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ADDRESS BY MR. JOHN DALLI, MINISTER OF FINANCE, AT THE ANNUAL DINNER OF THE MALTA CENTRE OF THE CHARTERED INSTITUTE OF BANKERS, - HILTON HOTEL – 23rd NOVEMBER 2001

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23/11/2001

Mr President, Fellow Minister, Governor, Your Excellencies,	Distinguished Guests, Ladies and Gentlemen,
Never over these last two decades has the	international situation been so turbulent, and certainly no one single event since the Oil Crisis of the early seventies has had the shaking effect of the attacks on the United States on September 11th. An international economic slowdown has been accelerated by the outcome of these events and the following declaration of war. And as anxieties and anguish started creeping into people’s minds, the impact on business and consumer confidence augurs difficult times for both the real and monetary economy.
This is the backdrop against which the budget that I	have read three days ago was finalised. We have been constantly cognisant of the events as they unfolded, day by day, since the 11th September. We monitored the political initiatives, the military actions and the reactions in the global marketplace. We are aware of the restructuring that is being implemented in the various sectors. We are also aware of the shifts that have started in the way that business is conducted.
Malta is not immune from these realities. However, we	are seeing that while we have had a drastic negative effect in the electronic sector which is solely related to the international electronics market, the rest of the economy, that is the local economy and the traditional export sectors have done well. This shows a certain resilience in the economic structure.
We are monitoring closely the tourist industry as	this is indeed a sector that is an integral part of the economic structure. We have taken immediate action to ensure that the Malta Tourism Authority is given the resources to give it the flexibility needed to increase its efforts to maintain the flight capacity and to push Malta as a safe destination.
We are hopeful that the shock induced fear of flying	dissipates in the short term. We also hope that Malta will pick up new clients that would have otherwise holidayed in other continents or who would be still wary to travel to destinations that are somehow considered unsafe. Our aggregate economic performance shows a negative 0.3%. However, an analysis of the components of our economic activity, as I have said earlier, is not that bleak at all. In fact, a measure of the economy excluding the electronics sector, that is the economy sustained by 98% of our workforce, shows an increase in real terms of over 5%.
This has clearly shown that even an open economy such	as that of Malta, can master the art of diversity in economic and industrial sectors in a manner that when one sector or sub sector is badly hit, other sectors can compensate for the negative effects. This is indeed the result of an economic policy that recognizes the fact that there is no other way towards sustainable growth but that of dismantling of trade barriers with the outside world, and diversity in the composition of our gross domestic product.
Any clever policy and strategy will remain sterile	and ineffective unless backed up by serious and effective management. My Government has been a determined manager of the economy and has provided results. We are steadily on our way to achieve the EU convergence criteria even before the year 2004. Strong control on our public deficit has shown that as a percentage to GDP this has been reduced from 12% in 1998 to 5% in 2001. Net Public debt in relation to GDP is 57% while inflation is 2.4%.
Government has made and is still making heavy	investments in the infrastructure. This does not only include the physical infrastructure but it also includes the institutional infrastructure. The network of regulators that is being set-up, in line with internationally accepted practices to ensure the proper development of the various economic and social sectors, a level playing for all operators and a fair deal for consumers.
Government is also modernising its management process	as it seeks adequate and efficient business models for its various authorities and by outsourcing management to private initiative as in the case of the proposed Public Private Partnership initiatives. All this has now to be more forcefully exploited by business.
We believe that the financial services sector should	increase its contribution to our GDP. To be able to do this we pursue a continuous updating of our structures and policies to ensure their sensitivity to changes in the international scene, as well as the steps being taken by other countries competing with us in this sector. We are aiming at more focus and an improved centralization of effort both in the promotion of operator activity and in regulation.
Notwithstanding the fact that our financial services	legislation has been overhauled as recently as 1994, we feel that the developments in this sector on an international level calls for another thorough look at the laws to ensure that they reflect mainstream thinking.
We have therefore completed a total review of the	legislative package. In this process we made sure to involve the institutions and parishioners involved in the financial services sector. We are now at a stage where we will pass the package to the opposition so that we will be able to evaluate all aspects of the changes before the bills are published.
The package will include the changes necessary to	give total autonomy to the Central Bank in Monetary Policy. This has been the case, de facto, for many years. We feel that now this should be cast in our legislation.
