary Policy Council. But they have not reduced their borrowing rates with similar speed and intensity. Where they reduced their base rates to reflect official rate reduction they have often been successful in increasing the margin they charge over such base rates which in a liberalised scenario is not in any way controlled in spite of the ease with which the Banks can dominate the market.` One particular bank has not even dared to reduce its official base rate and is still charging interest rates as if there were no reductions on deposit rates.

Furthermore banks have become very selective in their lending approach. Personal lending for house purchase or personal consumption is liberally available and indeed pushed aggressively. This needs little maintenance and carries good margins.` However when it comes to corporate lending, small and medium enterprises are having to struggle to get the finance on the quantity and terms that would keep them competitive. Banks have no time to service such commercial lending and seem rather inclined to discourage it so as to` use their funds in portfolio investment activities which is more lucrative, less costly to manage and does not involve any bad debt provisioning. Larger corporations would not have the same problems with Banks as the larger amounts they borrow make it commercially attractive for banks to devote their resources to service such rather large corporate lending.

All academic research shows that SME`s are the main sources of growth and employment.` However our banks have become insensitive to their social obligation to help foster growth with generous finance for SME`s. In search of profit maximisation they are abandoning our SME`s for the more profitable portfolio investing, personal loans and large corporate finance packages.

I am stating this in the context of my analysis of the GDP figures because it is obvious to me that the 20% growth in the value added of the Financial Intermediation section of the economy is at the expense of other economic sectors.` The problem is that the increased value added of the Financial Intermediation sector has very low multiplier effect whereas the sectors which are suffering, including manufacturing and hotels/restaurants, are the sectors with high multiplier effect. Hence why there is disconnection between overall growth and the bad feeling at ground zero.

This shows clearly when stretching the GDP figures to GNP levels by adding Property Income received and paid (income not earned out of production but as a return on investment such as interest, rents and dividends). The national income for the first quarter is down 2% in nominal terms and 4% in real terms as there has been registered a substantial increase in the profits paid out of the country.` One can safely bet that the foreign ownership claim on bank profits have much to do with this negative shift.

So it is unfortunately too early to pop the champagne. Indeed it is high time to stop producing reports and documents and see what practical measures need be taken to render competitive again the two main productive sectors, manufacturing and tourism, which are clearly suffering.` They are not producing the opportunities of employment which we need to ensure that the GDP increase, when it really happens, filters down to the consumer so that families can increase their savings and consumption based on real earnings not on easy household debt.   

Friday, 20 August 2004

Identical but Unequal

The Malta Independent
20th August 2004

John and Tony are identical twins now well past their mid-forties.` Many who have known them for decades still have problems in distinguishing one from the other and often when I meet one of them I address him jokingly by the surname.` In reality I would be gaining time to identify that something which ultimately helps me to tell one from the other.

Yet our society treats them very unequally.

John is a central government employee. He presumably performs his work as good as any other government employee and probably somewhat better than average.` He has no job security problems and is confident that his union will manage to get some additional benefits when the collective agreement negotiations ultimately draw to a conclusion. Having acceded to government employment pre - 1979 he is quite relaxed about the adequacy of his retirement pension even though he accepts that by the time his turn comes he will have to wait for retirement beyond age 61.

John enjoys his summer half days better than most of us and in summer it is easier to identify him from his twin bother purely because he carries a deeper tan. Often I meet him when I walk down Republic Street and as this happens at different times of the day I tend to wonder how many lunch breaks he enjoys.

Tony works in a middle management position with a manufacturing company which has been established here since the seventies. Thankfully this foreign owned export company has done well and has continued to invest in technology so that it has stayed here even though the original attraction of low wage cost is long gone.

The fact that Tony joined the company as a machine operator and has climbed the ranks to middle management is a good indication that he was considered by his employer well worth his wages and worth investing in through training and re-training.

