Call for unilateral solution to national economic problems

- Central Bank Governor delivers strong words at Chamber of Commerce conference

By Matthew Vella

Central Bank of Malta Governor Michael Bonello delivered a courageous and to date one of the most powerful speeches on the state of the economy yesterday.

Addressing members of the Chamber of Commerce and other functionaries, Mr Bonello was speaking at the Chamber’s conference entitled "A More Efficient Country in an Ever-Changing World" at the Hilton.

Mr Bonello said necessary economic reforms could only be made possible if "all interested parties speak to each other around a table, not through a dialogue of the deaf where each party issues statements through the media, as happens today."

"There are countries like Ireland and Holland where all social partners agreed on a social pact… The prosperity enjoyed by the Swiss, who enjoy one of the world’s highest per capita incomes, is due to the fact they can organise themselves in an efficient way…it also has a very efficient public sector.

"The key to success is in the political system. Swiss politicians’ top priority is to have a permanent and lasting agreement on how the country should be run. For decades the government has been composed of a four-party coalition, almost a national government.

"If we should follow the Swiss in anything, we should unite in the search for a national solution to our economic problems."

Addressing the reality of the reforms Malta needed to undertake, Mr Bonello talked about tough decisions needed to reverse the unsustainability of Malta’s economy. Mr Bonello said Malta had reached a stage where it could scarcely afford to embark on capital expenditures when debt servicing costs are so high.

"If we want to reduce the deficit, we have to take difficult decisions, such as reforming the public sector and reducing the welfare gap. At present pensions amount to Lm154 million, 9% of GDP when 16% of the population is aged over sixty. In 20 years’ time this will increase to 25% and will bring with it higher costs in elderly healthcare…the country can no longer afford to provide so many social benefits and service free of charge."

Mr Bonello said it was high time the country’s weaknesses were acknowledged in order to seek viable solutions. But obstacles such as self-interest and a scarce work ethic continue to contribute to the much-maligned conundrum of inefficiency.

Hitting out at the Maltese political culture, Mr Bonello said the political phenomenon of populism make politicians make unrealistic promises: "Now, people have come to expect government benefits and free services of better quality, but without paying for them."

Addressing the fiscal deficit, Mr Bonello criticised the theory that increased government spending could stimulate economic activity. "People argue this gives more money to the private sector, but government spending also absorbs human resources, competing against the private sector.

"In Malta’s case, such a course of action would have another negative consequence, because when Government’s money goes into people’s pockets, this is eventually spent on imports, thus generating work for workers in other countries whilst increasing the balance of payments deficit."

Guest speaker for the event was Dr Steven Fries from the Economic Bank of Reconstruction and Development. Other speakers included Mr Joe Gasan, CEO Gasan Group, Dr Leonard Mizzi, Director of the Malta Business Bureau in Brussels, Prof Edward Scicluna, Chairman MCESD and final contributions by Opposition speaker for the economy and finances Mr Charles Mangion and Economic Services Minister Prof Josef Bonnici.

Deputy Chief Economist for the EBRD Dr Steven Fries talked about the Central and Eastern European example of reform and international integration. He said progress in EU accession, international integration and a better business environment underpinned the region’s resilience and provided greater access to capital.

In the 1990s, Central and Eastern European countries learnt the significance of adjusting to the commercial demands of European business. Their progress today has outperformed world figures. Accession countries, through price stability and the control of inflation have consolidated their progress.

Dr Fries said: "The openness of the market is the key and the basis for future growth. At times it is difficult to open up but improved financial restructuring has resulted in more foreign direct investment and capital flows are now responding."

Many of the speakers throughout the conference echoed most of Mr Michael Bonello’s statements and called for public reform as well as a more export-oriented economy. MCESD chairman Prof Edward Scicluna said the opposite had happened in Malta because it had not yet grown out of the post-WWII welfare state mentality and that more fiscal consolidation was needed.

Dr Leonard Mizzi, director of the Malta Business Bureau said there had to be a more transparent form of legislation to implement these policies without obstructing competition, and to start identifying new economic opportunities in the greater European market. Dr Mizzi called for a national consensus on the policy for structural. He also said there was need for a national competitiveness council to address gaps within the economy whilst co-operating with all social partners and create clear financial policies.

Addressing the conference in closure, Dr Josef Bonnici took opportunity to talk about the Malta Enterprise Board.

"It is not enough to look at the gradual evolution of our economy. We have to look for that determining force which will help us make the necessary leap we all want. This can only be made through EU membership." Minister Josef Bonnici said crucial measures such as ‘capacity building’ had to be taken, and this in the form of the recently heralded Malta Enterprise Board, which will encompass the MDC, METCO and IPSE.

"We are doing this to save the duplication of wastage of resources in these operations by integrating them into one", he said.

Minister Bonnici said Malta had to look for new opportunities, especially European ones, so as to consolidate the country as a Mediterranean commercial centre. He said the strategic aim for the creation of the Malta Enterprise Board was to integrate economic development where industry and commerce can become interdependent activities and not just complementary.