Politically Charged Mepa

31^st August 2009

The Malta Independent - Friday Wisdom

We did not need the post-election survey conducted by the European Parliament among all 27 EU member states to tell us that Malta is the most politically charged country of the union. We knew it, we live it day in day out and I would say that most of us probably enjoy it.

So when it comes to reforming a politically charged organisation like Mepa in a politically super-charged country, then it is quite unavoidable that you get a very politically hyper-charged discussion.

The proposed reform is built on two main pillars. The first is that policy setting migrates back to the structures of central government; the second is that implementation of such policy be delegated to Mepa’s full time employees who are not subject to political appointment and could in theory be trusted to implement such policy in a consistent, transparent and fair manner.

A former PN minister who was instrumental in the setting up of Mepa’s predecessor, the Planning Authority, (and who has often been critical of it for usurping ‘Unplanned Authority’) has been highly critical of the proposed reform arguing that it would be political suicide for the PN. According to former PN Minister Michael Falzon this would make government politically responsible for the downright inefficiencies, arrogance and incompetence of Mepa full time staff who are more interested in finding reasons, sometimes through creative and inconsistent interpretation of their own policies, for refusing applications for trivial development from the ordinary citizens, and then go out of their way to accommodate applications by the large developers.

It is shameful that we have come to the stage where we have to argue who is the least untrustworthy between elected political representatives and professional apolitical staff of a public organisation. Because basically that is what the whole argument is all about! And if we needed any proof that the Mepa reform revolves around such a simple choice, it came pretty fast with the Bahrija development case involving the former PN President Dr Victor Scerri.

Maybe before devising reform policies to cure a malady which we have probably not yet understood, this Bahrija case ought to be a classic for proper dissection and autopsy to try to really understand all that is wrong with Mepa

Let’s stick to the known facts. A permit has been issued in various stages. All agree that it should never have been issued as it infringes various Mepa policies. Scerri’s main defence indeed has not been that he was entitled to have the permit issued, but that he cannot be made responsible for errors made by others in approving the permit he applied for.

So the question that is leaving us all baffled is why was the permit repeatedly approved by the DCC when it was recommended for refusal by the case officers. If a DCC committee composed of several persons coming from different walks of life, who meet and deliberate in public, cannot be trusted to take rational decisions without being influenced by the political weight of the applicant, then we have a problem with the whole fabric of society in upholding values for performing a professional job without fear or favour.

Which basically means that the problem will not be solved purely by rendering the DCC composed of full time employees rather than part-time political appointees! Who says that full time employees are less likely to be overwhelmed by the political or commercial weight of the applicant?

Indeed one may argue that they may be even more influenced by such factors knowing that their job is not at risk and therefore be tempted to gain favour from weighty applicants who know how to show their appreciation.

So is it advisable to rush into half-baked reforms which lead simply from one disaster to another? Given the oversupplied state of the property market it would be healthy to suspend Mepa operations and freeze the intake of new applications until the reform is discussed, decided upon and implemented.

The problem with Mepa is not so much who decides; it is more what are the rules upon which such decisions have to be based. Before government or Mepa develop strategic development plans which are immutable and would be revised only once every generation (so that interpretations and policies may be expected to stay firm for twenty five years) there will remain far too much room for discretion in decision making which lead to inconsistencies and claims of favouritism.

So the first task is to issue a revised structure plan with firm and immutable boundaries for development and with detailed policies for development, region by region, village by village and street by street. We have to know the rules to gain the conviction that they are being applied uniformly even if we may disagree with them. We have to gain confidence in the rules to believe that applications will be treated on their own merits and not on the merits of the applicant.

Once the rules are known their application and enforcement has to be widely disseminated. Most applications of a trivial nature should be delegated to the architect in charge of the development who would simply follow the DNO route. The architect has to be responsible for small development to ensure it is within the terms and conditions of the Structure Plan, subject to penalties in case of failure. If we cannot trust an architect to build a house or a block of flats within the well defined rules why on earth do we send these people for so many years to university?

