The Parmalat issue has been hitting the headlines in Italy since the beginning of December. There appeared to have been a link with Malta and this has brought the issue closer to home.

One local correspondent also asked whether there could be a "Parmalat" or an "Enron" for that matter in Malta. It may or may not be the case; but is that the important question that emerges from this whole saga? The truth about the whole story is still not fully out; however, in my opinion from what we know so far, there are other important questions that should be asked.

Within the globalised business environment, the questions are not relevant just for Malta. There may not be direct answers to such questions, but we should not ignore them, as there can be lessons to be learnt from them. One of the first questions that arises is how come a credit rating agency gave it a rating that can be described as satisfactory (BBB-) and did not realise that something was amiss.

On the basis of the rating, there were a number of persons and institutions that invested in bonds and shares of this company and its subsidiaries. These bonds were underwritten and supported by a number of reputable financial institutions.

This gave investors enough confidence to risk their money (in some cases lifetime savings) in such bonds and shares. Were the credit rating agencies and the financial institutions given information that lead them to the conclusion that the company was successful while in fact it was not the case or did they misread the situation? If it is possible that such organisations are given wrong information or if it is possible that they misread the situation, from where can investors get advice in future without the need to second-guess the provider of that advice?

Another aspect of the issue is the criticism levied by the Italian economy minister at the Central Bank of Italy for not having foreseen what did in fact happen. "Very clever after the event," some commented. And I tend to agree. The Central Bank of Italy could have, as part of its supervisory functions, through thorough inspections of the commercial banks operating in Italy and who were supporting this company, identified that something was amiss. However, the Italian economy ministry was in a position to exercise more control than the Central Bank. It used to collect VAT from Parmalat as well as receive its income tax return.

Were not the departments within the economy ministry responsible to ascertain the correctness and validity of these VAT returns and income tax returns? Did they not have a more direct access to the accounting system of Parmalat than the Central Bank of Italy?

Governments have set up a complex system of regulators as they withdrew from the operational role in the economy. Governments themselves are the regulators in a number of cases. Are we in a situation where, when something goes wrong, regulatory entities and governments start blaming each other and shifting responsibility onto each other? Are regulators and governments sure that they are setting rules that eventually safeguard the interests of the population or not of the regulatory system?

Yet another aspect is the point that the company in question made use of a number of offshore companies to undertake its operations. The allegation is that these offshore companies were made use of to hide the real financial state of the company.

A number of countries have enacted legislation that promotes the setting up of offshore companies within their jurisdiction. This was seen as a way of generating employment and earning foreign exchange. I believe that no one should be embarrassed of this, especially since the larger countries had already set up their own structures in faraway colonies to do exactly this.

The larger countries claimed that these new financial services centres are nothing more than tax havens and have sought to attack the fiscal rules governing such centres. They did little to assess whether large multinationals were using such centres, not so much to hide how much they ear but to hide what is really happening in their companies.

Could it be that we have relaxed the rules on the movement of capital so much that now such movement of capital has become an end in itself and not as means to make companies more efficient? Could it be that these rules have become so flimsy that regulators and investigators can no longer control what is happening?

When we speak of globalisation we speak of increased competitiveness because of increased efficiency. We speak to the threats to the labour force in countries which experience an outflow of investment or a surge in importation of goods that were previously produced in those countries. Could it just be that globalisation has also meant a removal of controls of various types and this has left much more room for abuse?

The Parmalat story will leave a number of scars, especially small savers. However will governments just sit there expecting for the next story to unfold? Some governments are known to be providing bail-outs to companies to avoid such stories coming out into the open. Is this the right approach? Is there much more to corporate governance than what has been done so far?