Rio Has Got It

Rio has Got It

9^th October 2009

The Malta Independent - Friday Wisdom
Alfred Mifsud

During the week I tend to jot down bullet points with ideas to consider for this column. This week’s jotter note reads: Oil price and US$ value; Brown and British Labour; Power moves east; Jobs jobs jobs; Rio for 2016.

These are prima facie unconnected topics but on deeper analysis they are different parts of a complex collage which makes up the current state of affairs of the turmoil in the financial and economic world.

Let me try to pass the common thread while discussing these separate topics.

The oil price has topped US$70 per barrel from the below US$40 it had hit during the worst of the financial turmoil last December. The obvious conclusion is that if oil is commanding US$70 in the midst of a recession it is pretty rational to expect the price to go well north of US$100 when the economy recovers. Two factors influence most directly the price of oil. First is that its price is directly and inversely correlated to the fortunes of the US$. As oil is internationally traded and priced in US$, its price moves inversely to the foreign exchange value of the dollar in an effort to maintain real value. If the dollar falls the price of oil goes up and conversely if the dollar rises the price of oil goes down. The other factor is the strength of demand from China who seems on a mission to secure their energy supplies by stockpiling reserves and buying strategic oil related assets.

The US$ is suffering from a denied policy of benign neglect by the US Treasury and the Federal Reserve. The US economy is under so much stress following the disastrous handling of Lehman’s collapse last year by Hank Paulson, the most irresponsible Treasury Secretary the US has ever had, that it requires ultra loose monetary policy and low interest rates for as far as the eyes can see. In the context of other countries that have not been as damaged by the financial crisis, countries like Australia who are confident enough of their economic recovery that they already started raising interest rates, the US$ harbours very grim prospects for its external value. Indeed it is even clear that the US economic recovery depends on a substantial downward adjustment of its currency and ideally without such adjustment being reflected by pegged currencies like the Chinese Renminbi and other Asian currencies.

Whoever is in charge of oil procurement should adopt some longer term hedging of the oil price without hedging the US$ currency exposure.

The financial turmoil has seriously hurt the British economy which had grown addicted to a raving financial sector and a strong property sector. Both sectors were deflated by Lehman’s collapse. With an election due within nine months Prime Minister Brown and his Labour Party are badly trailing the Conservatives in the polls as people tend to judge their government’s performance by the money in their pocket.

Yet Gordon Brown is accredited as the person who led the financial world from the brink of collapse when he gave a lesson to Hank Paulson that significantly important banks that get into trouble should be recapitalised by the State, as happened in case of Royal Bank of Scotland and Lloyds Bank/HBOS, rather than allowed to damage the system by filing for bankruptcy as in the case of Lehman.

Brown has a mountain to climb if he is to win the next election. However I don’t share the view that the election is already lost and that Cameron can order the drapes of his taste for No. 10. As we approach decision time Brown can show the international recognition he earned for saving the world’s financial system and expose his conservative opponents as having no serious policy to get the economy out of recession. It may well be, especially if Brown breaks the tradition and engages Cameron in televised direct debates, that British voters in the end will decide that the more serious the economic problems, the more risky it is to leave the country in the hands of the untried and untested.

The financial crisis has brought a steep change in the redistribution of regional political power. There is no doubt that this has shifted towards Asia and other developing countries. The transformation of the G7 into G20 and the redistribution of power within the IMF and World Bank structures are symbols of such power shift.

Equally symbolic of this shift is the decision to award the 2016 Olympic Games to Brazil’s Rio de Janeiro, shrugging loaded competition from Chicago, Tokyo and Madrid which used their big chips to lobby for the award. The US first couple, the Prime Minister and the King of Spain and the Prime Minister of Japan with US$4 billion already in the bank in support for Tokyo’s bid, could do nothing to thwart the strong appeal by Brazilian President Lula da Silva:

“It’s Brazil’s time. Among the top 10 economies of the world, Brazil is the only country that has not hosted the Olympic and Para-Olympic Games. For the Olympic movement, it will be an opportunity to feel the warmth of our people, the exuberance of our culture, the sun of our joy and it will also be a chance to send a powerful message to the whole world: The Olympic Games belong to all peoples, to all continents and to all humanity.”

It is almost unbelievable that as recently as August 2002, just before Lula was elected president, Brazil’s bonds were priced for a default. They are now investment grade! Brazil has come a long way under Lula and they deserve the Games.

Coming nearer home the international financial crisis has caused a sharp slowdown in the economy, a considerable price drop in certain sectors of the real estate market and a destruction of a substantial platform of government revenue leading to increase in budget deficit well in excess of that planned this time last year. Yet this is not the time to worry about the deficit. Priorities demand that the 2010 Budget addresses the economic slowdown not the deficit. The deficit will correct itself when the economy eventually recovers. The priority now should be jobs, jobs and jobs which depend on government investment in infrastructure and stimulation of private sector investment.