However recently when I met Tony I could see that he was not so sure as himself as he used to be. When we passed from the first cup of coffee to the second, Tony started to open up. He was telling me that things at his workplace are not what they used to be, especially since his company moved to a new factory which was built by government purposely for their needs.

The general message that is being sent from the management to the shop-floor is that unless efficiency gains are registered to a stepped up, not just incremental, degree, the investors will have to consider seriously shifting part or the whole of their operations to a more competitive location. In short, the company is finding it difficult to remain competitive in the fierce global village and the Malta operations have become insufficiently profitable.

Tony expressed his worry that middle and senior management are having to spend a few hours a week doing production work alongside the operators to drive more forcefully the message that things are tough and changes have to be accepted rather than resisted if the employment is to be protected.

When I asked what sort of changes are being considered Tony said that these are being negotiated between the senior management and the union but the general message is that the forthcoming round of negotiations for renewal of the collective agreement will not take the normal process of the union making requests for general improvement in employment conditions and management watering them down. It would be the management that will make proposals to roll back some of the benefits that had been granted in the past,the cost of which is no longer compatible with the maintenance of corporate competitiveness.

John and Tony are identical twins in the eyes of all but they are unequal in the way the society we have built is treating them. We have built a system that is rewarding the inefficient by offering job security, improving conditions and assured pensions. It is rewarding those who have followed the national trait of trading their vote with political favours to get jobs in the public sector.

The system is conversely punishing those who shown initiative in seeking jobs in the private sector where the salary has to be earned many times over each and every month. It is punishing with insecurity and loss of benefits the most efficient amongst our productive resources.

This is neither fair nor social and I wonder how the unions continue feeding the system rather than insist on a re-balancing of the rights and obligations of employees across the whole employment spectrum. Punishing the efficient and stroking the inefficient is no way to bring about a serious re-structuring which needs implementation over a relatively long number of years. When we are half way there, an election will loom on the horizon giving further impetus to the pressure of productive units in the private sector to trade their political privileges for a place amongst the inefficient in the public sector. And the whole re-structuring will get undone and the problems will get bigger and we will dream some other grand plan with fifty five objectives of how we are supposed to create jobs and wealth.

Before the cosy economists in the public sector continue preaching the virtues of stability in monetary and exchange rate policy they should take heed of this reality and consider whether we want to maintain stability at the current uncompetitive levels which would continue to throw the whole onus of adjustment on the productive sector whilst keeping inefficient sector well protected and contented. Where are the economists of the private sector.


Friday, 13 August 2004

Coming Going or Just Digging

The Malta Independent - Friday Wisdom
13th August 2004

A change of Prime Minister has facilitated the readiness to acknowledge the economic problems that were previously denied. If there are video/voice clips which historically will remain the hallmark of the Fenech Adami administrations these will be the ‘money no problem’ prediction of 1987 and the uttering that “10 million here or there make no real difference” following the discounted sale of Mid-Med Bank in 1999.

And as if to prove that 10 million here or there really make no difference under the spending largesse culture promulgated by the Fenech Adami administration, it has bequeathed a fait accompli for Prime Minister Gonzi to appear red-faced in front of the nation announcing the acquisition of a Lm9 million (at least!) property for a Malta House in Brussels, which is multiples of what much larger and more resourceful new member states are in fact spending.

The argument that this is a good investment is besides the point. The real point is do we really need it? Can we afford it? Malta House in
Brussels is not being acquired for investment purposes. It is being acquired to serve a need and should be judged on this and on no other merit.

But Malta House aside, the readiness to accept and acknowledge the problems is healthy and refreshing. It is the first indispensable step towards finding a solution.

Fenech Adami administrations’ greatest faults lie in negating the very existence of the problem and fanning the feel good factor, based on borrowing rather than earned income, for electoral popularity purposes. The problems denied were simply being financed by chronic deficits leading to the rapid build-up of national debt practically exhausting our capacity to borrow.