This measure on its own would probably solve 90 per cent of the complaints and free up Mepa resources to focus on the real important development issues i.e. large projects and ODZ applications.

The principle here has to be that for these sort of complicated applications, Mepa must have a three layered approval system. The first layer is the case officer who deals directly with the applicant until the application reaches a form that he/she can recommend to higher authority. If the case officer refuses the application than the client may resubmit it for reconsideration by a different case officer but if the application is refused again that’s where it stops. The negative decision of two separate case officers cannot be over-ruled by higher authority.

If the project is recommended for approval it is submitted for ratification to an internal board, composed of multi-disciplinary senior executives who are not allowed to enter into any sort of discussion with the applicant or his architect. The board should assess simply on the basis of the application and the case officer recommendation.

If the board ratifies the case officer’s approval recommendations the application is sent for final approval to a third-level compliance internal board who vets the decision for equity and consistency.

If the second-level board does not approve the case officer recommendations the matter is sent to a further board which meets with the developer in public and gives a chance to the developer to argue his case against the negative decision of the second-level board. Once this is done, the board takes its decision in public and if it overrules the decision of the second level board and approves the development it will have to justify its decision in public and will have to send the application for final vetting by the Compliance Board. On the contrary if the negative recommendation of the second level board is confirmed the refusal is final without scope for reconsideration.

We may be politically over-charged, but we can respect the rules if we gain the perception that the process of their implementation is fair and consistent.

Clash of Economics Philosophies

26^th July 2009
The Malta Independent on Sunday


The financial crisis and ensuing recession has brought to the fore a clash of economic philosophies that always existed but never in such overt and often unceremonious ways where Nobel Prize economists ridicule and accuse each other of ignorance or bad faith. The two camps are split by a basic divide of views about how the economy works.`

The conservatives, The Ricardians, base their economic thinking on the efficient market theory i.e. that the market is always right and it is best to left alone to choose the winners and losers in allocating economic resources. Their models take the view that the economic agents are superbly informed and understand the deep complexities of the world leading to `rational expectations` and correct market pricing. Their argument goes that if the market ever gets out of line from reality there are inbuilt forces in the market to force it to correct without the need of external interventions and that this in the most efficient way to avoid waste of resources and the most effective way to maintain correct market prices.

On the other side of the divide there is the interventionists, the Keynesians, who flatly refute the efficient market theory and maintain that the markets can become dysfunctional and that without external intervention will take a long time and cause great economic dislocation and outright human hardship to correct. They argue that economic agents have severe cognitive limitations and do not understand much about the complexities of the world.` This causes euphoria when economic agents underestimate risks (irrational exuberance) which is then followed by collective depression when risks are over-estimated ( irrational gloom). This is` what the founder of this economic thinking school, JM Keynes, referred to as `animal spirits` which turn uncorrelated risks into highly correlated ones and cause a great impact on fundamental forces driving macro-economic fluctuations.

I am not unbiased in this debate.` My thinking flatly falls in the Keynesian camp. I find, from experience, that the perfect market theory fails too often and that many believers in such theory do so because they are unable to capture the `animal spirits` in their macro-economic models and accordingly deny them so that they can live in the comfort of what they understand ` the behaviour of rational and superbly informed individuals. Unfortunately the world is much more complex than that and reality shows that rational decisions taken at individual level, if adopted collectively can easily turn into the madness of the crowd.

An individual could be right in selling an investment position to take a profit. But if collectively everyone sells that would cause a market crash. An individual could be right in addressing future uncertainty by spending less and saving more. But if adopted collectively that could cause a depression.

The interventionist economic theory was prevalent in the post-war period when major economic activities were nationalised and governments were the principle players in the national economy which was largely `protected from external competition.` However as the world was rebuilt from the war havoc and as countries started to trade internationally on a growing scale the inefficiency of state intervention started to show in high inflation which was exasperated by the two oil price shocks of the 1970`s. Also the` Keynes theories were abused and rendered ineffective by politicians who continued to intervene when it was not necessary and thus leading to excessive budget deficits and inflation.

