Bagit li Huwa Skars mill-Kredibilita

Bagit li Huwa Skars mill-Kredibilita

11 ta’ Novembru 2009

L-Orizzont

Alfred Mifsud

L-ekonomist Alfred Mifsud qal li l-Baġit għall-2010 huwa skars mill-kredibilitā. Hu qal li l-Ministru Tonio Fenech għandu rekord tal-aktar Baġit li mar żmerċ. Fakkar kif sena ilu qalilna li l-ekonomija Mal­tija se tikber bi 2.4% f'termini reali fl-2009, iżda s'issa nafu li minflok, din se tiċkien bi 2%.

Sena ilu, żied jgħid Alfred Mifsud, il-Ministru Fenech qalilna li d-defiċit għas-sena 2008 li kien fadlilha inqas minn xahrejn biex tispiċċa kellu jkun ta' €200 miljun.

Minflok spiċċa €233 miljun, li jfisser li għal perjodu ta' tmin ġimgħat neqsin żgarra b'16.5%.

Fakkar ukoll li Fenech sena ilu qalilna li d-defiċit għas-sena 2009 kellu jkun ta' €99 miljun, iżda issa nafu li se jkun ta' €258 miljun, aktar mid-doppju u nofs. Dan min­kejja li n-nefqa kapitali se tkun €44 miljun inqas minn dak li kien ippjanat.

"Sena ilu Tonio Fenech qalilna li sas-sena 2011 id-defiċit kellu jispiċċa għal kollox u minflok ikollna 'budget surplus', iżda issa nafu li se nistennew sas-sena 2012 biex id-defiċit jinżel għal taħt it-3% tal-Prodott Gross Doestiku (PGD)."

F'kumment lil l-orizzont dwar id-diskors tal-Baġit, l-ekonomist Alfred Mifsud qal li "huwa minnu li d-dinja għaddiet minn kriżi finanzjarja li ħassret ħafna mill-previżjonijiet li kienu saru, iżda din mhix ġustifikazzjoni għall-iżgarr kbir li ġarrabna fl-2009 imqabbel mal-Baġit li ġie ppreżentat sena ilu, għax sena ilu konna diġā fil-qalba tal-kriżi u kien jidher ċar li riċessjoni internazzjonali kienet inevitabbli.

"Ili nikteb li l-Baġit tas-sena l-oħra kien ibbażat fuq il-ħolm u kont bassart li d-defiċit reali kien se jkun darbtejn jew tliet darbiet aktar milli dak ipproġettat. Ma mortx żmerċ!" żied jgħid Mifsud.

Hu qal li meta wieħed jiġi biex jeżamina l-Baġit għas-sena 2010 "ma tantx nistgħu noqogħdu fuq iċ-ċifri għax ir-rekord tal-Ministru jurina li ma tantx għandu kredibilitā biex jipproġetta l-andament ekonomiku b'mod reali. Apparti minn hekk, issa saret normali li ħafna inizjattivi jissemmew biex ikollna diskors twil u fil-prattika, speċjalment f'dak li huwa infieq kapitali li tant huwa bżonnjuż biex joħroġna mir-riċessjoni, iżda dak li jkun ipproġettat ma jitwettaqx."

Mifsud żied jgħid li ħafna mill-miżuri tajbin li fih il-Baġit għas-sena 2010 kienu jkunu ferm adattati kieku ttieħdu s-sena l-oħra għax konna nkunu ħadna l-medi­ċina li toħroġna qabel mir-riċessjoni, iżda issa li waqajna lura se nbatu biex nirkupraw.

