It is not just because on Christmas Eve one has to try to be positive. It is mainly because I do believe that, for all the economic travails that are finally widely acknowledged, we can, if we really want to, return to a sustainable growth path within a relatively short time, – I would say anything between 18 to 36 months.

However, we need to look at problems in the face and apply solutions at their source not at their symptoms. And most of all we have to accept that solutions cannot be either painless or entirely equitable.

The problem is that this country has, for quite a few years, been living beyond its means and this is showing up in stagnation of economic growth and a rapid build up of public and private debt just as the savings ratio, hitherto our strongest economic point, has fallen dramatically.

The only truly effective solution is to bring this country back to living within its means and then promote economic growth which would permit a sustainable improvement in living standards, based on productivity rather than on debt-based consumption.

Politicians are promising us that they can do this gradually so that the pain is minimised. The government is suggesting a gradual plan which reduces government expenditure substantially in the years 2006-2007, just before the 2008 elections. The opposition, or at least its leader, has proposed a gradual depreciation of the currency.

My concern is that politicians cannot be trusted with gradualist programmes. At some point during the next year we will be crossing the mid-term legislature divide. Experience shows that beyond this point, politicians’ eyes are on the next elections. The cautious economic approach of the first half of the legislature is often thrown to the wind and, once again, the economy becomes hostage to the politicians’ fortunes.

Problems start being hidden rather than addressed and all objectives become centred on the need to appear bright and polished for the election date, irrespective of the problems hidden beneath the thin polished surface – problems which emerge with cruel reality as soon as the election is over.

It could be so different if we find the courage to do what has to be done with determination sourced by inspired leadership.

It is for this reason that over the last four years I have argued that a solution which, on a matter of principle, excludes the use of the exchange rate policy will simply fail to deliver. I reiterate that nominal exchange rate adjustment on its own will not bring home the bacon, but its exclusion from a sensible cure package will also similarly fail.

We need to acknowledge that time is not on our side, especially if we mean to embrace the discipline of ERM II in 2005 and

eventually the Euro fusion sometime not far beyond 2007.

The only policy that can deliver instant restoration of our international competitiveness is the instant downward revision of the nominal rate of exchange by anything between 10 per cent to 15 per cent, principally to remove the real over-valuation that has been allowed to accumulate since 1995 through negative inflation differentials, and also to ensure that we enter ERM II at a sustainable rate.

We have had the Prime Minister and various ministers preaching that this is an economic heresy and that it would spell financial disaster. They frankly know not what they are talking about and are probably repeating what economists detached from the real

economy are telling them.

Reality is that such instant removal of the over-valuation in our rate of exchange will give a boost to the productive sector, restore the competitiveness of our export and tourist product, generate growth and employment based on sensible economic realities and reward the productive employees in the private sector who can negotiate better pay with their employers based on the latter’s improved profitability.

Obviously, nothing comes without a price. The public sector, which is unquestionably over-manned and inefficient, must accept that no compensatory wage increases are available and that the reduction in their real wages is meant to price into their package the extreme job security they enjoy, free from the pressure of competition.

They have to be told, in no uncertain terms, that the measure is meant to build a market mechanism to inspire an orderly shift of human resources from public to private sector employment, where better compensation awaits those who can find the courage to show that that can perform just as well in a competitive environment. This shift would reduce recurring government expenditure where it matters, and generate rewards for investments made to deliver government services through IT.

Clearly, there remains the not economically active segment (pensioners, the genuine unemployed and social cases) that need to be helped to have the cost of living impact of devaluation cushioned. This can be done through one-off transfer payments which government can fund from windfall revenues it can lay its hands on as it neutralises the windfall gains made by the financial sector through the devaluation measure.

Yes we can do it, but only if our leaders inspire us to look the problems in the face and get on with the real cure that will get us back on the road to economic growth much sooner than is otherwise possible. Given a challenge, and directed by inspired leadership who can keep our eyes on the prize as we go through the unavoidable pain, we can do it as well or even better than anyone else. We would then celebrate many happy Christmases with the pride of achievement.

www.alfredmifsud.com