The failure of interventionist school gave birth to the market-knows-best school of Hayek and Friedman that was politically given space by Thatcher in UK and Reagan in US.` `Government intervention in the economy was reigned back through privatisations, through reduced taxation and trimmed transfer payments, and the economy was liberalised through free international trade leading to globalisation, floating exchange rates and strict monetarism leading to fluctuating interest rates with the main aim of squeezing inflationary expectations out of the system.

The adjustment process was turbulent. Currencies, formerly fixed through the Bretton Woods agreement, started to fluctuate widely.` Interest rates hitherto largely regulated and kept steady started to shoot to unimaginable levels with a 20% overnight rate in the US in the early 1980`s and a 15% in UK in early 1990`s. But after the initial turbulence we have had some fifteen ` twenty of macro-economic convergence between these two schools of economic thinking.

The compromise was found in putting monetary policy at the centre stage of macro-economic management and delegating such monetary policy to independent central banks which were not under the democratic pressure of the electorate and could thus be trusted to do what was right and not what was popular.` Strict monetary targeting which led to unduly wide fluctuations in interest rates was abandoned in favour of formal or informal inflation targeting.` As `international trade brought untold wealth spread around the globe bringing the graduation of formerly backward economies of China, India, Russia and Brazil, most countries ejected or diluted their collective ownership models and adopted capitalist solutions for their economic development programmes.

So what has brought the sharp eruption in economic thinking again We are seeing one camp urging government to adopt more fiscal stimulus, whilst the other camp warning government that existing fiscal stimulus are already excessive and will delay the market adjustment needed.` One camp argues that the excessive loosening of monetary policy is needed to cushion the economy from falling into a depression and the other camp warning that the ultra loose monetary policy will unavoidably lead to an explosion of inflation in the near future.

The answer seems to be that whilst it was wise to roll back government intervention from the economy it was unwise to weaken regulation of the financial markets thinking that markets could self regulate and avoid the greed and excesses that have brought the crisis.

If we learn nothing from the crisis we have to learn that self regulation in financial markets is dead. Any bank or financial institution that is just too big to fail must be scaled back as otherwise it could become too big to save. The financial system should be rendered modular with no single component too big to fail.

The two economic schools should agree on a new system of financial regulation as this could lead to a fresh period of convergence rather than shouting on how to solve our way out of the present crisis. www.alfredmifsud.com

The IMF Should be Taken Seriously but Not Followed Blindly

 24^th July 2009
The Malta Independent - Friday Wisdom

The International Monetary Fund (IMF) has two basic functions for member countries, particularly regarding their foreign payments imbalances and other macro-economic disequilibria: crisis treatment and crisis prevention.

Thankfully Malta has never needed to tap the IMF for crisis treatment. For all problems we have in public sector recurrent deficits and accumulating debt levels, the country as a whole is financially well resourced and never had any problems in financing itself internally i.e. the private sector producing enough savings to finance the public sector deficits without need to resort to foreign borrowing on any significant scale. On the contrary we are seeing the local capital markets financing the external ventures of local entrepreneurs and foreign banks using their passporting rights to access the local deposit base without in any way involving themselves in any local lending activity.

Of more relevance to us is IMF’s role in crisis prevention, in particular through annual Missions undertaken in terms of Article IV of IMF’s Articles of Agreement as part of the review of the member country’s economic development. Such reviews are of a consultative nature and the IMF just published its Malta report on 22 June 2009.

This year’s report has particular relevance as it is framed in the context of a harsh international recession and very poor visibility regarding future economic developments. IMF obviously takes this into consideration and concludes that the GDP for 2009 will contract by 2%. It also concludes that recovery in 2010 is doubtful at best as it depends on factors outside our control, mostly foreign demand for our exports of goods and services. The report warns that Malta may experience deterioration in the balance of payments position from an already elevated level.

