The International Monetary Fund (IMF) recently completed its mission to Greece and published its preliminary findings on May 25. Missions are undertaken as part of regular (usually annual) consultations under Article IV of the IMF's Articles of Agreement, in the context of a request to use IMF resources (which usually means borrowing from the IMF). The report can be accessed here.The report does not really state anything new. Greece has been largely relying on cheap debt to generate growth over the last 15 years. However, at least for the foreseeable future, the availability of reasonably priced debt will be scarce - global financiers such as commercial banks, investment banks, pension funds, sovereign wealth funds etc., have had to reign in their lending, and if they decide to lend,Greece is not high on their list. Another problem is that the very high borrowing requirements of the Greek state mean that it ‘crowds out’ the private sector – which has become increasingly reliant on debt rather than savings to finance investment (not to the same extent as Ireland or the United Kingdom).
The IMF points out that Greece needs to make the necessary reforms to its economy in order to become more productive and competitive by reducing inefficiencies in its state bureaucracies (which includes reducing public debt to fuel growth) and encourage private enterprise.
Amongst all the discouraging news there are some bright spots. Global accounting firm, Ernst and Young has just published its latest “Renewable energy country attractiveness indices” which scores countries for national renewable energy markets, renewable energy infrastructures and their suitability for individual technologies. Greece ranks 12th overall ahead of Sweden, the Netherlands, Norway, Japan and Finland. Of course, Greece has a comparative advantage in solar (reflected in their high ranking in this category) and to a lesser extent wind; but recent government initiatives, have also found favour amongst investors.
Source: IMF, Ernst and Young, Antipodes
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ReplyDeleteRecentley, in a Bloomberg report, I read that in Italy the Mafia's lending services have increased dramatically in the last couple of years as Italian banks have tightened credit on households and businesses. Moreover, the Mafia is trying to "secure a foothold in the legitimate economy through mainly cash- based operations such as food distribution." This is a perfect opportunity for the cash-rich Mafia to launder its money.
Regarding the IMF, I find it ironic that it is promoting public-debt reduction (i.e., neoliberal policies) for countries like Greece. The IMF is an instrument of the United States. Last I heard, the Obama administration is doing the exact opposite of what the IMF is telling the rest of the world to do.
Cheers,
~PeterD
Edit: "Recently," not "Recentley."
ReplyDeletePeter, you are correct. The IMF is largely an instrument of the US used to maintain its hegemony. The argument to reduce public debt is primarily based on the assumption that public enterprises are less efficient in allocating capital than private ones - the evidence for this assumption is not conclusive. Therefore, the argument is somewhat ideological. I think many Greeks realise this and ignore the IMF's prescriptions.
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