The immediate impact of the Libyan crisis on the Maltese economy “has been limited”, Finance Minister Tonio Fenech has told The Times Business in an interview.
“The immediate impact has been limited, but we have to assess the future impact as there are a number of issues pertaining to certain companies. However, from the information we have received from people who have approached Malta Enterprise, I think the situation is manageable. The impact is not as huge as was expected,” Mr Fenech said.
He admitted that a number of companies, such as Medavia, are directly dependent on Libya “and we have to assess the impact on such companies”.
Mr Fenech added: “How long this crisis lasts is also a factor in this equation.”
The Finance Minister dismissed a request from GRTU director-general Vince Farrugia for the government to guarantee Libya business loans as something “which should not be expected from the government”.
“When any company goes into a business venture, and the banks assess whether a loan should be given, they assess the risks associated with that venture. Usually, expected profit returns and interests on loans expected and given assume that risk. Taxpayers should not be expected to act as an insurance company. When companies export there are companies that offer export insurance and there are various ways of protecting one’s business interests,” he said.
Mr Fenech said the Maltese government could support businesses by dealing with the new government in Libya, when one is formed, to ensure that any dues owed are fully paid.
“However, the government, should never be expected to offer blanket guarantees to businesses. A country which did offer such a blanket guarantee to its banking system, Ireland, ended up in deep trouble. On a European level, when we talk of supporting banks, we are talking about those banks which are really fundamental to the economy, and not all banks. Therefore, one has to be very cautious with these types of proposals.”
Mr Fenech said a number of Libyan assets in Malta had been frozen by the government in response to the EU’s and the UN’s decision to freeze assets of the Libyan Investment Authority and of Libyan leader Muammar Gaddafi and his family
“We have frozen a number of assets and these are worth millions of euros. A unit has been specifically set up to track, monitor and take the necessary action to freeze those assets, and so there is a process there. However, I would refrain from divulging specific information,” he said when pressed to divulge exact figures.
Will this information be made public, as a number of countries have done?
“Not all countries have made this information public and the UN sanctions do not require the publication of such information. We are still assessing the situation and have not yet taken a decision as to whether or at what point we would publish.”
Asked whether the asset freeze on companies in Malta which had Libyan Investment Authority shareholding involved very large sums of money, Mr Fenech replied: “Not at the same level as the other (Gaddafi family) assets, but yes, there are significant amounts involved.”
He added: “The purpose of the sanctions is to ensure that money does not flow into Libya which will be used to finance a regime that is attacking its own people. Therefore, the companies themselves are allowed to operate as long as they don’t distribute any dividends or send any money to the Libyan central bank.”
Did he think Maltese-Libyan economic ties will ever be the same? Had the government initiated contacts with the Libyan rebel authority based in Benghazi?
“At the moment it is difficult to establish such contacts and our relationship will very much depend on who ends up governing Libya. There is a civil war going on in Libya and it is not the opportune moment to talk about economic ties.
“Obviously Malta is perceived to be a state within the EU which is not supporting Gaddafi, and which in its own ways is assisting in the implementation of the no-fly zone, and therefore the protection of civilians in Libya who were being bombarded by the Libyan leader. I believe we are perceived by the authorities ‘on the other side of the fence’ as being supportive.”
Mr Fenech defends the newly set up €700 billion eurozone European Stability Mechanism (€80 billion cash, €620 billion guarantees) which takes effect from July 2013 as well as Malta’s contribution to this fund.
“We will be investing in this mechanism, and this will give us a return. The funds loaned to the states in need of support are loans, so they will pay interest. Malta’s €56 million contribution is the portion required for the cash part of the mechanism, and we will then have to provide our guarantee part of the mechanism if a call is made for support from a member state, which is about €400 million.
“We are paying out less than under the European Financial Stability Facility rules, just like the eastern European countries and the ‘catching up’ economies, so to speak.
“Rather than taking the ECB key, which is based on the GDP and the population, and which placed a greater burden in the ‘catching up’ economies, by basing it only on the GDP, this placed the burden on the stronger economies,” he said.
Asked if he was concerned about a possible eurozone bailout for Portugal and whether the current European Financial Stability Facility was enough to help overcome such a crisis, Mr Fenech said: “For Portugal it is more than enough. The Portuguese economy is smaller than Ireland’s, but ideally we wouldn’t have any more crises!”
The eurozone also agreed to new rules aimed at tightening budget discipline and punishing governments that overspend, as well as greater economic policy convergence. Does the euro pact undermine Malta’s sovereignty on issues such as COLA and tax harmonisation?
“We have defended our position on COLA because we believe our system helps the Maltese economy. On the common corporate tax base, our position is very clear: For us to ever concede to the rules under this framework, which tries to establish a coherent tax base at European level, it has to be revenue neutral, which means we will not lose out, by seeing our taxes shifted to other countries.
“That will give us the right to object to this framework. We have not given up our sovereignty and there are many other countries which share our views.”