IMF warns government not to remove the economic stimulus too quickly in 2010 but that fiscal consolidation should be targeted over a medium term period between 2011 – 2014. This goes against the EU imposition to come back within the Euro Maastricht criteria by end 2010.

The IMF further counsels that government should look beyond the impact of the current recession and pursue with vigour structural reform of the economy not just by planning fiscal consolidation but also by strengthening the financial supervisory framework, and pursuing labour and product market reforms.

The Report says that it would be risky for government to be complacent about the need to strengthen financial supervision even though the financial sector has so far withstood the global financial turmoil relatively well. It warns that the financial sector remains vulnerable to further instability especially if the economy drags on in a no-or-low-growth environment for a long time and property prices remain depressed through falling demand and increasing supply of pipeline projects.

It prods regulators to insist on higher provisioning on their loan book and for government to change to international tax practice allowing tax deductibility of such charges at the provisioning stage and not only at the write-off stage. It further advises local banks to take advantage of the current liquidity of the capital markets to strengthen their capital base and be more prudent in dividend distribution policies.

It also expresses doubt whether the local regulatory system is coping well enough with proper supervision of internationally oriented banks under its jurisdiction. The total assets of such banks now are equivalent to five times Malta’s GDP! As such banks are normally funded by inter-group exposures to their parent or related banks it warns the regulators to include such inter-group risk exposures in their stress testing mechanism.

While the IMF is silent about it, I think this need to strengthen our supervisory regime has to reconsider the tri-partite system with regulation responsibilities shared by the Central Bank, the MFSA and ultimately the Ministry of Finance who is always in the background in case banks need forced recapitalisations or wider deposit guarantees. We should follow international developments and debates going on to learn from the experiences of other countries. Many people don’t know what a close shave we had. Just imagine if rather than by HSBC, Mid-Med Bank was bought by RBS or Lloyds Bank or if BoV 25% share still in government's hand was bought by some aggressive Icelandic bank.

In the end IMF makes yet another appeal for government to move away from the mandatory inflation indexation of wages inbuilt in our COLA mechanism. Such recommendations were ignored in the past. We could have afforded to ignore them when the economy was growing. Can we afford to ignore them now that the economy is contracting? Can we make the socially unjust choice of favouring those in employment at the expense of those losing their job through lack of competitiveness caused by COLA legislated wage increases? Or have we all become conservative economists with blind belief in the creative destruction forces of the free market?

Finally IMF make a recommendation which we should boldly refuse. Indeed one wonders how in the present circumstances IMF have not adjusted their reading and are again suggesting privatisation of government’s remaining 25% holding in Bank of Valletta. Bank of Valletta is a significantly important bank for the economy and implicitly enjoys a taxpayers’ guarantee against insolvency. Consequently the taxpayer should not relinquish any of its controls to ensure that it is not placed in the untenable situation of privatising profits and socialising problems and losses. If anything we should be moving in the opposite direction with regards to other significantly important banks who similarly enjoy an implicit taxpayers’ indemnity by the nature of their size and importance.

We should take the IMF views seriously but not follow them blindly.

The Reason Why We Are here

17^th July 2009
The Malta Independent - Friday Wisdom

Whenever I entertain foreign visitors who are in Malta for the first time I always make it a point to begin by showing them around in Valletta and specifically by taking them for the breath-taking view of the Grand Harbour from the Upper Barrakka.

This is the reason why we are here! Without a harbour like that civilisation would have never taken root on these barren rocks. The deep harbour with internal serrated creeks offering protection from most weather conditions is what attracted original settlers and eventual foreign powers to set base on these island from where to control the surrounding sea passages and nearby lands.

I was elated therefore last Wednesday when I was privileged among many other important guests to attend the maiden call ceremony of the grandiose latest addition to the MSC cruise liner fleet the MSC Splendida – a floating de luxe hotel carrying nearly 4,000 passengers, which will henceforth become a regular landmark in our Grand Harbour every Wednesday from early in the morning till it sails off early in the evening.

