Constituted bodies react to price orders 'threat'
The government's warning that it might resort to price orders to curb inflation was deemed unacceptable by the Chamber of Small and Medium Enterprise - GRTU.
Economists who spoke to The Times challenged the logic that high inflation results from cartels, saying the government may be using the price order "threat" as a deterrent.
The Parliamentary Secretary at the Finance Ministry, Tonio Fenech, said on Monday that high inflation - which could jeopardised the government's plans to introduce the euro by January 2008 - may be caused by price fixing and cartels.
Mr Fenech warned that if certain prices, particularly those of imported foodstuffs and medicine, keep failing to reflect market trends, the government would be forced to introduce price orders.
But according to GRTU director general Vince Farrugia, price orders are "definitely unacceptable" in a liberalised, free market economy. Mr Farrugia - who also sits on the retail price index (RPI) monitoring board - said inflation was being caused by the water and electricity surcharge introduced "without transparency". It was plaguing businesses to an extent that the only way business people were managing to maintain their take-home pay was by increasing the price of their products or by laying off workers.
He said cartels and price fixing by dominant firms should be controlled by the Office of Fair Competition, which was currently "degraded" and "as good as non-existent".
Cartels showed that the country's regulatory authorities were failing.
"The Malta Resources Authority was completely passive when it should have taken an active role on the issue of the water and electricity surcharge imposed by Enemalta and the Water Services Corporation. Why has nobody questioned why commercial banks are making record profits? Is the Malta Financial Services Authority regulating bank charges?"
Mr Farrugia said that, through its warning, the government was teasing businesses. "This is a reflection of political panic. It is 1995 revisited," he said.
Economist Edward Scicluna said inflation is defined as persistent increase in overall price levels. However, he explained, high price levels due to cartels do not usually contribute to inflation although they affect particular prices.
"There are monetary and fiscal policies which the Central Bank and the government could implement to control inflation. In the case of cartels, there are other tools, mostly institutional such as the Office of Fair Trading, the Malta Resources Authority, the Malta Communications Authority and the like. But price orders is not one of them," Prof. Scicluna said.
Lino Spiteri, an economist and a former Finance Minister and Deputy Governor of the Central Bank, said: "It is ironic that price orders should surface in the context of a liberalised and free market economy. Nevertheless, since they are part of the government's economic weaponry, they are to be used. Whether they will be effective is another matter". He felt that the principal intention of the government is to flash the price order 'threat' for its deterrent effect.
However, Mr Spiteri said, price increases in certain sectors are worrying.
"Medicines is the principal one. By its very nature, the sector tends to be dominated by patented products and, therefore, it would be wrong to speak of cartels in their regard. It is more a question of asking why prices of various medicines should be the same in all the outlets where they are sold," Mr Spiteri said.
Kevin Borg, director general of the Malta Chamber of Commerce and Enterprise, said the chamber was seeking an urgent appointment with Mr Fenech and was treating the issue as being of utmost importance. The director general of the Federation of Industry, Wilfred Kenely, said that in principle, the FOI was against price controls. However, the fact that the government was trying to curb price increases by tackling cartels was not negative.
"Somehow, the normal economic equations of the free market do not work here, probably because of the size of the country. This is why certain interventions may be necessary," Mr Kenely said. According to a spokesman for the European Commission there is nothing in principle under EU law that would prevent a national government from introducing "maximum price" legislation.
"However, were a national government to introduce particular measures, the Commission would look carefully at any such measures to determine whether they are in all their aspects compatible with competition and single market rules, for example that they are not discriminatory," the spokesman said.
Adrian Muscat Inglott
Over the past few weeks we have been following a controversy over the inflation in prices, particularly those of medicines. This is a worldwide issue as, naturally, price increases are never welcome, whether they are justified or not.
Whatever the reason for these price hikes, we must accept that a number of medicinal products have registered an increase in price. Moreover, the number of medicines on the market has drastically gone down.
While prices have always gone up, even when we had in place a rigid price control system, we must try to establish what the real factors contributing to these increases are, since by levying accusations without coming up with solutions will not lead us anywhere.
The government has carried out an exercise to establish what caused these increases. If it transpires that competition is distorted due to price fixing or cartels, it must ensure that the competent regulatory authority has adequate resources to tackle such a situation.
On the other hand, if this situation has arisen due to extra costs imposed on importers, resulting in a reduction of products in the market, thus minimising competition in the marketplace and the consumers' choice, then this must be addressed.
Whatever the reasons behind these increases, we hope that Government and importers indulge in meaningful dialogue to find a solution as early as possible to ensure that while imported medicines meet EU regulations, the consumer benefits from fair and competitive prices.
Chamber objects to price orders
The Malta Chamber of Commerce and Enterprise said it finds unacceptable the government's proposal to reintroduce price orders on medicines and foodstuffs.
Chamber president Victor A. Galea told parliamentary secretary Tonio Fenech in a recent meeting at the Finance Ministry that given Malta's free market economy and its forward strides in liberalisation, "price orders would invariably represent a significant backward step for the country and the commercial community".
Parliamentary secretary Tonio Fenech said on Monday that high inflation - which could jeopardise the government's plans to introduce the euro by January 2008 - was partly caused by price fixing and cartels.
Mr Fenech had warned that if certain prices, particularly those of imported foodstuffs and medicine, keep failing to reflect market trends, the government would introduce price orders.
Soon after Mr Fenech's comments were printed in The Times, the Chamber asked for an urgent meeting with the parliamentary secretary.
It said that while objecting to price orders, it shared the government's preoccupation on rising inflation, insisting that it expected the government to provide better regulation and a more efficient business environment which would result in lower prices for the consumer.
"The government needs to address port reform, bureaucracy, compliance and government-induced costs," the Chamber said.
The Chamber delegation also pointed out its disagreement with the Parliamentary Secretary's interpretation that inflationary pressures were, in any way, correlated to price fixing and cartels.
"With cutthroat competition, parallel trading and an Office of Fair Trading in place for a number of years, it is difficult to imagine how such abusive practices can exist in the local market," Mr Galea said.
The government said in a statement it would use price orders as a last resort, adding that if the free market "is used to the detriment of consumers", it would intervene with all the tools available under Maltese and European Union law.