21 MAY 2003

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Toon this week: Timebomb ticking...

Waiting for the bomb to explode

It’s a problem no matter how hard we try to conceal it. The pensions time bomb is ticking fast and although there seems to be a general consensus that something needs to be done urgently, the country is gripped by lethargy.
Admittedly, pension reform is a political hot potato and it may well rock the industrial peace groomed by Nationalist governments since 1987.
The commission set up a couple of years ago to study the problem and propose solutions has not yet woken up from the deep sleep it fell into.
Our front-page story shows that all over Europe governments are doing their utmost to tackle the issue, some with a higher degree of success than others. Italy has also declared that, when it takes over the EU presidency for the second half of this year, the presidency’s main focus will be Europe-wide pension reform.
Europe is ageing and to make matters worse less babies are being born. Malta is not alone in facing this demographic problem that can unsettle public finances and rock economies.
Action is required. Consensus must be sought. Bulldozing pension reform on all and sundry won’t get us anywhere. However, the search for consensus must not lead us into a dead end of continuous chatter.
And within this context the Opposition has an important role to play. There will always be ideological differences on how to tackle pension reform, but political consensus on the broader issues is a necessity.
Increasing the retirement age is one of the broader and more controversial issues that should find political and social consensus. The assurance of a decent quality of life for pensioners is another broad issue that should find political consensus.
A new social contract has to be drafted and the earlier the different stakeholders get together, the better for everyone.

Equity downturns and investor sentiment

Investing in the world’s, or Malta’s, equity markets is always a tricky business and one that calls for nerves of steel and an unemotional approach.
However, we are told by fund managers time and time again that the Maltese investor is a particularly emotional breed that smiles gleefully when they see their investments rising, but resorts to panic and knee jerk reactions when they see prices falling.
The reaction is, of course perfectly understandable – many have sunk hefty portions of their savings into equities that appear to go nowhere but down.
And equity investors have had a great deal to fret over of late. First came the bursting of the technology bubble, then the events of 11 September, followed by the Enron and Worldcom accounting scandals and, most recently, the war in Iraq.
These happenings on the world stage of course take their toll on international and, to a lesser extent, Maltese stock exchanges. And the figures clearly show drops in equity prices as a result of international turmoil.
But looking at the figures from a historical perspective shows the other side to the coin. Consider if you will for a moment how every major global event of the last century that brought havoc to the world’s stock exchanges has been followed by a later show of force from share prices and, consequently, market capitalisations. The 1929 stock market crash, Pearl Harbour in 1941, the Suez Canal/Sputnik incidents, the 1973 oil crisis, the 1983 US recession and the 1990 Gulf War had all seen stock markets plunge. But they have also recuperated many times over since.
The lesson is clear: equity investments are not best geared for the short term investment and to see real returns on equity investments, investors must be willing to wait out the tribulations that will inevitably be thrown their way from time to time.

Copyright © Newsworks Ltd. Malta.
Editor: Saviour Balzan
The Business Times, Newsworks Ltd, 2 Cali House, Vjal ir-Rihan, San Gwann SGN 02, Malta
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