Captain Bossi said it all when in his introductory address he said,“we are here to celebrate the first call of the most beautiful cruise liner in the world to the most beautiful port of the world”.

There were no dissenters, of course, but we are all biased. As the Maltese saying goes even the owl sees its offspring as the prettiest! But hearing it emphatically from a captain who has probably visited most of the commercial ports in the world shows that ours is no false pride.

There are pretty little few other more soul satisfying experiences than enjoying the view from a boat entering our Grand Harbour. This experience has been substantially enhanced through realisation of the Viset project which has restored the long neglected Pinto wharfs. There are strong prospects for further uplifting over the next decade as the inner harbour area gets revamped through the closure of the Marsa power station and redevelopment of this area from its current industrial uses to more leisure and services activities. As the dockyards undergo transformation we should see greater prevalence of tourist related activities in our docks and less processes which are visually less appealing though ship-repairing and ship refitting will never disappear altogether.

We have come a long way this last decade in developing our Grand Harbour. It was in 1997 when the then Labour government decided to take the advice of a group of “seven wise men” who suggested that cruise operation in the Mediterranean was prospected to become big business and Malta should make the necessary investments for developing the Grand Harbour to become a major player both as a port of call as well as a terminal for cruise liners permitting cruise and stay holidays.

I was personally appointed to a Board under the chairmanship of Dr Edward Woods tasked with the responsibility to issue, evaluate and recommend the final choice for private sector investment in the cruise liner terminal.

Political events changed the personalities but the objectives survived the pre-mature change of government, leading to the award of the tender to the Viset consortium. It was no bad choice at all, as events have proven.

We need to go much further in the forthcoming decade. The redevelopment of the inner harbour area, the dismantling of the Marsa power station, the transformation of the land currently siting it into a business centre on London docklands model, the transformation of some of the drydocks into uses for leisure and tourism, and the continued development of the quays to allow more facilities for cruise liners are challenges which will reward whatever investment we put in with solid and sustainable economic growth. It is investment that builds on our intrinsic strengths and competences.

Beyond the physical development of the Grand Harbour we have to upgrade the communications across both sides of the harbour. We cannot build bridges but we can build cable cars infrastructure to avoid vehicle based access to Valletta. We can and should extend public transport to popularly priced sea surface crossings across the harbour. And we need to create more tourist attractions by organisation of regular laser shows similar to the 2004 EU accession celebration providing son et lumiere type of historical exposition explaining to our guests the reason why we are here!

Reform at the Edges

12^th July 2009

The  Malta Independent on Sunday

Corporate history is riddled with examples of restructuring exercises that prove superficial, avoiding the core of the problem it is meant to address. Moving around boxes of the hierarchal structure, shifting responsibilities from one box to another, cutting here and padding there, and many other visible changes, come with a lot of promises for positive change which, in the end, fizzle away as the real problem remains unaddressed.

Probably the best current example of this is that of General Motors (GM), a hundred-year-old company which, at one time in the sixties, symbolised America’s industrial power with the famous dictum of “What’s good for GM is good for America”.

As it happened, GM became over-confident, lethargic and detached from its changing image in the eyes of the American consumer as they started being offered better quality cars at cheaper prices from foreign producers in Europe and in Asia. GM’s history over the last 20 years is a series of insufficient attempts at restructuring to stop the drift in its market share. Unfortunately, these restructuring attempts were always behind the curve of the changing realities in the market place.

These realities were that competitors were quicker to offer new models to suit the changing taste of the consumer and quicker to add on more bells and whistles to the basic product which in GM cars remained unavailable or subject to a supplementary charge. These could be things as important as better security features (airbags) or as trivial as nicer fabrics or a cup holder.

