The government’s first reactions to the decision by the Financial Action Task Force (FATF) to greylist Malta was to argue that this is an inconsequential event that can be managed as well as we have addressed the economic threats of COVID.
Accordingly, it never used the term ‘crisis’, even if many observers would argue that the FATF greylisting is the most severe threat to Malta’s economic model.
The government is misclassifying a problem by focusing on the technical aspects and ignoring issues of perception.
Finance Minister Clyde Caruana said the government would continue building on the good that was there, “while strengthening what needs to be strengthened”.
He implied that the resolution of this issue entails no more than an economic maintenance job along with the use of some clever psychological tactics. Justice Minister Edward Zammit Lewis told parliament that “the sun would still rise” after the FATF decision on Malta.
Prime Minister Robert Abela sounded fatalistic when he argued that lax regulation had been an “endemic” problem in Malta for decades.
Abela also defended the cash-for-passports scheme without acknowledging that this programme was among the reasons Malta has antagonised so many other nations.
Other stakeholders recognise, however, the dangerous dynamics of the crisis we face, an avoidable crisis had the Muscat administration instilled even a mild dose of prudence in its economic strategy.
For example, the Malta Employers’ Association described the greylisting as a “devastating blow”. But, like other business organisations, it appealed for a sense of unity to start managing this crisis with determination.
Opposition leader Bernard Grech called the decision a “punishment for the entire Maltese people” and called for the setting up of a national task force to address the shortcomings expeditiously. This is a proposal that has merit.
ADPD – the Green Party was more forthright in its political reaction. It wants the government to repeal the passports scheme immediately. It also called for the resignation of the Central Bank governor, Edward Scicluna, on whose watch Malta’s reputation as a respectable jurisdiction plummeted.
Government ministers may want to project themselves as capable of keeping their heads when many business leaders are losing theirs, at least in private. It is just possible that these ministers have not grasped the gravity of the situation or prefer not to do so. They would do well to, at least, heed the warnings of the IMF in a study on the likely consequences of greylisting.
The pre-FATF decision phase gave clear indications of what was wrong with Malta’s economic strategy. The inappropriate relationship between regulators, politicians and regulated entities, the impunity enjoyed by rogue politicians and their business cronies and the silencing of dissenting voices were some of the root causes of this crisis.
The damage limitation exercise will be a lengthy one even if Malta is eventually returned to the white list by FATF. So far, the government has shown no sense of urgency to acknowledge the root causes of the crisis and define what needs to be done to correct the perception of some countries that Malta is a pariah state. That takes an admission of persistent error. Is this government capable of it?
Malta has come to a fork on the road to its future prosperity. We need to choose correctly. Tough decisions need to be made and made fast. We still do not know how investors will react to the FATF greylisting of the country.
This should not stop us from jettisoning those strategies that have landed us in this crisis.