Table of Contents
Top central bankers play down threat of global economic crisis
Stelco pension holiday called off
Canada Pension Plan Board Puts $470 Million In European Infrastructure Funds -CP
BMO Reveals Cost Of Top Pensions -Globe and Mail
Canadians Spared Pension Debate Under Way In U.S. -Globe and Mail
Will U.S. Reform Spark Stock Gains? -Globe and Mail
Social Security, the Stock Market, and the Elections- Monthly Review Editorial
Pension Crisis Prompting Companies To Change Their Plans - Deloitte and Touche
Privatizing Social Security Who Wins When We Lose? - Nomi Prins, Against the Current
The Enron Debacle And The Pension Crisis - Robert Blackburn, New Left Review (NLR)
The New Economy And After - Doug Henwood, Left Business Observer (LBO)
Can The U.S. Economy Escape The Law Of Gravity? - Gary A. Dymski
Robert Brenner On The Crisis In The U.S. Economy
Social Benefit Reform Poll -FOM
Russia On The Verge Of A Breakdown -Moscow News
Can Russia Defuse Its Pension Time Bomb? -Business Week
FOM Poll 2003 Pension Reform
Macroeconomic Consequences Of The Russian Mortality Crisis -David E. Bloom & Pia N. Malaney
The Consequences Of Pension Failure: The Russian Case -Robert T. Jensen
José Piñera is president of the International Center for Pension Reform and co-chairman of the Cato Institute Project on Social Security Privatization. As minister of labor and social security from 1978 to 1980, he was responsible for the privatization of the Chilean pension system.
A Chilean Model For Russia
Empowering Workers The Privatization Of Social Security In Chile
Free Trade Agreements And Social Security Choice
WWW.Pensionreform.Org- Caroline Nolan
UK, FRANCE & EUROPE
ICC (International Communist Current)
Pension Reform: Stealing Humanity's Future
We Have No Choice But To Fight Capitalism's Attacks
The Dismantling Of Social Security
Top central bankers play down threat of global economic crisis
By Doug Saunders
Feb.5/05Globe and Mail
London — Two of the world's most powerful central bankers yesterday tried to reassure the world that they will be able to prevent an economic crisis driven by the United States' spiralling debts and China's unsustainable surpluses.
Alan Greenspan and Zhou Xiaochuan, addressing the finance ministers of the G7 nations on the eve of their summit in London yesterday, seemed to be addressing mirror-image crises: An unsustainable level of personal and public debt and a shrinking dollar in the United States, and a lack of domestic consumer goods consumption and a vast surplus of personal and public savings driven by an artificially weak currency in China.
People's Bank of China governor Zhou Xiaochuan stopped short of the pledge the G7 finance ministers had hoped to hear yesterday — a promise to stop pegging the yuan to the U.S. dollar, a 10-year-old policy that has given China a dramatically high current account surplus, attracted a flood of foreign investment and forced the euro to record highs.
The fixed-exchange yuan has been criticized by all seven G7 ministers, including Canadian Finance Minister Ralph Goodale, since a meeting in Boca Raton, Fla., a year ago during which they pledged to make the world's major currencies — especially China's — more reflective of economic realities.
But Mr. Zhou said China will have to make major changes to an economy that has become too reliant on exports, foreign investment and savings. Many observers saw this as a hint that the yuan will some day be allowed to float.
“We have a very big challenge, with an essential challenge in our economy: We have too much investment in our economy, and relatively weak domestic consumption,” Mr. Zhou said. “Probably it's related to the Chinese tradition, the Confucian tradition ... they save the money for old people; they save too much money. It's the contradiction of the situation in the United States.”
Indeed, the two nations seemed to be facing up to complementary crises. Mr. Zhou noted that China's personal savings rate has risen from 35 per cent of GDP 10 years ago to an astonishing 40 per cent today. “This means we need to reform our social security system to give households more confidence to spend money,” he said.
In contrast, Mr. Greenspan noted that the U.S. personal savings rate has fallen from 9 per cent in 1993 to only 1 per cent today. This, combined with large public sector debts incurred by George W. Bush's low-tax policies and a historically high dollar that has only recently begun to fall, has made the United States highly dependent on imports and has created an enormous current account deficit, currently at 6 per cent of GDP.
Mr. Greenspan said economic and political factors will help prevent the U.S. current account and trade deficits from rising further.
“The voice of fiscal restraint, barely audible a year ago, has at least partly regained volume,” he said. “If actions are taken to reduce federal government dissaving, pressures to borrow from abroad will presumably diminish.”
