Sunday, 17 April 2005

Forty percent Out

The Malta Independent on Sunday 


The 2003 election is now two years behind us and the government has approximately three years to go before having to refresh its mandate through a general election.

The Prime Minister this week marked the occasion by singing himself glory on the great achievements of the last two years whilst noting the tall order that still awaits delivery in the remaining three years.

Whilst there should be total agreement on the latter, i.e. that there is a tall order to be delivered in the next three years before approaching the electorate for its judgement, the claim of great achievements in the past two years is questionable, to say the least.

These last two years we have had a shocking reality wake-up call, at least for those who alluded themselves and refused to read the writing on the wall before last elections and went along with the false claims of our political leaders.

We were assured two years ago that public finances were sound and improving only to find out soon after that 2003 was the worst fiscal deficit performer since 1998 and that the promised public finance sanitisation programme 1999-2004 has failed. A new medium-term sanitisation programme 2004-2007 had to be launched as part of the convergence programme to gain credentials for accession to Euro.

We were assured two years ago that EU membership would herald a new spring of blooming opportunities which would spur investment and promote economic growth. The reality is now rubbing on us that the EU can at best help us to wear the discipline to come in shape and that it is up to us to adopt this discipline to grasp the opportunities which would otherwise pass us by, as competitors will take advantage of our lethargic and lead-footed economic restructuring.

Is it an achievement of the last two years to have the slowest economic growth in the whole EU, to place last in the table of competitiveness in terms of the Lisbon agenda, to miss out on the investment flows that are benefiting other new EU member states, and to register continued loss of jobs in the manufacturing sectors as entrepreneurs invest to save costs rather than expand activities`

Attempted re-structuring in loss making publicly owned enterprises we have seen these past two years can optimistically be considered as an expensive and ineffective patch-up. What benefits does the economy draw from paying substantial sums to able-bodied persons to go into early retirement` Can we build economic growth on paying people for dropping out of the labour market or by transferring surplus labour in a publicly owned commercial enterprise to central government where commercial controls are less stringent and certainly far less evident`

Certainly the achievements of the last two years do not augur at all well for our capacity to deliver on what is expected of us in the remaining three years.` We have had mountain-sized meetings, discussions, seminars, round-tables and what have you and then rather than produce a rounded and effective social pact to guarantee re-acquisition of international competitiveness, we gave birth to a mouse in the form of a few more working days without additional compensation, which measure, insignificant as it may be, is still the source of industrial friction at micro-level.

Now compare this insignificant measure to what is expected of us to deliver in the next three years if we are to achieve the targets of the Euro convergence programme by 2007.` In this respect let me quote from the Central Bank Governor`s Statement in the 2004 Annual Report that has just been published:

`If (we are) to succeed, the quest for greater competitiveness should, therefore, be pursued as a collective effort and perceived as being in the mutual interest of all social partners. It must be premised on an acceptance of the need to raise output levels without increasing costs and to invest a larger proportion of available resources.

In the labour markets there is need for more flexible work practices`unemployment benefit systems should be further reformed so as to transform into effective instrument of employment creation rather than of social dependence.

In the area of public health and welfare, the extensive range of services and benefits offered should be assessed with a view to ensuring their financial sustainability. Their provision at zero cost to the end user induces excess demand and waste`. It is necessary to move away from universal schemes towards more focussed programmes`.as it is clear that the country can no longer afford to provide such a wide range of goods and services free for all irrespective of incomes levels.`

In layman`s language the Central Bank Governor is arguing that to come in shape to join the Euro in 2008 we have to roll back our standards of living by starting to pay for public health services which are currently free, work harder and more flexibly without demanding additional compensation and reduce consumption in order to start saving for our supplementary pensions as the state cannot provide pension coverage to guarantee a decent standard of living throughout retirement.

From an economic point of view this makes sense. But given the travails we had to go through to agree, or really impose, the removal of leave in lieu of public holidays that fall on the weekend, can we have reasonable confidence on the government ability to deliver on these hard measures as it enters the more politically sensitive second half term of the legislature`

What makes our Central Bank so confident that the government can deliver on its convergence programme 2004-2007 when it has failed so clearly on the 1999-2004 medium term financial programme` I for one do not share such confidence.

May I take this opportunity to salute the memory of Louis Galea who passed away this week at the age of 91. Louis Galea was the de facto dean of local bankers and financial practitioners. I and many others owe a lot of our career to Louis Galea who was always a role model of integrity and commitment and the hallmark of calm, clear and objective judgement. So long Mr Galea!

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