Tuesday, 27 April 2010

Let Regulations Select Rating Agencies

Financial Times

Sir, No serious reform of rating services can leave in force the present issuer-pays model. As you state (editorial, April 26), an investor-pays model would be a better approach but this is quite impractical given the wide investor base.

I feel the best approach would be for appointment for ratings to be issued by regulators who will charge back fees to the issuers. This would avoid a direct relationship between the rating agency and the bond issuer and will place regulators in a situation where they select rating agencies based on their performance and professionalism, not on the basis of their accommodation to the needs of the bond issuer.

It would also permit gentle lowering of the barriers to entry to ensure more competition among rating agencies without lowering standards.

Sunday, 18 April 2010

Poles together Pope Apart

Poles Together, Poles Apart

18th April 2010

The Malta Independent on Sunday

Alfred Mifsud

Poland has a history of suffering like few other nations. In the Second World War, they were vilified, victimised and humiliated by the Nazis, who started the war on 1 September 1939 as Hitler ignored warnings from the UK and France and marched mercilessly into Poland, just as the Russians negotiated a non-belligerence treaty with the Nazis.

When the fortunes of war turned, the Poles were equally brutalised and humiliated by the Russians, as they rolled back the German attacks and forced their way through Polish territory in their march towards Berlin.

Following nearly five decades of oppressive communism, the Poles were the first to light a torch for liberation through the Solidarnosc trade union movement, aided with moral and financial support from the Polish Catholic Church, with the direction and moral authority from the former archbishop of Krakow, Karol Wojtyla, who in 1978 became the first non-Italian Catholic Pope for centuries.

This liberation torch eventually developed into a roaring fire that led to the fall of the Berlin Wall, the general collapse of communism and the disintegration of the Warsaw Pact and the USSR. In all this, Poland played a leading role.

Poland is today one of the most successful stories of countries that emerged successfully from the chaos of 50 years of central command economics to a vibrant emerging economy that is providing a better life for its citizens and the restitution of national pride that was so severely damaged in the 20th century. Even during the current financial crisis, Poland was the only EU country that did not officially fall into a recession and is increasingly becoming a political force to be reckoned with in EU institutions and other international fora.

Among all this story of recent success, it was an unprecedented shock that Poland suffered a week ago through the crash of the official Presidential plane carrying the Polish President Lech Kaczynski and scores of other senior Polish figures that were all killed in the incident.

The Polish delegation, which included the chief of Poland’s army, the central bank governor, MPs and leading historians, was flying to Smolensk in Russia to mark the 70th anniversary of the Katyn massacre of thousands of Poles by Soviet forces during WWII.

A silver lining has, however, emerged through the great unity shown by the Poles in this episode of national grief, and the extremely graceful response of the Russian authorities to the accident over their territory through the personal involvement of Prime Minister Putin, who immediately went to the scene of the accident. The Poles have come together like no other time in recent history and finally there is reason for the Russians and the Poles to look forward to a more collaborative future.

As the Poles have come together, the Pope is coming apart. The short visit of Pope Benedict among us is coming during turbulent times for the Catholic Church, which is being accused of an undignified response to widespread accusations of paedophilia among the clergy.

From a Church that condemns all sexual activity outside marriage, and even sexual activity within marriage that is not open to procreation, paedophilia by its own clergy in full exploitation of the children who are entrusted in their care is a very serious crime. How can the Church condemn sexual activities by consenting adults if it tolerates, hides or in any way defends or protects its own operators from sexual abuse of innocent children?

The Head of the Catholic Church is always welcome in Catholic Malta. At least his visit has brought about much needed maintenance to the places through which the Pontiff will pass. This last week, in fact, I started suspecting that Pope Benedict must have been a public works inspector in an earlier life, as our roads and roundabouts are being re-touched with a paint lacquer with the same philosophy as that for the building of a film set: make the set look nice for the shoot, but don’t spend money on durability, as the whole structure needs only to last the 24 hours of the shoot.

But frankly, the Pope should have much better things to do than visit Malta. Not least, he should be knocking heads together in the Vatican to cleanse the Church from the paedophile scar it has inflicted on itself by trying to bury such misdemeanours within its own vaults. There is no disinfectant better than sunshine. Apart from condemning the despicable acts themselves in the most unreserved manner, it should open up to police authorities all its internal records and let criminal justice work normally against criminal offenders, irrespective of their religion, robe or title.

But, in the end, this paedophile saga is a mere distraction from the true problems of the Church. These are the growing disengagement between the Church and the general congregation, as shown by falling Mass attendances, low new vocations and the general attitude of Catholics to adopting an a la carte approach to their religion. The Church needs to ask itself where it expects to be in 50 years time, with churches and monasteries but no priests or nuns to run them.

Pope John Paul II was a great pope politician, who increased esteem for the Church in international diplomacy but made little contribution towards enhancing its relevance to the daily lives of its own faithful. The initiatives that were being considered by the Papa Luciani (who stayed in his seat for just 33 days) concerning birth control, celibacy and other controversial issues were swept aside. On the death of John Paul II, Joseph Ratzinger used his position as Dean of the College of Cardinals, the primus inter pares in the interregnum between the death of a Pope and the election of a new one, to promote his own candidacy.

It is clear that he was elected because there was no agreement over the Pope yet to come who would bring back to the Church the spirit of St Francis of Assisi to rediscover its true mission. His age at the time – 78 – was considered an asset to ensure that, during the few years of his papacy, such a St Francis type of papal candidate would emerge.

