the industialization drive met with mixed success. a number of
import-substituting industries became firmly established, and some ex-
port-oriented operations got started. at the same time, many domestic-
oriented enterprises, such as an automobile assembly plant, soon found
that the local market was too small to support their operations.
the biggest failure of the first plan period was the disappointing rate
of job creation, which did not make up for the decline in military-con-
nected employment.
in 1962 the government of malta asked the united nations for assis-
tance in formulating its second five-year plan. |
|
| the un report (known as
the stolper report; see stolper, hellberg, and callender 1964) covered all
aspects of development strategy, from the relative advantages of malta's
association with the united kingdom, the european free trade area
(efra), and the eec to an analysis of the contracting practices of govern-
ment departments. the report had a strong free-market orientation,
although it did endorse subsidies for technical training. perhaps its most
notable feature was its pessimism concerning the possibilities for creat-
ing employment. massive emigration was seen as the only practical way
of maintaining the current standard of living in the absence of the british
military presence. |
| in the light of recent experience and the opinions of the stolper
mission, however, it encouraged emigration to solve the unemployment
problem. over the five-year period
of the plan gnp was expected to fall in real terms by 3 to 4 percent. the plan underestimated gnp growth by about 8
percent in real terms.
what explains this unexpected outcome? for one thing, job creation
in industry and in tourism during the first three years of the plan
surpassed the estimated five-year totals. it was construction, however,
that contributed the most to the expansion. |
| the demand
for labor was stimulated in part by the building of tourist accommoda-
tions, but even more by the construction of houses for british retirees
attracted by the possibility of settling in a sterling-bloc, english-speaking
country with a good climate. paradoxically, the building boom, accom-
panied by higher real estate prices and housing costs, was one of the
factors that helped defeat the nationalists in the 1971 election-an
interesting variant of the "dutch disease."
toward the end of the second plan period, malta and the united
kingdom came to disagree about the magnitude and the future of british
aid. in april 1969 the united kingdom suspended
the disbursement of these funds, and, pending the resolution of the
disagreement, malta delayed the publication of the third plan, which had
already been ratified by its parliament.
deprived of british aid, malta started to search for alternative sources. |
| of greater consequence were the overtures
made by the u. of the £23 million in assis-
tance, £3 million was set aside as a grant for the development of malta's
dry docks and £1 million as a grant for the restoration of historic build-
ings. the third plan, following much the same pattern as the previous
two plans, was finally published, only to be made irrelevant by the
labour victory in the 1971 election.
268 ronald findlay and stanislaw wellisz
institution building
during and after the transition to independence, the government con-
structed the institutional framework it needed to conduct an indepen-
dent monetary and trade policy. |
| as a colony, malta used british currency until
1949, when the currency ordinance bill permitted the local currency
board to issue maltese pounds at par with the british pound. the board
notes were backed up at least 100 percent by the sterling note security
fund. this link was maintained after independence, and in november
1967 the maltese pound (later renamed the maltese lira, or lm) was
devalued, in line with the devaluation of the british pound.
the central bank of malta act of november 1967 marks the beginning
of an independent monetary policy. the note security fund assets were
transferred to the central bank as soon as it opened in april 1968. the
link with sterling, however, was maintained throughout the tenure of
the nationalist government.
under the banking act of april 1, 1970, selective controls were per-
mitted to restrain bank lending either in the aggregate or for particular
purposes, and the minister could prescribe purposes for which banks
could not lend at all. |
| the nationalist government did not make use of
the discretionary powers that it obtained under this act, but the labour
government did, in order to have some influence on the structure of
private industry.inl939,attheoutbreakofworldwar
ii, the united kingdom instituted controls over the movement of capital
out of the sterling area, which included malta. exchange control in malta
was given a legal framework in 1959 with the passing of the exchange
control ordinance, under which funds continued to move into and out
of malta from nonsterling areas.
in april 1970, as a measure to prevent the flight of capital, the
exchange control system was extended to the sterling area. tradition-
ally, the government of malta followed a policy of low interest rates,
and in 1962 it imposed an 8 percent ceiling on all commercial loans. |
(this regulation is still in effect. government bonds,
whereas time deposits in malta bore only 2. not
surprisingly, the disparity caused a drain on maltese capital. the
drain on capital intensified when, following the suspension of british
aid, the government decided to finance the resulting deficit by selling
5.5 percent bonds to the central bank, which helped it raise lm 21
million.
|
the govermment chose,
therefore, to increase interest rates by only a modest amount (the dis-
count rate went up from 5 to 5.5 percent, and the interest rate on time
deposits was increased to 4. to stem capital outflow, the
government extended controls on capital movements to other sterling
countries, and to reduce the attractiveness of high-yield foreign obliga-
tions, it imposed an interest equalization tax. the capital controls became
a permanent feature of malta's economy. under the system of protection devised by the
nationalist governments in the 1960s, tariff duties are levied primarily
for revenue, whereas quantitative restrictions are used for protection and
balance of payments purposes. |
| tariff duties are determined by the
ministry of finance, import licenses are issued by the ministry of trade,
and there is no direct mechanism for coordinating the two types of trade
restraints. in 1976 the eec
replaced the commonwealth as the favored supplier, but other
substantive changes have been made.
under the current schedule some items, such supplies and
educational products, pay no tariff duty. thus, although revenue is main reason for
levying the tariff, the system favors higher-stage manufacture of
substitutes. originally, malta had an license scheme
that applied to commodities, except for number of
items.. .. |