Mepa, inflation, and Martin Feldstein

The Malta Environment and Planning Authority is undoubtedly this country's most influential organisation in determining the economy's movements.

Pre-Independence, Malta was dreary even if it exhibited signs of a prosperity long gone by. It is indisputable that between 1958 and 1964 there was a massive contraction of the Gross Domestic Product, although officially published statistics did their best to hide it.

In these days of abundance and rapid wealth accretion, people are increasingly interested in the welfare of their country. The next general election is going to be fought closely over economic issues, and one major question will be whether Mepa has been of help or hindrance to the economy.

Most people have come to notice that the economic crisis was provoked both in the US and in the UK also by matters connected with the housing market. This undoubtedly proves the importance of house prices in moving an economy.

The most important impact on house prices in Malta, much more than in the US, is world inflation. Almost everything which goes into the construction of a house in this country is imported.

One of the world's greatest and most respected experts on US and world inflation is Martin Feldstein, professor of economics at Harvard. What he has been saying recently on the subject has relevance on the considerations Mepa will be taking when it approves permits.

It would be wrong to think that the difficulties surrounding the granting of a construction permits cannot be worsened by far-fetched issues such as the installation of expensive facilities for the disabled, where they are not reasonably expected to be used.

Mepa should concentrate on how we are going to avoid the erosion of our wealth in the onset of world inflation. Bricks and mortar have always been the most secure of hedges against inflation. There are also urban disaster residential areas which are crying out for demolition and re-development.

'Green shoots' have started to appear in the world economy, and we are slowly becoming aware of those sinister factors which caused the current downturn. In a recent article entitled 'The Quiet Coup', analysed by the Financial Times, Simon Johnson, ex-chief economist at the International Monetary Fund has written how "elite business interests... are now using their influence to prevent precisely the sorts of reforms that are needed to pull the economy out of the nosedive".

And according to Feldstein, weak government understanding of the economic process, like premature monetary tightening, can only increase investors' fear over future price rises and fixable deficits. The crisis is now invading Malta, causing noticeable falls in trading activity.

Much can be done to avert it. Malta's banks have been prudently managed: they have made loans only from their deposits. In the case of HSBC, it has been publicly acknowledged that its deposit use in Malta is below the group's world average. This is not to speak of €400 million in deposits at APS Bank.

Mepa must not be the only organisation in Malta to fight inflation, an activity which is best done by employing money, in this case bank loans, in the area. If people want to be rich, let them be helped first to own their homes, and let there be a reasonable supply of commercial property for immediate letting. Dynamic decision-making is the best guard against inflation.

Mr Azzopardi Vella, economic consultant with DBR Investments Ltd, has promoted the Malta Development Fund and advised S and P.

johnazzopardivella@hotmail.com