This country is now living the contradiction of fairly well-to-do citizens, with great aspirations to reach average EU standards, living in a poor country indebted right up to its ears. The State seems plagued with problems to finance even its most basic requirements of law and order.

Just this week, court-appointed pathology experts requested exemption from submitting their findings in a murder case, because they were not being paid for services they were rendering to the Court. This is just a symptom of how our quality of life will deteriorate when the contradiction of rich citizens living in a poor country will snap, as sure it will.

Gonzi’s readiness to admit the existence of the problems was this week further enlightened by the identification of two areas for improvement that could help to reduce the operating cost of government and of the nation.

The overtime payment caused by shorter summer hours in the public service is a surprise only to those who like playing ‘let’s pretend’. How can government serve the nation with longer hours in winter and shorter hours of service in summer when the work-load is just the other way round? At least we have started talking about it.

The inefficiencies of the port system have also been brought on the agenda. I am against all sort of monopolies except where our characteristics create natural monopolies (e.g. utilities distribution) in which case such natural monopolies ought to be in the hands of the public sector. Nothing suggests to me that our port monopolies are either natural or in the hands of the public sector. So by all means let’s see how we can get more efficiencies in our port system to reduce the cost of importation and the cost of manufacturing in

But just as I thought that we were about to start moving I got a cold shower last weekend when Dr Gonzi, following the Girgenti Cabinet meeting to prepare for the 2005 Budget, suddenly reverted to the Fenech Adami mode of talking up the economy and belittling the problems facing us. For goodness’ sake are we coming or going?

Progress could be cautiously acknowledged if it is real; but it is dangerous and counterproductive to claim progress where none exists. Such attitude would only serve to dilute the willingness of the social partners to reach consensus over a social pact meant to restore our international competitiveness. Why should sacrifices be accepted if government proclaims that things are already moving in the right direction before even starting to negotiate the social pact?

We were told that as at June 2004 the public sector deficit improved 14 per cent (Lm16 million) over the same point last year. Drill down the figures and you realise that this is just because capital investment was kept Lm10 million lower than last year and the licence for the private operation of Public Lotto generated a one-off Lm7 million revenues which were misguidedly accounted as recurrent revenue! Otherwise the deficit problem recurs with the same intensity as 2003.

We were told that there was a sharp increase in investment in the first quarter of 2004.

Drill down the data and you will find that this investment reflects substantially the higher imports of yachts linked to a registration scheme until March 2004, giving temporary reduction in VAT applicable on registration of yachts.

This is not the sort of investment that creates jobs. These yachts were already here under foreign registration and now they have been on-shored by paying reduced VAT! A small increase in manufacturing investment has not reversed the downward trend of employment in manufacturing showing that investment is being made to eliminate jobs to stay competitive rather than to create new employment opportunities.

It’s none too early to decide whether we are coming or going, unless we want to continue digging ourselves deeper.

Sunday, 8 August 2004

Will Kerry Carry

The Malta Independent on Sunday
8th August 2004
We are 86 days away from the electoral contest for the most powerful, and responsible, political job in the world, the election for US President due on 2nd November.

Untypical for when an incumbent is running for re-election the polls are too close to call with Kerry showing a few percentage points lead but often within the sample statistical margin of error and definitely not large enough to say that the election outcome is set.

There are some curious points however which make me tip my balance of judgement in favour of the hypothesis that Kerry will carry.

Firstly it seems that the level of undecided voters is pretty low and consequently even a small percentage lead could be enough to set Kerry on the road to the White House. President Bush is the sort of guy you either love or hate. And there are quite a sizeable segment of the US electorate who have turned against Bush for the way he lost focus in the war on terror by going after Saddam rather than pursuing Al Qaeda. Many Americans had backed their President in the war on Iraq because it was imprinted in their mind, though never explicitly stated, that Saddam was in bed with Al Qaeda and was the hidden hand behind the 9/11 terrorist attacks.

