22 November 2006

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Business Today

Malta Today



Up, up and away

The new dilemma over Gozo’s alternative transport route is about to erupt once again. Glen Heavens’s proposal, the first concrete plan on fixed-wing travel to appear exclusively in Business Today, carried with it the drive of the entrepreneur intended to deliver an efficient, profitable and satisfactory service to Gozo. Heavens will ultimately appear as an antidote to bad business moves. The operators and hoteliers smelt it upon the arrival of the Lm50 return flight to Gozo – it was too expensive. Within less than a year, the Spanish company operating the helicopter was no longer.
Does this mean fixed-wing airlinks will become the only alternative for ensuring an alternative link to the sister island? The main opposition to fixed-wing travel, which comes from opponents who have valid environmental arguments, will have to be heard out. Sustainability cannot just be a financial concern. This should all come to the fore if an impact assessment on a fixed-wing alternative is eventually carried out.
But other alternatives should not be ignored – a seaplane for example, something which government ministers have been asked to consider, could be a satisfactory compromise on both financial and environmental demands. The big question is what role will government play in restoring the airlink to Gozo – and whether it will choose to subsidise the service in the same way as it has subsidised low-cost travel to Malta.

Bretton beacon
Friedman’s dead, and the early 70s come to mind. The dismantling of Bretton Woods comes to mind, that postwar economic system devised by, amongst others, Keynes himself, to provide international finance to maintain exchange rate stability. It also called for the liberalisation of trade, but through the regulation of finance and fixed exchange rates. Back then, the role of the IMF was also to maintain exchange rate stability and cut back capital flight.
The US took the first steps to break down Bretton Woods, itself developing a huge deficit and seriously lacking competitiveness. Since the early 70s, markets have become much more volatile. Friedman was confident that freeing up the exchange rates, and letting the free market dictate, everything would settle down.
But with capital restraints reduced, and with limits on capital control, markets became more volatile. Between 1980 and 1995, the IMF says that around 20% of its 180 members suffered severe financial crises, another 60% suffering fairly serious ones. The volatility was itself informed and encouraged by investors looking for short-term gains and speculation, exploring little changes in currency fluctuations to make a lot of money fast. The end-result is here for all to see: money gets suddenly withdrawn, and countries have to drastically increase interest rates for their currency to maintain a semblance of attractiveness.
The volatility of the floating rates brings to mind the Tobin tax, and how forward markets today depend exclusively on speculation and smug assertions of economic greatness from market leaders and politicians. In the words of James Tobin himself, the tax on foreign exchange transactions is devised to cushion exchange rate fluctuations. By taxing, even at a small percentage of 0.1%, each exchange of a currency into another, speculators are dissuaded as many investors invest their money in foreign exchange on a very short-term basis. The Tobin tax is intended to give issuing banks a margin of manoeuvre, especially for small countries. Critics of the tax claim foreign exchange speculation is essential towards liquidity and keeping markets lubricated.
But the tax is primarily intended at discouraging short-term trades, some 90% speculative, and shrink the USD1.8 trillion in currency traded each day across countries to restore some national autonomy on currency and be protected from devaluation. The tax itself would serve to finance international priorities. It really means challenging the orthodoxy of global markets.

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