The other reality was a matter of costs. GM’s long history was forcing it to carry an ever-increasing burden of legacy costs through the health care and pension responsibilities for its retired employees. New entrants to the market, especially from Japan and South Korea, were free from such burdens and could therefore compete not only on quality but even on price. Gradually, the GM brand started losing its near monopoly and came to be regarded as a laggard, selling old-fashioned cars at expensive prices. GM’s management, in the various reorganisations attempted to catch up, never addressed the core issues, i.e. that the company could not compete effectively unless legacy costs were either reduced or compensated for by higher efficiency and greater flexibility of the current workforce.

In the end, a meeting with reality could be delayed but never altogether avoided. As the financial crisis of last autumn spread to the real economy, causing a sharp reduction in demand for new cars, GM had to run for help to the government, using its size and history as the reason why it should be bailed out. The government demanded a reorganisation plan to ensure that any financial assistance did not become permanent and when this was presented, the government found it short on realistic expectations. It imposed its own, far more courageous plan, which started with the firing of the chairman and CEO Richard Wagoner.

The government forced the company into Chapter 11 bankruptcy protection, a process whereby a huge chunk of company debts were converted into equity, obligations covering legacy costs were also similarly converted, product lines were reduced, factories closed, whole sectors of the company, including the Hummer brand and Opel and Saab European operations, were sold off. This week, the new GM has emerged from bankruptcy after just 40 days – a much leaner and meaner outfit, ready to compete free from past burdens and with fresh capital injected by the US and Canadian governments that are eager to keep their countries’ share of car manufacturing.

That’s real restructuring!

The blueprint for Mepa’s reform published this week resembles one of GM’s many unsuccessful reorganisation plans, as its started losing its dominance. There is obviously no contention on the objective to render Mepa consistent in its decisions, efficient in its operations, accountable to society and better equipped to enforce its decisions.

Consistency, efficiency, accountability and the capacity to enforce are all laudable objectives – just as laudable as were the objectives of GM’s various unsuccessful reorganisation attempts to regain its lost power. The problem lies with the measures proposed to achieve such objectives.

These measures are mostly steps in the right direction, even though, in essence, they are little more than shifting of the corporate boxes which, in the end, may very well leave the situation largely unchanged.

What is missing is that the plan does not address the core problem related to Mepa.

This is that people’s experience of Mepa is of an obscure organisation, interpreting its policies inconsistently, changing its policies frequently – often to suit particular developers and overall a fake attempt by politicians to hide behind it in order to exercise their political patronage. People view Mepa as an organisation that is strong with the weak, making it extremely difficult to get the simplest of permits, and weak with the strong, often guiding the large developers in working their way through to overcome the spirit if not the legality of its own policies.

Whether this is true or not is hardly the issue, because in business and in politics, perception is reality.

To address this perception/reality Mepa needs a reform in its core that is not being addressed in the proposed blueprint. It needs to become much more transparent and to delegate its powers downwards rather than concentrate its power upwards. Mepa’s main role should be that of regulating and enforcing government policy, and this policy should be stable, fair, well explained and available for all citizens to know, leaving no room for interpretation. It should be available region by region, town by town, village by village and, if necessary, street by street, so that everybody knows what is permissible and what is not.

When we reach this point, most development applications can then flow through the DNO route with final responsibility for proper execution on the architect concerned. To take an analogy from the medical profession, Mepa must not be the family doctor who regularly supervises minor domestic ailments without any reference up the line. It must be the hospital for treating acute cases. This does not mean that the family doctor is free to do whatever he/she likes, it simply means that the family doctor is trained and equipped to treat directly minor ailments with the necessary professionalism without further reference up the line and that if he fails, his licence could be at stake.

Only if we come to this point will Mepa appear to be consistent and efficient. Then it will apply its resources to the treatment of acute cases, mostly large projects outside well-defined policy lines and ODZ application; it is here that Mepa has to appear accountable. Finally, both for DNO procedures and for its own approvals, Mepa must have the means to enforce its decisions.

The proposed reform goes in the right direction but it certainly does not go far enough. The mountain must give birth to a hill, not a mouse. 