These Americans, who feel having been cheated into the Iraq war by claims of non-existent weapons of mass destructions and Iraq`s unproven links with the Bin Laden organisation, will now vote against Bush rather than for Kerry.

Another reason why I am inclined to think that Kerry will carry is that the advantage Bush through control over the media is being eroded by two new methods with which the Kerry camp are spreading out their message.

Bush control over the media is an insult of the true spirit of the US democracy. For readers who are interested to deepen their knowledge on this subject I recommend a good read of a new book by John W Dean who was a Counsel to President Richard Nixon. It is aptly entitled `WORSE THAN WATERGATE ` The Secret Presidency of George W Bush`.

In this book Dean lists potential scandals of the Bush/Cheney administration where the media has protected Bush rather than the public`s right to know. A far cry from the way the media behaved in the case of Clinton`s sexual indiscretions. In summary these are:

Secrecy about Bush character issues in his younger days Secrecy surrounding Bush business conducts and privileges he received from foreign investors because he was the son of a Vice President/President. Secrecy about the true state of Cheney`s health and medical record. Secrecy on charges regarding Cheney`s past business conduct when he was Chairman of Halliburton. Halliburton were found guilty and fined for fraudulent accounting just recently, but somehow the then CEO now Vice-President was not brought into the matter. Bush`s decision to overturn a law with an executive order regarding Presidential Records Act which could have exposed wrong-doing during the Reagan and Bush Snr. presidency by some who are still running the White House corridors. Extraordinary secrecy regarding the development of a national energy policy that benefited large contributors to Bush presidential campaign. Failed efforts to block an independent 9/11 enquiry Misleading Congress regarding the imminence and seriousness of the threat from Iraq when seeking endorsement for his War on Iraq policy. Wilful leaking of Ambassador Wilson`s wife being a CIA agent to punish Ambassador Wilson for exposing that President Bush knew, when he told Congress about evidence of Iraq`s attempt to obtain uranium from Niger, that no such reliable evidence existed.

To overcome the disadvantages of the media`s coziness with the Bush administration (console yourself MLP ` tutto il mondo e un paese!) Kerry is making exceptionally good use of the internet both for fund-raising as well as for diffusion of his message. Technology could also have a say in the formation of political sympathies and choices.

Whereas the anti-Bush camp, spearheaded by film director Michael Moore of `Bowling for Columbine` fame,` has issued the highly successful film documentary `Fahrenheit 9/11` which broke records firstly in being the first documentary to win the Cannes festival Palm d`Or, and then in grossing up over USD 100 million in the US and still going.

`Fahrenheit 9/11` makes no case for Kerry.` But it makes a compelling case that Bush is unfit for the post of President in which he was not elected by the majority of US voters. It `exposes issues which the US media quite mysteriously avoided using its power to inform the public about.

However, following the Democrats National Convention in Boston the previous week, there is another reason why I feel Kerry will carry. It is because through the convention and the ensuing battle state to battle state tour, the US electorate got to know who really is John Kerry and why the Democratic Party are rallying united behind their chosen candidate like nothing else in recent history.

Kerry came out of the convention as the hero who did not shy fighting the war when the country needed him in Vietnam even though he was not obliged to go. He was not afraid in protesting against such war when he realised that his country was fighting a losing battle. He came through the convention with a positive message showing he is fully aware of the problems of the middle class mostly with health care and jobs and promising to address these issues whilst restoring sanity to US public finance.

There is many a slip between the cup and the lip and there are a million things which could restore the White House to the Bush dynasty for another four years. Two such possibilities are particularly relevant. A terror attack which could force the US electorate to rally round its president as an exposition of national unity in its determination not to be cowed by Al Qaeda. And the Jewish lobby who seem scared that Kerry would put resolution of the Israel/Palestine conflict as top priority agenda forcing Israel to make concessions to clinch peace on the lines of the deal that President Clinton had nearly brokered in his last months as US President in the fall of 2000.

