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THE WALL STREET JOURNAL AND THE HERITAGE FOUNDATION'S 2009 INDEX OF ECONOMIC FREEDOM SHOWS THAT CROATIA DROPPED BY THREE PLACES IN THE WORLD RANKING AND SLIPPED FURTHER IN THE REGION

Maurice McTigue: "Minister of Change"

The Honorable Maurice McTigue known as "New Zealand's Reformer" and "Minister of Change" whose advise is sought by government leaders around the world spoke at the 4th Annual International Leaders Summit - "The Future of Transatlantic Relations" in The European Parliament, Brussels. During his visit to Europe, McTigue visited Zagreb, Croatia where he delivered a keynote address at the ILS - Strategic Economic Roundtable on October 15, 2007.

Natasha Srdoc invites Maurice McTigue to the podium at the ILS Economic Roundtable

McTigue addressing the ILS Economic Roundtable participants in Zagreb, Croatia


Media Interviews with Maurice McTigue:


business.hr
Moj recept: privatizirajte sve i vratite dugove , by Ana Blaskovic, November 15, 2007


Globus
Idoli hrvatskih politicara, by Bisera Fabio, November 16, 2007

Jutarnji list
Samo bez subvencija razmislja se trzisno, by Viktor Vresnik, October 16, 2007

Novi list
Reforma nije smanjenje broja nezaposlenih vec ucinkovitost, by Irena Frlan, October 24, 2007

Finance
Intervju: Zasebne Sole financirajte stoodstotno, by Janez Tomazic, October, 2007



business.hr

MY RECIPE: PRIVATIZE EVERYTHING AND REPAY THE DEBTS

Ana Blaskovic

Published on November 15, 2007

Former member of New Zealand's parliament and minister in eight ministries, Maurice McTigue says for himself that he is a former farmer - breeding horses.

He is proud to have been in the government during the ten year period of reforms that included the transformation of a planned economy into a free market economy, from the mid 1980's to mid 1990's. McTigue served as Minister of Employment, Minister of State-Owned Companies, Minister of Railways; Minister of Public Works and Development, Minister of Labor and Minister of Immigration.

He continued his career in diplomacy as NZ's Ambassador to Canada, and today he is a guest lecturer on the George Mason University in the USA, where he directs the Government Accountability Project a project at Mercatus. During his visit to Zagreb, at the invitation of Adriatic Institute he met among others, Ljubo Jurcic, who was obviously impressed with the conversation and stated that he would wish to have him as an economist on his team.

Planned economy is connected to the eastern Europe and former Soviet Union. How was it in New Zealand?

The economy in New Zealand was on a negative track, similar to England before Margaret Thatcher. This is a disease that creeps slowly and we came to the point that government tried to be an entrepreneur and made decisions on the micro level. International agencies were reducing its credit ratings and we had a budget deficit for 23 years in a row. In 1984, the state's share of GDP was 44%, growth was 0.7% annually, unemployment rate was between 11 and 12% and the public debt was at 66% of GDP. The public tended to think that this was not a serious problem because the deficits were hiding the seriousness of the countries economic problems.

What induced reforms?

The state had artificially kept the value of a currency high and the market expected it to fall. In 1984, the foreign currency reserves were all used up and all transactions were stopped for 10-12 days. Therefore, it was one of the first objectives of reform - to establish a floating rate fro the currency. Devaluation was around 25%.

Croatian figures are astonishingly similar. In your opinion, do we still have a planned economy in Croatia?

Market economy is a generalization. At the moment, you are closer to a closed economy than to a completely open economy and you need to work on reversing this.

You also met with a prime ministerial candidate Ljubo Jurcic. What did you talk about?

About challenges in front of Croatia, the good and bad sides of EU membership and where Croatia sees itself in 2025. There seem to be quite unrealistic expectations in Croatia when it comes to -what does the EU membership bring?

Do you think that Croatia's citizens are looking at the EU through "pink glasses"

I think so. The EU membership has positive and negative sides. Just membership does not mean prosperity and in particular, if there is no internal work done in Croatia to make  the economy to more competitive. People think that the most competitive economy is a country with the lowest salaries, and that is not true. The entire cost of employing a worker has to be taken into consideration because salaries are just a part of the cost, of employing a person. These costs can be counterproductive,if not justifiable. A good example is Georgia, which in last few years significantly deregulated its economy, and the fast growth followed. To developing economies, the advantage can also be the overly regulated EU, allowing a less regulated economy a competitive advantage.

What has to be changed in Croatia's economy?

You need to have a growth strategy.

It does not exist at the moment?

I think that you do not have the best growth strategy.

Very diplomatic answer...

This is because I think that your economy is still overly regulated in many areas. The share of government expenditures in GDP is too high, and you should aim not to exceed  35%. This change cannot happen over night.