“The U.S. current account deficit cannot widen forever,” he said, but “fortunately, the increased flexibility of the American economy will likely facilitate any adjustment without significant consequences to aggregate economic activity.”
His words immediately caused the U.S. dollar to rise. It closed yesterday at just under $1.25 (Canadian), up 0.72 cents.
Stelco pension holiday called off
Ontario wants funding issues resolved during the firm's financial restructuring
By Greg Keenan,Steel Reporter
Globe and Mail,Friday, February 11, 2005 - Page B1
The Ontario government played its ace in the hole yesterday in the high-stakes poker game for Stelco Inc., eliminating a pension holiday that saved the steel maker hundreds of millions of dollars -- a move that shows it's insisting the pension issue be solved during the company's financial restructuring.
James Arnett, the government's special adviser on the steel industry, told Stelco that when it emerges from protection under the Companies' Creditors Arrangement Act, it will no longer be entitled to the holiday from pension payments it was granted in 1996.
That holiday permitted Stelco to stop funding its pension plans on a solvency basis, but finance them instead on a going-concern basis and pay into the province-wide Pension Benefits Guarantee Fund.
The difference in costs between those two ways of financing is substantial. Stelco said its cash contributions to pension plans last year were $64-million, but would have been $353-million if the regulation had been changed last year.
If the government simply revokes the legislation that allowed Stelco to take the pension holiday, the solvency deficiency -- which stood at $1.3-billion on Dec. 31, 2004 -- would have to be paid back over a five-year period. Mr. Arnett's letter to John Caldwell, a Stelco director and chairman of the board's restructuring committee, said the government is prepared to be flexible about how it requires the firm to address the funding deficiencies.
The government's position has been communicated to Stelco's management and the bidders, Mr. Arnett said, but "it seems not to have been taken into account in various statements attributed to company representatives . . ."
Stelco was able to avoid solvency funding payments on the basis that it was too big to fail, he said.
"By filing for CCAA protection, Stelco gave notice that it was not 'too big to fail,' " he noted.
The government's move is a clear signal to Stelco and the companies bidding to take it over that it wants a pension solution now so the steel maker doesn't come back to the government in two years with an even bigger problem.
It comes just days before the Monday deadline for the five companies or groups that are assessing whether to make bids for Stelco to complete their due diligence examination of the steel maker's books and make a binding offer.
Algoma Steel Inc. bowed out of the bidding earlier this week citing unspecified "risks and obligations" it would face if it took over its larger rival. Sources familiar with the saga said Algoma was scared off in part by the pension shortfall and the government's refusal to participate in a bailout of the funds.
Hap Stephen, Stelco's chief restructuring officer, said in a statement that Stelco has consistently stated that the pension issue is crucial for both the company and the bidders.
"The bidders are well aware of the issue, of our view and of the court's stated assumption that they will keep the issue in mind in making their bids," Mr. Stephen said.
The 1996 decision by Stelco to seek an exemption from solvency funding infuriated members of its largest union at the company's Hilton Works in Hamilton and is at the root of the union's distrust of company management nine years later.
Rolf Gerstenberger, president of that local, number 1005 of the United Steelworkers of America, said he was intrigued by the government's move.
"The plot thickens," Mr. Gerstenberger said. "This is certainly upping the ante."
"We're certainly glad that the province has finally stepped in," added Bill Ferguson, president of USWA local 8782 at Stelco's Lake Erie Works. "It's going to be an issue that must be addressed."
A Stelco investor who did not want to be identified said the government's announcement is not necessarily bearish for the stock. That's because all the bidders would have known the pension issue has to be cleaned up before the company could emerge from bankruptcy protection.
"All the government is doing is reminding people that it's a stakeholder," the investor said. "So you can't go out and do a deal without consulting the government first. It's signalling the status quo arrangement [on the pension] is not acceptable."
The pension repair plan, he said, may include assigning some of the pension liabilities to the government and stretching out the pension-funding payments. Air Canada achieved something similar last May, when it agreed with pension regulators to fund its $1.2-billion pension deficit over 10 years, twice the five-year legal maximum that had been in place.
Stelco shares fell 5 cents to $3.07 in trading on the Toronto Stock Exchange.
The potential bidders left in the game are United States Steel Corp.; Sherritt International Corp. and the Ontario Teachers Pension Plan; OAO Severstal of Russia; and the TD Securities arm of Toronto-Dominion Bank teaming up with an unidentified U.S. buyout firm.
There are reports that Mittal Steel Co. of London has dropped out.
