My comments will focus on three aspects of monetary policymaking: the institutional design of the central bank; the monetary policy strategy; and the operational framework used to implement policy decisions. The objective of monetary policy - price stability Monetary policy is not omnipotent. Unfortunately, in the past, this was not always recognised in the design of central bank mandates. Central banks were often charged with meeting several, potentially conflicting, objectives, some of which were simply unattainable using monetary policy alone. Unsurprisingly, the resulting inadequately designed institutional frameworks led to poor overall economic outcomes. Today, with the regrettable experience of high and rising inflation in the 1970s in mind, the capabilities and limitations of monetary policy are better - although still not universally - understood. A broad consensus now exists that the maintenance of price stability is the appropriate objective of monetary policy. This consensus is rooted in the belief that monetary policy makes its best 1  BIS Review 44/2000  contribution to overall economic welfare by maintaining price stability - and thereby allowing the relative price mechanism to work more efficiently. It goes without saying that this is a consensus with which I fully concur. The institutional framework for the single monetary policy described in the Maastricht Treaty reflects this economic consensus. Of course, the Treaty was written with the experience of European and other central banks in mind. First and foremost, the Treaty clarifies the objective of the ECB.

The way forward towards faster growth lies in the first instance in striving to maintain the competitive advantage of traditional sectors – which typically rely heavily on cost advantage and where market share is being lost -, while promoting the development of new activities that exploit the potential offered by Malta’s strategic assets. These include EU membership, a modern technological  2  BIS Review 84/2005  infrastructure and a skilled and flexible labour force. The current, encouraging expansion in new activities such as financial services, software development and pharmaceuticals attests to the competitive edge which our economy indeed enjoys in these areas. This advantage must, however, also be supported by a stable operating environment that is responsive to changing market conditions. Elements of a coherent policy framework Such an environment requires a coherent policy framework on three levels: the first is the macroeconomic level, where a sound financial system and prudent fiscal and monetary policies should combine to provide favourable conditions for the restructuring of the productive base. At the microeconomic level, resources must be more efficiently allocated and managed by enterprises so as to obtain the maximum possible degree of cost-effectiveness and market penetration. The third involves what may be termed as meso-level policies, involving specific sectors. Policy at this level should primarily avoid distorting the mechanisms that facilitate economic activity. Supportive macroeconomic policies are already in place … At the macroeconomic level, the recent track record has been largely positive. Fiscal consolidation is progressing in line with the projections of the convergence programme.