Strange, but arch enemies Al Qaeda and Israel could influence the selection process of the next US President in the same way.

Will Kerry carry?


Friday, 6 August 2004

Broken Record

The Malta Independent
 6th August 2004

Our culture takes division right down to the village festa. We often find difficulty to agree on yesterday`s weather let alone on tomorrow`s news. The front pages of In-Nazzjon and L-Orizzont suggest that half the population lives a very different reality from the other half.

It is therefore quite curious that we have achieved broad agreement on the need to re-invent ourselves economically by forging a social pact. Whilst the Opposition is not directly involved in MCESD discussions on the social pact, it has announced plans to publish an economic regeneration plan which cannot but present the broad objectives of the social pact.

The need to formulate a social pact has become like a broken record. Everyone seems to agree that we need it but no one has any clear ideas on how to build a consensus round putting it in practice. Events of this week have shown that parties who are expected to overcome themselves and reach consensus on the social pact, could not even honour a commitment not to communicate with the Press except through the Chairman of the MCESD.

A social pact involves acceptance that the country has been living a lie.` Our living beyond our means has been financed through debt not earnings.` Chronic annual fiscal deficit and rapid accumulation of public debt could, unless halted, threaten our financial stability and lock us out of any prospect of joining the Euro single currency within this decade.

A social pact means rolling back the excesses and making the country regain its financial sanity and international competitiveness by taking back our general standard of living to levels which can sustain economic growth through attraction of fresh investment. Failure to do so will mean that we will gradually lose what we have turning low growth into outright contraction.` It is as serious as that.

The task of achieving the social pact is compounded by the fact that the government that is trying to broker it, is in effect the culprit as to why a social pact has become indispensable to get ourselves out of the hole. The government put us in the hole in the first place!

Government`s economic mismanagement, often going for the short term politically convenient but economically expensive solutions, has produced the dubious triple crown of chronic deficit and debt, slow growth depending on government`s own unsustainable expenditure, and a rate of inflation superior to that of our competitors. Unemployment has been kept respectable only because it is hidden through inefficient under-employment in the public sector.

This basically means that government has no further tools with which to manage the economy. We have exhausted our debt capacity and quite apart from the obligations to get us fiscally in shape for the Euro, we just cannot continue to borrow faster than the rate of growth of the economy.

Expenditure control is easy to say but very hard to implement within the limits of what is politically possible and socially acceptable. Expenditure improvement in absolute terms is almost impossible and at best government should aim to achieve expenditure control in relative terms to the GDP but only over a medium to long term time span.

Which basically means that the social pact consensus for restructuring and re-acquiring international competitiveness critically depends on achieving a high rate of economic growth based on a sustainable platform of private sector investment, domestic as much as foreign.

Trying to address the fiscal deficit by raising taxes is bound to be counter-productive in terms of economic growth.` Fiscal policy has become a sterile tool of economic policy and monetary policy is as good to generate demand and investment as `pushing on a string` (Keynes). In any case monetary policy is largely out of our control once interest rates and capital movement controls have been liberalised.

Only exchange rate policy is left to restore competitiveness as a basis for a social pact agreement and government has boxed itself in a corner by pledging not to use it even though Real Rate of Exchange calculations show that the current level of the Maltese Lira is 10% and growing less competitive than it was in 1995.

How may I ask are we going to regain international competitiveness By hope By prayer` Will the unions accept to be placed in the silly situation were they are forced to accept private sector demands for wage/benefits cuts whilst public sector employees continue to burn up resources at leisure. How can government plan to avoid reducing its workforce, not even through natural wastage, whilst putting at risk thousands and thousands of private sector employees whose job is on the line as the global economy and our economic mismanagement` is forcing their employers to consider re-locating? For pubic sector employees there is no problem, government cannot re-locate!

Do we want a broken record or a social pact with real solutions?