"Lanqas ma nifhem kif il-Gvern ħabbar il-kumpens għaż-żieda tal-kontijiet tad-dawl u l-ilma bla ma ħabbar kemm se jogħlew dawn il-kontijiet. Din l-inċertezza ma tgħinx, la biex isiru l-investimenti li joħorġuna mir-riċessjoni u lanqas biex il-familji tagħna jkunu jafu x'jistgħu jonfqu u x'jeħtieġ li jwarrbu. L-iskuża li r-regolatur ma riedx li l-Enemalta tippubblika l-proposti tar-rati qabel ma japprovahom huwa ma tikkonvinċix. L-Enemalta għand­ha d-dover tinforma lill-pubbliku x'qiegħda tipproponi u r-regolatur għandu jkollu l-fibra u l-awtonomija biex japprova biss dak li jidhirlu xieraq, irrispettivament jekk ġiex ippubblikat jew inżamm sigriet."

Mifsud jissokta jgħid ukoll li l-argument tal-Gvern li la ż-żejt għola minn barra bilfors ikollu jgħaddi dan l-għoli lill-konsumatur jagħmel sens sa ċertu punt. Qal li sussidji għat-tul jafu jkunu kontraproduċenti għax ma jippermettux li jsir l-aġġustament tal-konsum biex tissaħħaħ l-effiċjenza fl-użu tal-enerġija. Iżda l-Gvern ma jistax ikun pustier bejn il-konsumatur u s-swieq internazzjonali.

"X'żamm lill-Gvern u l-Enemal­ta milli jagħmlu 'hedging' għat-tul meta l-prezz taż-żejt niżel għal $40 fl-ewwel kwart ta' din is-sena? Xi jżomm lill-Gvern milli jagħmel 'price smoothening' biex ma jagħtix skossi lill-ekonomija u niġġudikaw il-prezz taż-żejt fuq perjodu twil fejn meta jorħos ħafna nġemmgħu biex nagħmlu 'cushion' għal meta jogħla ħafna," tenna l-ekonomist.

"Taħt Gvern Laburista tas-snin 80 il-'price smoothening' kien isir mhux biss fl-enerġija, iżda wkoll fil-qmugħ u l-provvisti essenzjali oħrajn."

Mifsud wera simpatija mal-argumenti tal-azjendi li qegħ­din jilmentaw li żieda fil-COLA ta' €5.82 fil-ġimgħa għas-sena 2010 qiegħda tippre­ġudika l-kompe­tittivitā tagħna f'dinja mgħattna mir-riċessjoni.

Hu temm jgħid li wasal iż-żmien li din is-sistema peri­ko­­luża tindifen għall-inqas fejn jeżisti ftehim kollettiv u l-pagi tal-ħaddiema koperti minn ftehim kollettiv ikun stabbilit b'negozjati bejn l-unjin u l-prinċipal wara li jittieħdu passi biex jiġi żgurat li ż-żidiet ikunu relatati ma' żidiet fil-produttivitā.

 

 

 

The Wall and the Roundabouts

The Wall and the Roundabout

6^th November 2009

The Malta Independent - Friday Wisdom

Alfred Mifsud

Next Monday the world will commemorate the fall of the Berlin Wall. On 9 November 1989 Communism in Eastern Europe crumbled to the extent that it no longer had the energy to enforce the separation of the Eastern soviet satellites from the western democracies and in particular it had no longer the will to enforce the separation of Berlin.

Twenty eight years after it was constructed to remove the allure of crossing over to enjoy the economic prosperity and personal freedom on the democratic Western side of the Berlin controlled by the then West German government with the help of NATO allies, the Wall was torn down with bare hands of the population seeking re-unification and freedom.

During a revolutionary wave sweeping across Eastern Europe which had started with the Solidarnosc movement in Poland, the East German government announced on 9 November, 1989, after several weeks of civil unrest, that all East German citizens could visit West Germany and West Berlin. Crowds of East Germans climbed onto and crossed the Wall, joined by West Germans on the other side in a celebratory atmosphere. Over the following few weeks, parts of the Wall were chipped away by a euphoric public and by souvenir hunters; industrial equipment was later used to remove almost all of the rest. The fall of the Berlin Wall paved the way for the re-unification of Germany which was formally concluded on 3 October, 1990.

