Publications

Copyright 2007 The Financial Times Limited
Financial Times (London, England)
June 22, 2007 Friday; Asia Edition 1; Letters to the Editor

Sir, Kerin Hope is right to report on the seriousness of the bond deal in Greece, which “sparks calls for early Greek poll” (report, June 19). It is paramount, though, for the Greek government, before it concludes on a possible early poll, to investigate who the actual bearer of these structured bonds is.

If a large proportion were to be held by international investors, then there may be an argument that structured bonds may save the taxpayer some of the cost of servicing that debt. But, if a large proportion of these structured bonds ends up in the portfolios of the Greek pension funds, as it seems to be the case, the government may be accused of taking advantage of the unsophisticated boards of the pension funds to minimise its tax liabilities. The Greek Treasury is gaining at the expense of the pension funds. This is not just an ethical issue; it is a clear responsibility of the government itself, as it is the one that sets up the legal structure of the pension funds. This suggests that the whole structure requires overhauling and the government should proceed with extreme care and responsibility.

Some general guidelines on the overhauling process may be useful. The management of the portfolios of the pension funds should be placed with the private sector that has the requisite skills and expertise. The asset management companies that would run the portfolios would be directly accountable to the boards of the pension funds. The boards, on the other hand, should not be appointed by the government, but they should be elected by their members, to whom they should be accountable. The responsibility of the boards should be to set up the decision-making process of the portfolio management and not be responsible for the investment decisions, as it happens now. The government should avoid the finance of the budget deficit through private placements as this undermines transparency. The normal practice of issuing ordinary fixed income government bonds through auctions that involve primary dealers is the only way to ensure that the burden to the tax-payer is kept to a minimum. In such an auction the government would fetch the market price on the issue of its bonds, which incorporates the risk that the market attaches to such bonds.

Philip Arestis,
University Director of Research,
Cambridge Centre for Economic and Public Policy,
University of Cambridge, UK

Elias Karakitsos,
Chairman, Global Economic Research,
Associate Member, Cambridge Centre for Economic and Public Policy,
University of Cambridge, UK