Changes in bankruptcy legislation will ensure	transparent yet fast processes for failed companies to fold up. Due consideration will be given to reallocation of resources, re-organization option and issues related to creditor protection.
The Malta Financial Services Authority will now have	regulatory and supervisory responsibility for the banking sector and stock broking and other aspects of the securities market besides its responsibility for insurance companies and investment services activity.
We have worked incessantly to ensure that Malta	builds a solid reputation for its legislative and regulatory framework which is at par to that of the most prestigious jurisdictions. The OECD and the FATF have recognized Malta’s efforts to maintain its reputation as a location of integrity and prudence.
Malta has through a professional initiative taken by	the MFSC is positioning itself as a first choice for the location for e money operations.
Government is clearly committed to create an	environment to facilitate the work of financial services providers, and to actively promote the setting up and growth of this sector. This initiative on our part is being met with a growing interest from both foreign and local operators. This should not however make us complacent. God forbid! Indeed, it makes us more alert, seeking new initiatives and prepared to exploit opportunities.
We see the financial services sector as a primary	facilitator to economic growth. We expect it therefore to be closer to the real economy and the realities that this is facing in testing times.
I have been totally supportive of all initiatives	that foster transparency in the way that business is run in Malta. I have advocated more discipline in the way that credit is advanced so that we ensure efficiency in the allocation of our capital resources. I have advised better scrutiny of business plans and proposals before credit is given and better monitoring when credit is actually availed of.
I am in favour of the thrust by our Central Bank to introduce	internationally accepted standards for loan provisioning by credit institutions. However, I would, also in this instance, advise caution. The corrective process must be gradual so that we do not shock the economy unduly. Such shocks are not beneficial in any circumstance, they can be dangerous in the prevailing situations.
The recovery departments that have been set up by our	banks need to be given a mission which transcends recovery from the narrow meaning of getting back advances at all costs, to the broader meaning of a process of assistance to borrowers so that they can rebuild their resources. These departments must be units that stimulate revival and revitalisation and must be turned into gas chambers.
Indeed, what we are suggesting is that the financial	sector presents itself with added dynamism, stronger customer orientation and business focus. As industrial, distributive and leisure business is restructuring to face more confidently the challenges of these new times, the financial sector needs to be more innovative, and take new initiatives in promoting new ways of financing while taking into consideration not only the risk of supporting business but also the risk of doing nothing.
As I mentioned earlier, Government is planning to	change financial legislation to reflect new business realities.
We also see a more active international role for	Maltese financial service providers. An opening of the economy and the various sectors backed by escalated deregulation, does not only give opportunities to foreign business to set up here, but it provides new impetus to Maltese providers to seek opportunities overseas.
There are, for example, interesting opportunities in	North Africa where economies are at an interesting stage of their development. These emerging economies have extensive and varying financial needs.
Indeed, a few financial service companies are already	tapping opportunities in Tunisia, Libya and Sicily and Southern Italy. Another Maltese financial institution developed and marketed products on a trans Mediterranean basis. These are positive steps to be imitated by others.
I would like to conclude by putting my usual emphasis	on the professionalism that should be the core of all operations in this sector.
Information that I receive include anecdotes which	indicate excessive zeal and aggressiveness in selling certain life insurance and SICAV products, especially over bank counters. I would suggest that all institutions should review their internal control and monitoring policies, as well as the incentive policies they offer to their sales personnel. They must guard against all types of unethical practices like poaching of clients from other operators and the brow beating of investors into joining schemes that they would know little about.
If the investor feels that he has been treated	unfairly, then he would not only walk away from the particular institution, but he would also lose confidence in the system. This does not only lead to the institution itself to eventually lose clientele, but it endangers the good repute of the whole sector. And we take this very seriously.

Mr. President, Ladies and Gentlemen

I am very optimistic about the future. The present	unease will be replace, very soon with a verve for action. The hum of activity will become louder and louder and we will soon be active in the proactive, vibrant, expanding and productive environment that we have known until a few months ago.
We must be prepared to ride the wave as it comes. I	am sure that we can handle it.

Thank you.

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