17 - 23 May 2001

‘The government is delivering’

The deficit can be reduced and taxpayers will be relieved of part of the burden,
Finance Minister John Dalli insists. He was speaking to Ivan Brincat

The government’s popularity at present is probably at its lowest. The results in the local council elections were indicative but still the government has continued to take decisions while giving the impression that it is not listening to the people’s moaning. Do you see a risk that the Nationalist government will not be re-elected to power?
The Nationalist government is delivering on all fronts. It has promised an economy which creates jobs and this we have done. It has promised a reduction in the deficit and this we have done. Looking at the issues of university students, social protection for workers, environmental clean-up – this we have done or are in the process of doing.
Some decisions that have been taken were tough. These were not only tough for those (including ourselves) who were affected by these measures but also for those who took the decisions. I am sure that before long the Maltese people will realise that we are doing what we said we would do.
And this will lead the Maltese people to return to government a party that has delivered on its promises. I beg to differ on a couple of points in your question. The results of the local council elections were in no way a defeat for the Nationalist Party. Whoever analyses the results can see that compared with what happened three years ago before, many Labour voters were pushed to polling stations unlike the previous election when they stayed at home.
We do listen to the people. However, we have to be careful that we do not stray from the path that we strongly believe to be of benefit to all.

Take privatisation. After the privatisation of Mid-Med Bank, things have moved at a very slow pace. Why?
We privatised Mid-Med Bank and made a very strong statement that privatisation is on the cards. Meanwhile, we have made preparations so that various companies could be privatised. In the bank’s case, the environment was conducive to privatisation because the reforms in the financial sector were implemented and operations by private enterprise could begin.
In other sectors, a lot of preparatory work had to be done. For example, at the Malta Freeport we had to rearrange the conditions of the international loan the Freeport had taken to build its infrastructure.
At Malta International Airport we have to develop the relationship between the airport and the airline company. We also have to
determine the real estate that will be included when it is privatised.
With regards to Maltacom it is ludicrous to privatise such a company in the monopolistic situation that we were in. The privatisation of part of this company by the Labour government was a step in the wrong direction. We have spent the necessary time to discuss and agree on the liberalisation programme which is currently being implemented. This will create the right environment for further privatisation of Maltacom.
In the case of the lotto department we had to review the law setting up the regulator of the gaming sector in Malta. This will soon be discussed in Parliament.
A lot of preparatory work has been completed and calls for interest have been issued for the privatisation of the Freeport, the Lotto Department, Kordin Grain Terminal and MOBC.
But what is the strategy for privatisation? Are you looking at foreign investment?
We do not have a template for privatisation. For the Freeport, we are looking for a 30-year management agreement with a foreign operator. In the case of lotto, we would be seeking some type of foreign involvement due to the technologies involved. But it is public knowledge that there is also Maltese interest in this field. For the airport, we will seek a minority shareholding from a strategic partner and the rest of the company will be sold in stages on the local stock exchange.

The privatisation of government assets is being done at a time when the government’s debts are more than Lm1bn liri and when public expenditure has not been controlled. The deficit is still there. Could privatisation of government assets be a risk if spending cuts are not made?
No, we have made it very clear that all proceeds from privatisation will go towards debt reduction and not a single cent will be used to finance government spending. We have to keep pushing to balance our revenues and spending on a year to year basis without bringing in one-off receipts by privatisation.

But what are you doing to ensure that there are spending cuts? In which areas do you think that there could be less public expenditure?
When one talks about spending cuts, one is talking in general about public expenditure. However, my emphasis is on recurrent expenditure rather than capital expenditure. We also have to look at the big expenditure accounts and we have to make an effort to at least control their expansion. Two large items of expenditure that are also linked together are the payroll and pensions. We have to ensure that we do not give in to pressure which would lead to another increase in expenditure. I am referring to the exorbitant claims being made by unions when negotiating collective agreements in the public sector. One has to understand that in the private sector there are real checks and balances when negotiating collective agreements. The Unions know that there is a line which cannot be crossed and which could lead to unemployment for its members.
In the public sector there are no such checks and balances. The Unions expect and demand high increases which the government is expected to generate or finance through increased taxes. This is not on the cards.

So government will retain a hardened stance?
Yes. But there is a reason. After the adjustments were made in the public sector and the huge increases we gave to this sector, the wage levels today are reasonable. We cannot entertain requests for double digit increases per week every year.

With government being a very large contributor of GDP, there is also the risk that spending cuts might lead to a recession. Do you agree?
It very much depends on the spending cuts. In reality, spin-offs and effects have to be expected. Therefore, we have to ensure that when we talk about labour costs to government, we do not talk about making people redundant. The starting point should be pushing people in the public sector to be more productive. That is why we are discussing with the Unions the concept of public private partnerships. The solution is not to fire 5,000 people as someone had advised when Labour was in government. Our solution is to better manage workers in the public sector.

