‘Malta diversifying between various sectors of the economy’

Finance Minister Tonio Fenech told Parliament yesterday that Malta had recognised the importance to diversify between the various sectors of the economy as this offered economic stability. Malta was not only emphasising on the financial services and remote gambling sectors but was also focusing on other important sectors such as tourism, maritime activities, manufacturing and transport industries in order to maintain economic balance.

Mr Fenech was addressing points raised by Labour MPs Charles Mangion and Alfred Sant in their contribution to the debate in second reading of the Various Financial Services Laws (Amendment) Bill.

The government insisted that progression had to be made at a cautious rate since it wasn’t healthy for the economy to come to depend on an exclusive sector. Countries such as Iceland and Ireland had greatly suffered from the financial crisis since their economy was greatly dependent on the financial sector.

Mr Fenech said that the government was definitely not being complacent about this sector. Although the World Economic Forum had placed Malta in the 10th place, the government had continuously worked to improve the regulatory structure of this sector.

The minister agreed with Dr Mangion that the regulatory aspect of the financial sector should be strengthened through impartial and independent investigations carried out by the Malta Financial Services Authority. These increased the credibility of the sector. The amendments presented in the current Bill were making the procedures more transparent.

Referring to Dr Sant’s comment that there was the need to approach this sector with more attention and prudence, Mr Fenech said that this was definitely the strategy being taken by the government.

He said that it was true that the gross value added per capita in Ireland was higher than that in Malta. However one had to keep in mind that like Luxembourg, Ireland was a financial hub with a long history in this sector. Malta, on the other hand, had started in this sector much later on an offshore basis to move on to reform the whole system in the 1990s. The development had then proceeded at a steady pace.

During the financial crisis, the authorities had met with the banks to discuss the effect that the crisis could have.

These meetings had proved to be successful since the institutions in Malta had not defaulted like institutions abroad.

He said that although the government wished to see an increase in the gross value added per capita, it had to be careful to keep a balance and understand the way that this sector was evolving.

With regard to Dr Sant’s comments on the banking sector, Mr Fenech said that the IMF focused on the challenges and risks faced by banks. The IMF Report referred to Malta’s banks exposure to properties. Mr Fenech said that Malta had to be careful not to be over-exposed to property.

The risks highlighted by the IMF did not put Malta on a level of concern but it was nonetheless important to recognise these.

When one analysed the strength of banks in Malta, one realised that Malta was well within the internationally-required standards especially with regard to liquidity and capital adequacy ratios. This balanced out the risks pointed out by the IMF. One had to keep in mind that the Maltese honoured payments and that the IMF was not aware of this culture whereby the Maltese preferred to take a loan and buy, rather than rent, property.

Mr Fenech agreed with Dr Sant that one had to be careful with regard to the financing of certain big projects. During the past 12 months, the government had gone through a process of consultation which had resulted in the MFSA being harsher in the scrutiny carried out before it approved the listings to the Stock Exchange. The public had to be assured that the money owed would be paid back.

Some could argue that these stricter listing rules would result in fewer listings on the Stock Exchange. Mr Fenech said that he wasn’t ready not to learn from the mistakes of other countries. It was the government’s responsibility to ensure that the persons involved were in a position to repay. Such measures showed that the government was definitely not being complacent but rather was taking it a step too far.

Turning to the euro, Mr Fenech called for more responsibility-sharing. He said it was necessary to introduce mechanisms that would reintroduce stability to the currency.

What led to the current situation the euro was in, was not the treaty that created it. The crux of the problem centred on a lack on the adherence to the Maastricht criteria on the part of some member states.

It was clear, Mr Fenech said, that benefits related to the euro would be enjoyed only if member states adhered to the this criteria, which would ensure member states to maintain manageable and stable deficit, inflation and debt levels.

Because such regulations were not observed, direct consequences of this were amplified and accelerated by the economic and financial crisis. The crisis, he added, was caused by a lack of regulations, resulting in the collapse of banks like Lehmann and Northern Rock.

The reality was that certain EU mechanisms were not sufficiently strong to ensure member states fell in line with regulations. Had these mechanisms had been stronger, one could have avoided seeing Greece in the situation it was today.

That Malta was not in the same situation as Greece was the result of sacrifices made by the whole country. He said that besides Malta, other member states such as Finland, Germany and the Netherlands had to resort to making similar sacrifices, keeping certain principles in mind. Mr Fenech called for more sharing of responsibility by politicians. It should be acknowledged that there was a duty to introduce mechanisms that would reintroduce stability to the euro.