If there are, say, 600 days left before Election Day, the Opposition's papers and their other media have to come up with at least 600 items of negative news, one for each day. It's not an easy job, but they get some help. On Monday, there is a regular column written by an ex-Central Bank employee, who can be counted on for a weekly scoop in l-Orizzont. His piece this week had an ominous title: "Freefall in reserves".

Surely he knows he's exaggerating. I found an old Central Bank Quarterly Review, back from around the time when Alfred Sant was prime minister. The central bank's external reserves ended 1997 at Lm542 million, 1998 at Lm640 million and 1999 at Lm740 million. At the end of May 2006, they stood at Lm934 million. What freefall is he talking about? He must have taken his cue from the slight increase in interest rates that the Central Bank implemented the other day to ensure that lira-denominated financial instruments remain attractive. But where's the panic?

In any case, where did these reserves come from? In Malta, we have a long tradition of controls on imports of products and on movement of capital funds. Socialist governments of the Seventies and Eighties excelled at strict controls over what could be imported. Nothing came in without the ministry's blessings. From instant coffee to evaporated milk, from tinned corned beef to Bulgarian fruit preserves, from chocolate bars to colour TV sets, every import needed a government permit, and it had a government imposed price attached to it.

With such a tightly run ship of state, I am sure that in their long years in office, our socialist ministers travelling abroad found ample opportunities to exchange notes on the niceties of economic controls and bulk-buying with the leaders of places like North Korea and various Communist bloc countries like Romania and heaven knows where else. I do not know whether the severity of such controls was driven by the paranoia about Malta being such a small, resource poor and precarious economy.

Then there were capital controls. Money could not be invested abroad without permission. So foreign exchange poured in from our exporting ventures but only a trickle left Malta legally.

At home, things could have been better. The infrastructure was terrible. The number of properly built roads was zero. The airport was a Mickey Mouse operation. The phone system was useless. The then prime minister banned computers because they would displace human labour. The water tap was dry half the time, but the Central Bank was flush with foreign exchange liquidity.

But what is even more interesting is how the foreign reserves ended not at the banks but at the Central Bank. First of all, the banks too were subject to foreign exchange controls. Secondly, the vast underground economy operated in cash. At the end of the day, the Central Bank ended with a pile of foreign exchange on one side of its balance sheet and tons of Maltese paper currency on the other.

By keeping and stashing liquid cash, those who did not declare their incomes or money holdings were deprived of an interest rate or dividend on their cash, letting the Central Bank rake in all the income instead.

The miracle is that the entire control-based system was transformed in a matter of a few years. We have lived through a sea-change. People were brought up to believe that Malta needed a government to serve as babysitter. Instead, thanks to entry into the EU, we are rid of both trade and capital controls, and we are doing fine without them. We have found that we can operate an economy without the government micromanaging our every connection with overseas.

The transition to liberalised trade has been difficult for many, as previously protected products no longer had a government stopping Maltese consumers from buying the foreign-made competing product, or make it more expensive to shop foreign. The Maltese product sells on its own merit. Recent manufacturing statistics suggest that trade liberalisation has run its course and that most of the adjustments are behind us, even though this liberalisation was additionally difficult because of severe new competition from low-cost labour countries and because of rocketing oil prices.

Similarly, the Maltese are now free to invest abroad, and place their funds wherever they want. Now, we have fully liberalised trade and capital flows, and the economy is still functioning without the government forcing you to do this and blocking you from doing that.

Those with money to invest trust a government that follows a policy of fiscal discipline and a central bank that stands by its words. If the economy is operated with discipline and prudence, there is little need for the kind of capital controls that we were brought up with. Pretty soon, the euro will be the currency of the land, and the external reserves will no longer be needed to sustain the exchange rate. All this leaves precious little time for the Labour Party to stick its finger in the pie. The only way that things will really get screwed up is if Labour mucks up the works. There is little time left for Labour's zealots to undermine confidence in the lira, but they surely will try. Perhaps, last Monday's article was an example of the shape of propaganda still to come.

We have been through a period where we liberalised both foreign trade and capital movements. The danger is that the electorate will be sweet-talked into giving Labour the chance to destroy all that has been achieved. If we lose what we have achieved, it will be much harder next time.

Victor Aquilina, writing in The Sunday Times last week, took me to task for writing that it was Dom Mintoff's MLP that dubbed Strickland House "a factory of lies". He thinks that this epithet originated from an article written by PN leader Nerik Mizzi more than half a century ago.

Although he may be historically correct, I have no doubt that the MLP plagiarised it and made it its own. Mr Mintoff was still calling The Times a newspaper of lies as recently as the 2003 electoral campaign, as reports in the March 20 and April 8 (2003) issues of the same newspaper confirm. As far as I know no legal action was instituted by The Times on these occasions.

micfal@maltanet.net