 

Those Who Floored Shipyards

Those Who Floored Shipyards

4^th October 2009

The Malta Independent on Sunday
Alfred Mifsud

There could be an argument about who floored the shipyards. But there is no question about who floored me last Wednesday when I started reading the papers with my morning coffee.

Minister Austin Gatt had an op-ed in The Times with the same title as this contribution and its opening paragraph was an absolute political blowout, which confirmed beyond a shadow of a doubt that this government has lost it.

Read this infamous opening paragraph:

“The Leader of the Opposition has challenged me to state who is politically responsible for the Fairmount losses. I have no hesitation in answering that if you look beyond your nose the political responsibility falls squarely on the Labour Party, The General Workers Union and the party militants who were employed at the shipyards ... some political responsibility falls as well on different Nationalist administrations for having failed to come through earlier with the privatisation of the shipyards, although I fail to see the political possibility of doing so prior to 1996 while the 2003/2008 Administration was rightly focused on joining the European Union.”

With an assertion like that one is left breathless and seriously worried that this country is being managed by an executive unwilling to take responsibility for its decisions or non-decisions, and wastes its energy blaming others, even if to do so involves extreme mental gymnastics to link present effects to distant causes way, way back in time.

Governments are meant to govern, leaders are meant to lead and managements are meant to manage. When you are at the top the buck stops with you. It is offensive that a leading executive of a government that has been in power for more than 22 years is unwilling to take responsibility for all the pain the taxpayers are suffering because of the losses at our shipyards, and in particular the losses resulting from the Fairmount contract. At the very least, if the government as the ultimate underwriter of the shipyards’ losses was not satisfied about the shipyards’ competences and resources to make a commercial success out of the Fairmount contract, it should have vetoed management from taking it on board. This was not exactly a two-and-a-half penny contract and the Minister is known to keep organisations responsible to him on a short lead for much less important matters.

Certain assertions made by the Minister beg logic. Why was there no political possibility of privatising the shipyards prior to 1996? Was there any constitutional provision that prohibited government using its majority for this purpose? Was there any supernatural edict stating ‘Thou shalt not privatise the shipyards’?

The truth is that two consecutive Nationalist administrations spanning nine full years between 1987 and 1996 did nothing to knock the shipyards into shape that would permit privatisation. They were always ready to buy industrial peace by writing taxpayers cheques and cultivating the ruinous industrial culture prevailing at the shipyards – that they were too big or too important to fail and that change can be resisted with impunity, because in the end the taxpayer would always bail them out.

The first steps to bring some order at the shipyards were taken in the short Labour administration of Alfred Sant between 1996 and 1998. Prime Minister Sant immediately changed the composition of the council of administration to bring back authority and responsibility on the same page. Before that, a council of administration elected by the workers managed the shipyards, but the government underwrote the cost of their incompetence. What the two PN administrations could not do in nine years Alfred Sant did in the first few months of his administration.

Alfred Sant also did something else that unfortunately was not taken on board by the Nationalist administrations that followed. He wanted to limit government’s annual subsidy to a few millions that could be counted on the fingers of one hand, and if the shipyards could not operate within these parameters then the onus was on their management for force cost cuts and efficiency gains to come within these parameters.

The argument that the Nationalist administrations between 1998 and 2008 were focused on the run-up to EU membership and adaptation in the post membership phase does not hold water. Could not the government also proceed simultaneously with the privatisation of the shipyards? Is there some law that says we should do things in series and not in parallel? Obama does not think so and he is handling a financial crisis of grotesque proportion inherited from his predecessors simultaneously with reform of the US healthcare system, regular G20 meetings and an aggressive foreign policy that includes Iran’s nuclear ambitions, reviving the Middle East peace process, administering the rundown in Iraq and the build-up in Afghanistan, while engaging other major powers like China and Russia to gain their support for the success of these initiatives.

If Minister Gatt wants to know how our shipyards were floored I suggest he reads my article ‘Death by a thousand cuts’ published in my Friday column of The Malta Independent on 27 June 2008. This is a small taste of it:

“If the economists and logical thinkers would have had their way, the solution to the shipyard’s problem would have been arrived at much more quickly and with much less resources and it would have benefited everyone including the workers themselves. A small part of the resources burnt in arriving at a death by a thousand cuts would have been sufficient to retrain workers and re-employ them profitably in new processes that are managed with optimal efficiency and which are well integrated with our ability to compete profitably in a global economy. They would have earned more and enjoyed it more than living all these years with insecurity about sustainability of their employment.

Politicians work differently. As their primary objective is to obtain and retain power they prefer a tactic of making gradual changes over time so that nobody notices, or those that do notice do not raise much of a protest. It does not matter to them how much resources and time are wasted to arrive at their objective provided they get there without compromising their position in authority.”

There was once a politician of a different kind. In 1973 he had the necessary leadership skills to face the workers directly and telling them in no uncertain manner that unless they had the balls to make a commercial success of the shipyards they couldn’t count on government subsidies. After exacting painful concessions to generate efficiency gains, the shipyards stayed in the black until 1981, which incidentally is the last time they made a profit since Mintoff wasted no time and energy blaming third parties. He did what leaders are meant to do and tackled the problem head on.

