The case for devaluation

The loss of competitiveness, which is causing so much anguish by the loss of ever more jobs, is I believe due to the stubbornness of former (Finance) Minister John Dalli, in refusing to countenance a devaluation of our ridiculously high value lira.

When a British tourist finds that he will be losing 40 per cent of the value of his sterling due to the ridiculous rate of exchange, a Malta holiday will cease to be attractive financially.

Apart from the obvious impact on tourism, devaluation will help local manufacturers to compete in the vital export markets this country needs to safeguard employment.

It will also help in curbing our excessive import bill for goods of dubious value or utility.

The ever increasing taxation the government keeps on resorting to is making a bad situation worse. Taxation, which is passed on to the consumer and the importer of locally manufactured goods, naturally results in further loss of competitiveness and more factory closures and unemployment.

I do not wish to give the impression that a devaluation strategy is as straightforward as it might seem at first hand. However, luckily, the bulk of government debt is domestic debt and, thus, much easier to implement than if our devaluation was affecting foreign creditors. Devaluation would be tantamount to a breach of promise to a foreign creditor, with all the consequences that implies. Not so with domestic borrowing.

Another aspect of this equation is that quite a lot of imports, which are deemed as cheap, thanks to our high value currency, are sounding the death knell to many small businesses. This is tantamount to surrendering jobs to our competitors.

In an open market, such as the one we have opted for by our accession to the EU, competition is paramount for the survival of a healthy economy.

Devaluation will be the most equitable instrument to spread the burden, required to regain some long lost edge on our competitors.

We have reached such a sorry state of affairs where it is no longer viable to produce our salt requirement. Thanks to the high value lira, it is more expedient to import salt from Spain, rather than producing it from the brine in which we are surrounded.

If we do not act swiftly, I dread to think how we will fare in the EU.

The government ought to invite the opinion of prominent economists and act on their advice. I personally augur that Dr Gonzi will be more cognisant of the tragic consequences of unemployment than his predecessor proved to be by his damaging stubbornness, in refusing to grapple with the loss of competitiveness and the resultant unemployment.