As Benedict XVI celebrates his 83rd birthday and the fifth anniversary of his papacy, he would do well to invest in the Church’s future by increasing the cardinal crop with more representatives of the poor and the meek who, according to Our Lord, shall inherit the earth. The next Pope must not come from a rich nation but from the poor of Africa or South America.

Pope apart, how symbolic the Iceland volcanic eruption has been this week. The ash cloud that was spewed out by a volcano in insignificant Iceland has closed down practically all northern European air traffic for several days – and still counting.

It is a message to the financial world. The resolving of the wrongdoings of Icelandic banks, which caused a financial crisis for savers in the UK and the Netherlands, has involved substantial amounts of taxpayers’ money. The world has become so interdependent that the big countries cannot even disregard what happens in the financial system of a tiny state. Much less can they shrug off their responsibility for the financial mess in Greece.

The Greeks carry the first line culpability, but those who let them into the monetary union knowing they were not up to it, and those who looked the other way while the Greeks cooked the books, cannot claim complete innocence and leave Greece to its own fortunes. Like the Icelandic volcanic ash, a Greek sovereign default will have unpleasant consequences, even for the best in class.


Sunday, 4 April 2010

That Vision Thing

That Vision Thing

4th April 2010

The Malta Independent on Sunday

Alfred Mifsud

Maybe it’s because it is Easter. Maybe because spring brings a more positive outlook to life as we emerge from winter hibernation to breathe fresh cool air and to enjoy the colours of nature. Or maybe it’s because I ferociously believe in this country’s great potential and suffer from chronic stomach acidity as I see it underperform so spectacularly. Maybe because of all these things, my-glass-is-half-full attitude to life fills me with courage that we can do it.

No new discoveries were cracked in “The Vision 2015 and Beyond: A Path to a Knowledge Based Economy” interim report and presentation by a US specialist consulting group tasked to revamp and refocus our vision for achieving excellence in a well-defined medium term programme. It still is, however, an illuminating and timely reminder of areas where we are underperforming and of the direction we should focus our resources and efforts to leverage our potential.

As is well known, we continue to suffer two major handicaps for making optimum use of our most valuable asset: human capital. In spite of slow improvement there is still an alarming dropout rate of youngsters who do not proceed to post-secondary education. And there is still a shocking deficiency in the female rate of participation in the labour force.

The gap in these two deficiency areas is so wide that gradual improvement will just not do. We need a step change, a major stimulus to change a long-ingrained pattern. We simply cannot afford the waste of 16-year-olds quitting the education system and we cannot tolerate well educated females staying at home pressing flesh to the kitchen sink and guarding house furniture against settling dust.

At the risk of being laughed at, I propose a bold new initiative to address these two deficiencies. We have a valuable idle or under-used asset in the form of the former St Luke’s Hospital. This is an ideal location capable of being transformed into a new branch of the University of Malta for Creativeness, Innovation and Entrepreneurship.

This will be a university targeted for the over 16s who are put off by the traditional classroom lecturing type approach education and to the mothers who want to upgrade their skills to re-enter the labour market. Most of all, this university has to be endowed with generous childcare and child minding facilities where students can safely leave their offspring while being re-trained.

The finality of this education system must not be that its students will be absorbed into the labour market in the normal way where they find a job to earn a decent salary. It will be different from the normal university in that there will be no certificates and no graduation. The success of such education will be measured only in one way: the success of students to gain enough creative, innovative and enterprising spirit to set up their own business singly or collectively.

The university will provide the needed training and environment to understand how business works, how dreams could be converted to ideas and how ideas could be transformed into real business ventures. For this purpose the new university will support such initiatives with administrative facilities, including bookkeeping, secretarial services, business mentoring, marketing co-ordination and a rich business research library.

The ‘graduates’ from the New University for Creativeness, Innovation and Entrepreneurship, will be prospective new business owners of health studios, web designers, on-line vendors, electronic games developers, fashion designers, communication and digital media services, internet security services and so on and so forth. But not just cutting-edge technology based projects. Even traditional services like personal services (baby sitting, child minding and so on), logistics and delivery, and similar plain vanilla business activities lend themselves to successful new ventures for those who believe they can deliver a better service at a more competitive price.

The consultants for the Vision thing also re-affirm their belief in the potential for much more accelerated development of our financial services industry. We score favourably on strategic considerations like Tax and Policy Structure, ICT, Quality of Life, and Educated Work Force. We have so far attracted the smaller players but if we build up momentum, the big names will start to take a second look at us especially as it keeps getting crowded and expensive in Luxembourg.

Here again we need a stimulus event to give us a step change and not merely gradual organic growth. The opportunity for this step change could come when and if the Marsa power station is shut down and dismantled. Its site could become our own version of London’s Canary Wharf. There must be local and international investors interested in a public-private partnership for the development of this site for the indicated purpose, which could put us on the map as an international financial centre offering a flexible and economic alternative to Luxembourg and Dublin, not to mention some crumbs from Hedge Funds who might find life in London no longer as interesting as it used to be.

Our social model is getting more expensive by the day as the population ages, baby-boomers move out on pension and health care becomes more sophisticated and expensive. To maintain it, let alone improve it, we need more aggressive economic growth than we have been registering. Cyprus and Slovenia, two countries that are a natural benchmark to us, have sprinted forward as we merely strolled. It is time to look reality in the eye, get off our laurels and accept that we have been adopting a too leisurely approach to win in the fierce jungle out there.

May be I am over-simplifying things and maybe I am an Easter dreamer with an overdose of spring optimism which has lifted my feet off the hard reality on the ground. If that is so, let me dream, don’t wake me up to a harder reality. I just can’t stand it. Happy Easter!