Today’s politicians are made of a different fabric. They prefer to devote their energies to finding scapegoats rather than engineering true, hard and often painful solutions, as true leaders are expected to do.

Politicians come and go but unfortunately the bill still has to be paid by the taxpayer


   

Where Has Quality Gone

 

2^nd October 2009

The Malta Independent - Friday Wisdom

Alfred Mifsud

I am two days short of my 58th birthday. Something strange is happening to me as I approach retirement age. I am becoming more cynical, restless and hard to please.

Whether this is due to my accumulating age or whether there is a bug which is affecting everybody irrespective of age I am not sure, but I am suspecting it has much to do with the latter than the former.

The impotence of this government seems a perfect recipe for cynicism and restlessness. We are having day to day proof that this government is expired, rotten from the core with internal disagreements and has lost the zest to execute its election mandate. Open criticism from normally friendly quarters is becoming all too frequent to disregard as mere personal grievances.

This is not an easy time to be in government. That is granted. The sudden onset of a very deep recession has eroded government’s normal sources of revenue leading to structural deficits in the context of a weak economy which allows little room to manoeuvre with tax increases. However the results of elections last weekend in Germany and Portugal show that electorates can still reward incumbent governments for doing a decent job in difficult conditions. But over here the electorate is approaching a state of despair with government’s inertia. The warning the electorate gave to the PN in the March 2008 elections seems to have been completely lost. The wafer thin majority was meant to warn government to pull itself together and put on its best act if it means to stand any chance of re-election by 2013.

The opposite happened. Internal strife has reduced government manoeuvrability to zilch and it seems that government has practically abandoned all hope of getting re-elected. PL Leader Muscat is astutely adopting a low key critical poise letting the PN stew in their own broth rather than unite the warring factions by giving them a defiant common enemy. In so doing Muscat is avoiding the need to spell out in detail his own policies, allowing the spotlight to remain on government’s deficiencies rather than on the merits or otherwise of the opposition’s alternatives.

It takes only a short walk from the Floriana car park to the Main Guard Square to understand how government lethargy is rubbing on poor quality standards everywhere, even on our primary Main Street.

Trash cans are infrequent and where found they are in disgusting state. On the Floriana side trash cans are rusty metal bins set in tatty wooden structures that have not seen a lick of paint for ages. Outside City Gate the bins are dirty twisted sheet metal cans covered in pigeon droppings. Inside Valletta the structures are solid cast iron which must have looked nice when new but they have not been serviced or washed since they have been fixed. I long for Stockholm where you can find a trash can with monotonous regular intervals not exceeding 50 metres and believe me, you could eat dinner from them. Heavy cast iron cans get regularly replaced and sent for re-painting so they look permanently clean and shiny.

The pavements at City Gate bus terminus are not even third world standards. Does it take the world to keep the pavements in this most critical spot outside our main city gate in decent shape on a continuous basis? And does it take a Ph.D. to enforce regulations so that pedestrians can walk normally into the city rather than having to zigzag between taxis, horse cabs, and merchandise irregularly overflowing from the kiosks to the pavement?

But the cherry on the cake is found in St George’s Square (Main Guard) which is currently undergoing major upgrading works. I know the design has received mixed reception and there are many others much more qualified than I am who have expressed serious reservations on the suitability of the modern uniform being vested on this historic piazza. But that’s not what irks me. I am prepared to accept new ideas and to judge on completion.

What irks me is the boundary protection that is surrounding the site whilst works are going on. The intentions are good. To make the boundary attractive it is covered with large photo-boards showing details of the architecture in the square and some finished product simulation of the project. If it were done professionally enough it could have been an attraction requiring only some legend or narration to explain each photo-board in different languages.

I could not find a single photo-board hanging properly as it should be. Many photos have come off the metal structure and are just standing idly against it. Others have lost one or more of the make shift plastic belts so most photo-boards are hanging lopsidedly rather than horizontally.

How can such lackadaisical approach be tolerated when we are talking about the main square in our capital city standing right in front of the Presidential Palace and Parliament building? Where has our pride gone? Or have we all become so used to low standards that we have lost all sense of what genuine quality really is?

If government cannot keep decorum of good quality standards on the Main Street just imagine how much we can expect it to perform the restructuring that our economy badly needs. This is a hard job in the best of times and much more painful during a recession. If government has lost zest for keeping our Main Street looking decent can it conduct effective restructuring to keep our health services and pensions sustainable, or can it undertake capital project with good transparency standards in the adjudication and award stage and constant invigilation in the execution and delivery stage? The ramblings at Enemalta regarding the extension of the Delimara power station is not exactly a certificate of efficiency and good governance.

The unsuccessful attempt to move the national agenda to discuss choosing 21 September as the national day shows how desperately government is trying to regain control of agenda with superficial issues, and how incompetent and pitiful these attempts are.

If we have three more years of this inertia you will have to forgive me for turning more cynical, restless and hard to please.