Who`s Minding the Store

10^th July 2009

The Malta Independent - Friday Wisdom

Sometimes I get the impression that nobody is minding the store of the nation. The government seems to be hard wired on one specific project which could serve it as a platform in its bid for re-election come 2013 and nothing else seems to matter.

It does not seem to matter that the SmartCity project has gone quasi dormant; that after the morass of 2008 the reform of the public transport system seems to have gone in deep freeze; that our roads are in a pitiful state of neglect which turn me red in the face when I am driving foreign guests around, that the economy is sinking, the government budget has gone haywire and not enough is being done to give us a fair account of the state of nation.

This week the government finally admitted that the economy will register no growth during this year and that indeed we could experience a contraction. Finally, after negating the obvious and living by hope rather than fair expectations, government had to bite the bullet and admit that it had drawn the 2009 Budget using wrong assumptions and consequently the 2009 deficit will be far greater than anticipated.

In this column on 14 November 2008, following presentation of the Budget for 2009 I had commented:

Our economy will also be affected by reduced external demand. Our exports are already showing it and sudden imposition of short work weeks at some of our factories indicates there is more in store for those outfits with long order to execution lead times. Our tourism will similarly be negatively impacted and as from November we will see statistics heading down compared to last year, leading to a very unwelcome trend reversal.

Thankfully, unlike many other European countries, our government did not need to fund any recapitalisation of the banking system so it should have had more fiscal room to manoeuvre a fiscal stimulus to the economy. Yet because in the election year we overspent as if there is no tomorrow, next year’s budget deficit will be half of the actual deficit of this year. Even if the “special items” related to shipyard early retirement schemes and the claimed Enemalta subsidy is detracted from this year’s budget, then next year’s deficit will only be marginally above the “adjusted” deficit of this year when the economy in reality needs a boost to fill the gap of falling external demand.

No, the budget is not sustainable.

What was obvious has happened. The government has lost control of the budget and the deficit will be between twice and three times that projected. We can only keep to the lower end of this estimate if we postpone expending the capital budget.

This would be a very ineffective way of addressing the ballooning deficit as at time of recession like this, government has an obligation to replace contracting private demand by creating demand through productive public investments which upgrades our infrastructure to render us competitive for the longer term. It is Keynes at its very basic.

At times like these government should take steps to assist the private sector, especially that part which is suffering through reduced external demand, to get through this crisis to ensure we have vibrant operators when eventually we swim to the other side of the river with a return to normal economic growth.

As manufacturing is diverse, assistance can be tailor-made to each individual outfit. But in tourism the whole sector depends on the same source and industry-wide measures are called for. Those parts of the tourism industry which are still subject to 18 per cent VAT should immediately be aided to enjoy a reduced rate of five per cent. Taxing tourists at an 18 per cent consumption rate is like advertising that they should go to other destinations. No one in these recessionary conditions is taxing foreign demand at such high rates and France has reduced VAT on restaurant services to five per cent even though such services are consumed by nationals and tourists alike. The argument for a lower VAT rate for services predominantly consumed by tourists, like car hire and tour guide services, is even stronger.

Government has also finally conceded to set up a price watch agency, although so far it seems like a half hearted effort. A good place for such price watch agency to start from is to compare prices of products sold by local franchisees of foreign brands to the prices of same products in the franchisors’ home country. The difference is often atrocious and unjustified by any possible additional costs of transport, storage or wastage.

The best way to address this issue is not through price controls which are almost impossible to enforce. It is by demanding fairness and openness through opening up on-line shopping services across national barriers. The consumer should not be forced to buy from local franchisees simply because the on-line shopping services of the franchisor, does not offer delivery outside the home base country. Such artificial barriers should be eliminated as otherwise we will be divided by the single market.

Piano Andante

3^rd July 2009

The Malta Independent - Friday Wisdom

We have been discussing the plan for Valletta City Gate practically from the very moment the present awful gate was built in the 1960s. Now it is time to move on and pass from talk to action. We are never going to have a project which achieves perfect consensus and Piano’s latest proposal comes as close to it as possible.