Economic indicators show that the country is doing fine, there is low unemployment, inflation is kept under control and there is econo-
mic growth. However, businesses speak of hefty cash-flow problems, there is an acute problem of late payments, banks are tightening up their financing policies. What is government doing to address these
problems?
What are the causes of the problems, especially with regards to cash-flow? Businesses which have a cash flow problem have either over-traded in the past or are the victims of debtors who have over-traded in the past. There was a phenomenon were cash flowing into businesses was used for expansion or for other investments outside the business thus leaving the business dry.
Today banks are operating in a very transparent way. They are lending money on projects that look viable and not basing their lending on collateral but on
the soundness of the projects
presented.
This is part of the structural reforms needed in our country.

Do you think that venture capital can come into the picture here?
One deficiency is the lack of venture capital. The government had made attempts to set up venture capital funds with little or no success. We also had a venture fund as part of our EU financing. This also took years to be taken up.
Maltese businessmen have to stop running their businesses in the family.

There are companies which obviously have bad loans with the banks. Do you think banks should call these bad loans and focus on companies with healthy business plans?
I am not in a position to tell the banks what to do. However, my advice is that in cases were businesses were heavily geared with the banks, they should be given time to correct the situation. It will be detrimental to the business, to the banks and to the country if the banks observe or follow a rigid policy. Flexibility is very important in these matters.

Recently there was a report from the corporate stockbrokers of Maltacom recommending shareholders to sell. Are you worried about the performance of certain companies on the stock exchange?
My advice to people who have invested on the Malta Stock Exchange is to use their common sense. The companies that are
listed on the MSE are solid and the share prices will reflect their solidity and their growth.
It is unfortunate that over the past months, share prices on the Stock Exchange were bloated to a high degree. I believe that some of this was done intentionally to give a shoulder to the Malta Labour Party in their campaign that Mid-Med Bank was sold cheaply.
I have warned against these exaggerated prices and I believe the share prices have found their levels. I again repeat my advice to shareholders to wait for the value of these shares to grow as the companies continue to grow.

Do you think there is space for financial advisers who are not stockbrokers?
I believe there is a space for independent financial advisers who do not depend on commission for their livelihood.

The governor of the Central Bank recently said the country has been living beyond its means. Do you agree with him?
This is no news, the deficit shows it. The high deficit we have shows that we were taking out of the country more than we were putting in. This is the painful change that needs to come about and the hard decisions that have to be taken.

Malta continues to be heavily dependent on ST Microelectronics. Meanwhile companies like Optika have folded up while other large manufacturing firms are facing dire times. What are the problems and how can these be solved? Is Malta still attractive to foreign director investors?
The main problem is the international market. There are cycles in the market which have to be adjusted through the shedding of capacity if the markets go down. In my experience in manufacturing, cycles always come back and then lead to technological innovation, investment and increases in the work force.

The GRTU has claimed that it will not take part in the technical committee on benchmarking. Are you worried about the situation? How big is the tax evasion problem in Malta?
The problem of tax evasion is acute. The government has promised to tackle it and we will. Any decisions will be taken objectively and we are asking all interested parties to take part. It will
be a pity if some do not reply positively to our invitation.

In an interview with The Times last week you said you are interested in the Prime Minister’s job when it becomes vacant. “We all have ambitions to move ahead,” you were quoted as saying. What is the reason behind this?
In effect, The Times interviewer asked me about my ambitions and I stated that I do have ambitions.
Naturally ambitions have to be
managed and as I have stated we have a prime minister and the job is not vacant. I am not only totally committed to Eddie Fenech Adami but my loyalty to him as leader is total and unconditional.

What is your vision for the country. Where do you see Malta in 10 years’ time?
I believe in this country because of my earlier experiences in the private sector. I have worked extensively in an international arena not in the diplomatic service but in the private sector’s international arena. The Maltese are a people with a future.
We have a high capability to
perform once we are properly trained and operate in an organised and disciplined environment. I believe in a country that can rub shoulders with the best in this world and the administration should create such an organised and disciplined environment.
I see Malta as a member of a bigger entity – Europe, sharing sovereignty with big countries in Europe and riding on the critical mass that we cannot generate. This in the fields of human resource development, research, industrial integration, trade flows, financial and other services and in other issues like defence.

When will the country reap the fruits of government’s policies? Will the tax burden decrease and will there be a day when taxpayers get value for money, like roads, protection of cultural heritage?
These are our objectives. We hope that within the projected time frames we published in 1999, we will have reduced the deficit and relieved taxpayers of part of the burden.