Greece making progress with reforms: IMF report, party reactions

“Overall, while it will yet take some time for the country’s situation to fully normalize, the government of Greece has come a long way in its adjustment effort,” the report concluded, while noting that the recession resulting from the effort to correct the country’s “daunting” adjustment

Highlighting Greece’s achievements, the IMF said, “Progress on fiscal adjustment has been exceptional by any international comparison, with the primary balance set to have cumulatively improved by 10 percent of GDP by end-2013, amid a contraction in GDP of more than 20 percent.”

“Greece has also made a significant dent in its competitiveness gap. Far-reaching labor market reforms have helped to realign nominal wages and productivity at the enterprise level. We estimate that the competitiveness gap as measured by Unit Labor Costs (ULC) has been reduced by close to two-thirds since 2010, while the current account deficit has come down cumulatively by about 10 percent of GDP,” the report noted.

Among the problems highlighted are a failure to tackle tax evasion and ensure a fairer distribution of the tax burden and stubbornly high prices, in spite of lower wages, so that wage earners and pensioners bore a disproportionately high share of the adjustment burden.

It called for “decisive corrective actions” in each of these areas, as well as an end to the taboo on mandatory public-sector dismissals.

IMF officials pointed out that, even though Greece’s European partners have agreed to reduce the medium-term primary balance target from 6½ to 4½ percent of GDP and to length the adjustment period to 2016, Greece will still need some further structural fiscal adjustment to reach its medium-term fiscal target.

The key challenge, they stressed, is to define a way for the government to achieve this while adhering to its promise to avoid further across-the-board spending cuts. It called for “deeper political commitment” to tax administration reform, “mandatory redundancies” in the public sector to provide room to hire better qualified staff and action to provide a strong social safety net to assist those most affected by the crisis.

The report was generally upbeat about Greece’s banking system, forecasting a fully recapitalised system by mid-2013 and a halt to the “deep de-leveraging” of recent years, but warning that serious policy challenges still lay ahead. Among these it listed avoidance of “undue government interference,” and urged rapid re-privatisation of the banking system and action to stem the rise of nonperforming loans.

It advised a focus on “deepening structural reforms” to boost economic recovery, via reduced barriers to markets and more privatisation, warned against “attempts to artificially engineer growth” – especially through tax incentives – and called for action to restore badly dented investor confidence.

For the last, it emphasised the need for political stability and broad support for the adjustment programme, stressing “that only with full and timely policy implementation and commitment to the programme can the fundamentals for a recovery be put fully in place and the fear of adverse outcomes permanently put to rest.”

It also stressed that Greece’s public debt remains much too high and that the country might need additional help to bring its debt below the target of 110 percent of GDP by 2022, welcoming the fact that Greece’s European partners have now accepted that Greece might need this assistance and committed to provide this, if needed.

“With Greece’s debt now overwhelmingly held by the official sector, such a commitment is essential to assure creditors that a credible framework for dealing with Greece’s debt overhang is now in place,” the report noted.

Commenting on the report, Finance Minister Yannis Stournaras said on Tuesday the government will not relax its efforts.

“It was a positive report but we are not relaxing,” the minister told reporters as he left a meeting with Prime Minister Antonis Samaras at the government’s headquarters, adding that there was still “a long way ahead of us to cover”.

“We must convince our EU partners that Greece is on the right path to get rid of all memorandums and to reach the full recovery of the Greek economy,” said PASOK member and former deputy Christos Protopapas at an AMNA interview, adding that positive signs “should not allow the relaxing of efforts.”

Commenting on the IMF report, he said, “The rewards of these efforts need to be used for selective, few, and fundamental interventions to relieve families where all members have lost their jobs and to cover needs of certain sensitive social groups.”

“Greece is becoming more stable, with the efforts of the Greek people, PASOK in the past, and the three parties of the ruling coalition today,” Protopapas noted. The stability created he said is attracting investments, and the “Greek exit” belongs to the past. “That is not enough, we must continue, to make reforms a reality,” he concluded.

Main opposition Radical Left Coalition (SYRIZA) on Tuesday objected strongly to IMF report underlining that “it attempts to justify the choices made through the memorandum for which [the IMF] is partially responsible”.

SYRIZA added that “this is confirmed by the fact that the report makes absolutely no reference to the fiscal multiplier error, namely, the fact that the formula used was wrong.”

It pointed out that the so-called “achievements” made as a result of the Greek efforts in real terms are nothing less than the dissolution of labour relations and social insurance, the shrinking in size of the public sector, a depreciation of productive infrastructure and the selling off of public assets.

According to opposition party, “what the IMF report does not say is that the three years of the memorandum are lost years for the Greek economy and society, and that there is no room for more human sacrifice – something that the unemployed, the young people forced to emigrate, the indebted small entrepreneurs and and the thousands of households left without an income are well-aware of.”

In an interview with ANA-MPA, SYRIZA spokesman Panos Skourletis noted that “a new ‘haircut’ should take place within the context of a different economic policy that will reject the present extreme and anti-social austerity policies”.

On the information concerning the layoffs of 2,000 civil servants before the end of the month, he noted that the government is not interested in preserving the public sector. “They do not care about the meaning of social state and they just implement, with unprecedented dogmatism, the reduction of the public sector’s size. As a result, very soon a large section of the population will be denied easy access to public goods.”

Source: AMNA