A seminal moment in the years preceding the fall of the Wall was US President Reagan’s unforgetable speech at the Brandenburg Gate on 12 June, 1987. While commemorating the 750th anniversary of the founding of the city of Berlin, Reagan challenged Soviet Premier Mikhail Gorbachev to liberate the Soviet bloc nations, saying:

“We welcome change and openness; for we believe that freedom and security go together, that the advance of human liberty can only strengthen the cause of world peace. There is one sign the Soviets can make that would be unmistakable, that would advance dramatically the cause of freedom and peace. General Secretary Gorbachev, if you seek peace, if you seek prosperity for the Soviet Union and Eastern Europe, if you seek liberalisation, come here to this gate. Mr Gorbachev, open this gate. Mr Gorbachev, tear down this wall!”
As it happens he could just as well have told Mr Gorbachev to dismantle communism. Because the Berlin Wall in particular and the iron curtain in general symbolised the existential need for communism to deny personal liberties in order to maintain the State as the body and soul of the whole nation.

During the Wall’s existence a disputed figure of about 200 persons were killed while attempting to cross it.

What about the roundabout? The Berlin Wall could not survive more than 28 years even though it was erected and guarded with the military might of a super-power that for a period during the Cold War was suspected as capable of overcoming the West through its military machine and nuclear capability. However the Kappara roundabout, better referred to as the one near the no longer existing tank tal-gass has survived longer, much longer.

In this regard this week we had a damascene conversion and a revelation of biblical proportions. We were told that the government is shelving the project for a by-pass at Ghadira Bay and instead will use the EU funds to construct a multi-level traffic junction at this crucial intersection which wastes so much time, fuel and energy and causes so much aggravation to commuters every morning and every evening.

I don’t know by what stretch of imagination government has ever considered that the Ghadira Bay by-pass should have higher priority than the necessary infrastructural investment necessary to ease traffic in crucial intersections. I am not just referring to the Kappara one; we need as well urgent solutions to the l-Iklin, Marsa/Santa Lucija, and Msida intersections among others.

We are one of the most under-invested countries in so far as road networks are concerned and government should have used these recessionary times to launch a massive programme for upgrading our major traffic intersections.

We have probably got used to such low standards that we got to accept even the sub-standard as normal. Only this explains that we have not been showing the same determination that East Europeans have shown to overcome communism and tear down the iron curtain; the same determination that East Berliners have shown to overcome their insulation through tearing down of the infamous Berlin Wall.

Our walls and iron curtain are the roundabouts that waste so much of our time and put our nervous system a notch higher than it ought to be every morning and every evening. High time government gives us what we need, stops dreaming about mega projects which do not improve our everyday life and focuses its energies on upgrading our road network which by all measures can hardly be considered even third world standard.

Dr Gonzi tear down these roundabouts! They have far outlived the Berlin Wall and that’s not a record to be proud of.  

Too Big to Fail

Too Big to Fail

1^st November 2009

The Malta Independent on Sunday

Alfred Mifsud

Now that the international financial crisis appears to have stabilised after massive interventions by governments, monetary authorities and regulators, focus is shifting from mere survival to re-designing the financial system to ensure that what happened will never happen again.

In this context the whole argument revolves on how to tackle the “too big to fail” moral hazard risk.

If failure of one of the smaller financial institutions like Lehman Brothers proved big enough for the whole financial system to seize up, then the new regulatory regime has to be designed to ensure that no single institution, no matter how big, should pose such a grave systemic risk.

The present system of moral hazard is untenable. It is scandalous that significantly important financial institutions are allowed to pass on to their shareholders and their bonus rich employees the benefit of the profitable years in the knowledge that if they hit a rock the taxpayers will bail them out, as they are too important to be allowed to fail without bringing down the whole financial system.

There is therefore broad agreement that in the new regulatory regime no financial institution will be allowed to be, or become, too big to fail. After all, failure lies at the core of market based systems and we cannot safely have a properly functioning privately owned market based financial system if the possibility of failure is excluded and the taxpayer can be relied on to underwrite losses to save the system from imploding, as happened in 2008/2009

Where there exists a substantial difference of opinion is over how the “too big to fail” institutions can be forced to downsize and thus stop being a systemic risk if allowed to fail.