With files from reporter Eric Reguly
CANADA PENSION PLAN BOARD PUTS $470 MILLION
IN EUROPEAN INFRASTRUCTURE FUNDS
James Mccarten Canadian Press January 25, 2005
The board said it has committed 200 million euros to the Macquarie European Infrastructure Fund, which invests in European utilities, railways, airports, toll roads and other assets - low-risk, long-term opportunities tailor-made for the CPP.
"Infrastructure, which is a relatively new asset class for us, has higher expected returns than bonds and is a good hedge against inflation," said David Denison, who took over last week as the board's president and chief executive.
"This is the type of regulated asset we are ideally looking for and are disappointed that there are so few domestic opportunities that meet our investment criteria."
It's becoming a familiar refrain: pension fund managers making pointed statements about how few investment opportunities there are in
Last August, when the
Teachers spokeswoman Lee Fullerton said the Scottish regulatory environment was far friendlier to institutional investors than anything
"They have the experience, they have a regulator there who works closely with investors, and they found that there was an openness for private investment, along with a regulatory environment that supported it," she said.
"We don't have that here yet."
The $79-billion Teachers fund invests pension earnings on behalf of 252,000 retired and active teachers in
The CPP commitments announced Monday raise the fund's infrastructure commitments to $670 million; it entrusted $200 million last year to
The CPP Investment Board held $75.2 billion in its reserve fund at Sept. 30 - $35.6 billion in bonds and money market securities, and $39.6 billion in stocks, private companies, property and infrastructure.
The CPP board is also investing 66 million pounds in the Wales & West natural gas distribution network in
Proponents of public-private partnerships, or P3s, say
"The projects do not exist in this country; that's the problem," said Jane Peatch, executive director of the Canadian Council for Public-Private Partnerships.
"There are just no opportunities here of any kind."
Peatch pointed to the chaos that erupted Sunday in Toronto - a broken water main flooded a transfer station, knocking out power to much of the downtown core - as an example of what Canadians may have to get used to in coming years.
"Governments have got to get their heads around this," she said.
"There is not a day in the foreseeable future that we'll have more public money to spend, and all of these pension funds are lined up and ready to put money in Canadian infrastructure once those structures exist to do so."
Peatch said pension managers love P3s because they're stable investments with a respectable upside that usually involve 25 or 30-year terms - perfect timing to avoid impairing pension payouts.
"They understand this is a perfect match for their money," she said. "More importantly, from a public policy perspective, a lot of that pension money comes out of public sector jobs, so reinvest it into the community that funded it in the first place."
Opponents of P3s, however, portray the partnerships as the leading edge of a push towards privatization, making them a political liability - the last thing a pension fund manager is interested in putting money in.
Governments are also wary of being stung, said Alex Murphy, a
"The guys have gotten a little greedy on the private-sector side, and the governments have all backed away," he said.
"I think there's an issue of what governments expect out of these public-private partnerships. The government people aren't always as sophisticated about these things as are the private-sector guys they're negotiating with."
© The Canadian Press 2005
BMO REVEALS COST OF TOP PENSIONS
By Sinclair Stewart
Globe and Mail January 25, 2005
Bank of Montreal has become the first major Canadian financial institution to disclose pension expenses for its top executives, estimating it will cost roughly $19.6-million to fund the retirement of chief executive officer Tony Comper.
A flood of companies are expected to begin revealing this information over the course of the coming months, thanks largely to intensive lobbying by shareholders who want greater clarity on executive compensation. There have been concerns that companies could quietly increase pay packages for their top brass through pension plans, where disclosure has been relatively murky.
The remaining Big Six banks, except for National Bank of
While investors welcomed the information, they also questioned the need for such lucrative pension packages in an industry already awash in rich compensation. Mr. Comper made approximately $12.7-million this year through a mixture of salary, bonus and restricted share awards, in addition to cashing out stock options.
Bill Mackenzie, president of shareholder advocate Fairvest Corp. in
Mr. Mackenzie suggested that if CEOs are already getting stock options and restricted share awards based on performance, they shouldn't be collecting fat pensions at the same time.
"I mean, if you're going to talk about stock options and all that sort of thing, then that's your nest egg, baby -- better make it work," he said. "When push comes to shove, they don't need them. They're all well-enough paid, and it's just more drag on the company of . . . fixed costs that don't contribute to the bottom line."
According to BMO's circular, Mr. Comper's annual retirement benefits are estimated to be $1.74-million, while the cost of his pension in 2004 was just over $1.2-million. BMO's accrued liability for Mr. Comper's pension increased by $2.8-million last year to $19.6-million, as of Oct. 31, 2004.