How to reduce government expenditures and not to harm growth?

It is not necessary to have an exact percentage designated of how much should the government spend but look at government activity - function by function and identify if it is successful at achieving the desired objectives? If it is not, it has to be eliminated.

It sounds very simple?

Yes and it is but it is hard to get done. There is no logic to financing failures? Also questions need to be asked about whether this function should be paid for by the taxpayer, consumer or producer. Finally, it has to be decided whether the government needs to be the owner of everything it currently owns or whether it should sell functions that don't belong in government.

Privatization was an important part of reforms. What did you sell?

We privatized the banking sector, insurance companies, mining industry, airline companies, railway, forests, government buildings, ports, government agencies, ministry of works. Nothing about this process was ad hoc, every sale had to have purpose, it would improve economic efficiency it would attract additional investment or the sale did not proceed. Totally, some 40 government operations were sold over eight - nine years.

How high were the privatization revenues and what did you use them for?

They were around 25% of GDP and we used them to repay external debt, which was mostly denominated in a foreign currency which was high risk as we were exposed not only to servicing the debt but also to a currency risk. This is one of the similarities with the present situation in Croatia.

What part of an external debt were you able to cover/repay?

New Zealand does not now have any public foreign debt. We needed ten years to repay all of our overseas debt.

Is this a good recipe for Croatia as well?

This is firstly your decision. However, if I were faced with such an external debt in foreign currency, I would be concerned. What you should not do is to use the proceeds from privatization for current government expenditures because it unsustainable expectations of the provision of government services.  With current account, consumption surpassing production these are open risks for Croatia. I think that currently you are not growing fast enough for this risk to be manageable.  

What is the economic situation in New Zealand today?

Economic growth over the last 10 years has fluctuated from 5-6%, unemployment between 3-4%. Budget deficit disappeared in 1992, and this is fourteenth   year in of budget surpluses. Due to the surpluses, we have reduced taxes, which we will do again because last year's surplus was 11% of GDP.

You privatized forests. How did you reconcile ecology and private interest - that is public and private goods?

Forests privatization was very controversial; however, the fear in the end was unjustified. Forests were actually leased on a 100 year basis - then they will be returned to the government in the similar condition as when sold. Because of these long leases we got efficient utilization of the resource, greatly improved stewardship of the forest and consequently greater protection of the environment. The quality and health of forests exponentially increased and the speed of regeneration increased by ten-fold.  

You eliminated subsidies to agriculture. How was that received?

It caused a huge shock to farmers and they had to go through a traumatic period of readjustment. Today, agriculture is more profitable than ever, because farmers turned to the market and produced products that were in high demand and attracted higher prices. You will not find one farmer who would like to go back to the old system of subsidies.

Did you talk about this with Ljubo Jurcic?

I did.

What did he say?

It would not be appropriate for me to comment. For people, it is hard to believe that this type of dramatic change can bring about good results.

In Croatia, privatization is often a synonym for theft. What is the perception in New Zealand?

The public was well informed of the process, which is the best protection from criticism that the process is badly managed or corrupt. It is key to have good advice; however, you have to buy it abroad. The public heavily criticized why we were spending so many millions on international consultants. However, if you are selling a company worth a few billion of dollars, a few million is a small price if you want to do it well. Independent international consultants assessed the offers, and then we would make a decision. The highest price would usually prevail; however, there were also additional conditions of sale, for example preventing erosion, guaranteeing access to public. We wrote those conditions into the sale and purchase agreements so if a buyer breaches these conditions, the contract gets canceled.

Why didn't you privatize via IPO, such as HT (Hrvatska Telecommunications)?

Personally, I don't like IPO's because they are connected with a number of risks, for example, risk of being sued for not mentioning all the important facts in the offer. Therefore, what we wanted to sell, we first transformed the activity into a company and operated it in government ownership for a time to resolve all legal issues before we offered it for sale. This also gave the activity we were selling a trading history and increased its value. We sold our telecom entirely to Ameritech Bell South, and one of the conditions was to allow interconnections to the network for other competing companies but the sale was for an agreed price an additional condition was that 50% of the companys shares would be offered on the stock exchange within 5 years. In that manner we passed the risk of an IPO from the state to the new owners.

The sale of forests was not popular

How did the public accept the fact that through privatization "the family silver" got into the hands of foreigners?

According to pre- sale surveys, it was unpopular to sell telecom; 69% of people were against it. Three years later, 60% of people surveyed positively assessed the sale. The sale of forests was even less  popular, 94% of people were against; however, three years later, and the support was some 60%. People did not believe that the benefits would be as we claimed, and today - if you asked whether the government should buy back these assets, you would get 0% support.