There is one school of thought, championed by the governor of the Bank of England Mervyn King, which argues that the problem has to be addressed in a direct manner. Institutions categorised as being systemically important simply have to be forced to get smaller by separating their traditional deposit taking and financial intermediation role from their investment banking operations.

This would largely be a return to the Glass Steagall Act of 1933 introduced in the US following the Great Depression, which effectively prohibited commercial banking (deposit taking and commercial lending that was considered as a utility provision critically important for economic growth through the supply of credit and therefore prohibited from undertaking risky speculative dealing in market instruments for their own treasuries) from teaming up with investment banking, which effectively gets involved not only in executing third party deals but operate their own large treasuries taking risky positions in trades for their own account. Mervyn King has reiterated that casino operations have no place to co-exist within banking organisations providing credit utility services.

Another school of thought considers such an approach impractical, as it is unlikely to find international application and would merely involve regulatory arbitrage with large banking organisations merely shifting to a softer regulatory regime. In such a case, London, which is where Mervyn King has his throne, being the largest international financial centre, would be a net loser. This explains why King is not exactly the darling of the British Chancellor of the Exchequer Alistair Darling.

The school of Alistair Darling argues that it would be difficult and indeed unreasonable to force such a direct division. To be effective, such a division would have to mandate that investment banks be wholly financed outside the commercial banking system so as not to retain any indirect exposure by the latter to the former, and this is quite impossible. Furthermore, it is quite imaginable that if such strict separation were enforced, commercial banking per se would gradually wither away as depositors would switch their deposit funding on low rates to higher income funding on the markets offered by the investment banks. This would effectively downgrade the critical financial intermediation role of the commercial banking system.

The Darling school of thought wants to address the “too big to fail” anomaly by introducing more rigorous capital requirements for banks, which apart from conducting pure commercial banking operations also operate investment banking operations, as all large international banks currently do. So their argument goes that the bigger the bank, and the bigger the risks undertaken by such big banks, the bigger the capital requirements demanded. Effectively, this would act as a market-based disincentive to keep large investment banking operations within the same structure of commercial banking. In time, banks would realise that it would be more profitable to conduct such investment banking operations in hedge fund types of structures, which are entirely funded by investors capital, with strict limits on leverage, and which can pay as much bonuses as they want to their star performers, as their operation would not involve the taxpayer in any expense or subsidy, or even in implicit guarantees.

Building on this concept, the US House of Representatives banking committee is proposing that any future bail out funded by taxpayers would have to be funded directly by taxing the surviving banks. There is an argument whether such funding should come a priori by building reserves in good times, as is done with the operation of the deposit insurance schemes, or should be triggered by events a posteriori. Many argue that the latter would be quite difficult, as the triggering event would render surviving banking institutions too weak to carry the burden of additional taxation.

This financial crisis has produced new catchwords and phrases that will remain embedded in the language. We have now passed from “toxic assets” to “too big to fail”.

It is inevitable that the banking sector has to pay the price of much heavier regulation once it has proved itself untrustworthy to operate in a light touch regulatory environment that relies on self-regulation. Banks have involved the taxpayer in heavy losses and shamed their regulators and monetary authorities who had defended their freedom as leading to better risk distribution and financial efficiency. Events have proved that the reality was totally different.

Banks that survived are not helping their own case by resorting so quickly to scandalous employee bonuses distribution without taking into consideration that their own survival is due to explicit or implicit taxpayer guarantees, and that the huge profits they are registering after the huge losses of the crisis are only due to the exceptionally low interest environment that monetary authorities had to engineer to facilitate the recovery. Such short-term reasoning by greedy bankers will only mean more and stricter regulation for the longer term.

How to resolve the “too big to fail” hazard remains under discussion. But it has to be resolved as otherwise, after solving and emerging from this financial crisis, we are only sowing the moral hazard seeds for the next one, which will be bigger and more devastating. The taxpayer is unlikely to be willing or able to help out again.