So to borrow a phrase from Nike – just do it!

This is not to say that even to my architecturally amateurish eyes the project does not have some points of interrogation. But it is simply to say that the project has many positives which should overturn any reservations, which however should still be considered, if at all possible.

Let’s start with the positives. The new entrance to Valletta with a virtual open sky gate is a stroke of genius. The redevelopment of the bridge and landscaping of the underlying ditch into public gardens accessible through panoramic lift from the main gate is pleasing to the eye and emphasises the majesty of the fortifications.

The conversion of the Barry remains into an open air theatre, protecting for posterity what has now become a part of our history is a very practical solution which skirts the great debate of what to erect in its place and gives to Valletta a place for cultural activities without getting yet another over-powering building.

Equally impressive is the open space provided near the St Catherine of Siena Church on the South Street side of the project. Apart from creating valuable ground space for the activities going on in the theatre it makes the recently renovated St Catherine’s Church stand out and gives further access to the Auberge D’Italie.

That is where my homage to Piano stops. For the rest I have great reservations about two ‘sins’ of the project. One is a sin of omission and the other a sin of commission. Let me start with the sin of omission as I think it is probable that it is due only to the limitation of the brief given to Piano rather than a slip which is otherwise inexplicable.

I am here referring to the total silence about the access to City Gate from the Floriana side including the bus terminus and other car parking arrangement. The project would be grossly incomplete if the pedestrian access to it is not incorporated as a critical component. I am literally fed up of having to negotiate my life twice every working day with a handful of bus drivers as I walk from the MCP car park to Valletta and back. I would much rather walk in a traffic free access zone so that I can pin my gaze with admiration on the Valletta fortifications and eventually on the Piano re-designed bridge and entrance.

Obviously this has to include enhanced provision for parking outside, and shuttling to, Valletta in the belief that the new vehicular access will continue to make it ever less possible for non-residents to park inside Valletta.

The bazaar outside City Gate must be addressed. If underground parking/terminus outside City Gate can be created the kiosks have to be pushed down there as happens in most metropolises. Please do not give us a ‘jewel’ in a soiled wrapper.

However, my major reservation about the Piano project is the proposed parliament building in Freedom Square. I am not against having a new parliament building incorporated in project. I had already opined in this column in favour of the parliament being erected on the present royal theatre site. Piano’s idea to reserve this site for open air theatre is admittedly better so somehow Piano had to squeeze the parliament building somewhere else in the project.

And squeeze it he did in the one of the few open spaces remaining in Valletta by planting it in Freedom Square. I am sorry but this is just crazy. Not because there is anything wrong in having a parliament building in the City entrance; but because Valletta needs more not less open spaces. Freedom Square should be a people’s parliament not a representative’s parliament. It should be where people meet, talk, discuss, argue, demonstrate, and do whatever is democratically allowed in the pursuit of freedom of expression. And this can be done in a pleasant environment with full view of St James Bastions by redeveloping exactly as Piano has suggested but without parliament dual building, which should be replaced by landscaped gardens instead of the present car park cum shopping complex.

Parliament can still be housed at City Gate. It should address the other flaw in Piano’s plans i.e. the fact that he did not ‘touch’ the City gate shopping complex and overlying housing estate that is so out of place right at the City entrance. I can only presume that this was a red circle included in government’s brief; and if this is so it shows lack of determination to do what’s right rather what is popular.

This eyesore should be developed as the site for a new parliament building in a way which opens up vistas to St John’s Cavalier as the twin to St James.

The residents in the City gate complex should be re-housed in a more suitable location in full respect to their tenancy rights without compromise to the larger good of the whole community. The same applies to the commercial outlets that would need to be re-located. The common good should prevail but individual rights should be respected through fair compensation or adequate re-location.

Whatever the reservations it is time to move on.