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IMF: Greece is credited under AAA terms, without having the same rating

19 September 2011 / 15:09:27  GRReporter
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Maria S. Topalova

Greece has friends and partners who support it and help it carry out the difficult reforms. Now it is its turn to show it is capable of changing. That was the message of the Permanent Representative of the International Monetary Fund Bob Traa, who took part in an open discussion with the Greek business community, organized by the Economist magazine. He said that the decisions of July 21 mean that the country is provided loans under AAA terms without having the same rating. He also specified that the International Monetary Fund also has lent disproportionately to the size of the economy of the country. This means that it supports Greece but Greece should get the job done.

The International Monetary Fund strongly believes that the fiscal consolidation program has been successful in Greece. For one year from its launch, the country has managed to shrink its budget deficit by 5 per cent and the government sector by 7.5 per cent and that under conditions of deepening recession. This is an indisputable success. However, after the initial successful start, after the local elections in the autumn last year, fatigue of reforms came in Greece. Bob Traa stated that there is drama for the payment of each tranche but this drama is necessary to keep Greece awake. From this perspective, Troika’s mission should be monthly, rather than once a month.

He explained that the Memorandum of financial aid is not something fixed that does not change. It is a living organism, which is changing according to the changing economic environment. Therefore, appealing for no new measures is groundless. In his opinion, it is not right to increase constantly taxes on the same narrow tax base. He noted that the performance of tax administration is not improving so that to eliminate tax evasion. The increase in revenues should come from there rather than from tax increases. With the technical assistance Greece received last year, it had to deal with tax evasion but it did not do it, said also Bob Traa.
 
According to the representative of the International Monetary Fund, the big public sector is another serious problem in Greece. He noted that the inefficient state enterprises should be closed. There are cases, when the state sector employees receive much higher salaries than those in the private sector. This should change. This is the way to reduce taxes - to fight tax evasion, and to reduce the public sector. This is the position of the Fund in respect of taxes. At the same time, Bob Traa believes that taxes should not be reduced because the goal of the reforms is to reduce consumption, which is disproportionately high compared with the economic size of the country. He said GDP growth should come not from stimulating consumption but from new investment, which would stimulate the real economy. To do that Greece has to change.

A foreign investor hardly could find a way in the Greek economy, which is opaque and closed out. The licensed economy should be eliminated. He urged the government to make the economy even, not to give benefits to industries, companies and businessmen. He advised that the expectations of the structural reforms should be realistic as they do not give immediate results. It is therefore necessary to start them yesterday, not to delay them and to be patient until they bear fruit, called the Permanent Representative of the International Monetary Fund in Greece. He complained that Greece's reform program is not supported by the entire political system and therefore does not enjoy support from society.

The Minister of Finance Evangelos Venizelos response was dramatically pathetic. He admitted that this would be a difficult week for the Greek economy and even tonight at 19.00 h, he will have a videoconference with the heads of the supervisory Troika of the International Monetary Fund, the European Central Bank and the European Commission. As GRReporter reported, its representatives left Athens unprecedentedly, keeping it in the dark about the payment of the sixth tranche of the financial aid after finding no progress in implementing the reforms.

"Our partners do not want right decisions but to implement them and achieve concrete results," admitted even Evangelos Venizelos. "Our priority in the draft budget for  2012 is cost reduction. It is hard and national mobilization is necessary, because if we leave the impression that we ourselves do not believe that we will succeed - this is suicide. Greece has once again to take a dignified position in the European Union, the world markets and in general. Political stability, transparent institutional framework, self-esteem are needed. If we do not this now, we will have to do it later under much more adverse conditions," he said from the rostrum of the forum.

The Greek Minister of Finance did not fail to note that Greece is hardly the most serious problem in the euro area and that it remains among the 30 most developed economies in the world despite the recession. "If Europe fails to cope with its problems, it should definitely consider reforming its own institutions. We believe in the private sector involvement with the support of the Institute of International Finance. The European Central Bank is able to guarantee the payment of the Greek debt. We have new problems all the time. In the European Union, there are countries that have annual borrowing equal to the entire Greek debt. There are many countries with fragile banking system. The decisions of July 21 offer not inexpensive but balanced distribution of the burden with the payment of the Greek debt. Moreover, these decisions should be implemented fully by all parties," did not fail to complain Evangelos Venizelos.

He acknowledged that this year recession in the country is about 5.5 per cent and that the GDP of Greece will continue to drop in 2012. "We could succeed if we all work, if we give up some suicidal attitudes in our country. We have to form budget surplus as soon as possible to stop being humiliated and be able to look at our partners with dignity. Nobody says it is easy," he concluded.

Far calmer and more pragmatic were the representative of the business circles in Greece, who urged the government to cope with the clientelist state once and for all. "Real change will come from decisive structural reforms. They are a national necessity, which accidentally coincides with the Memorandum and the Troika. We did not dare to liberalize the labour market, we did not dare to privatize. Everything remained just words. These are the new measures to be implemented rather than tax increases. We can no longer delude our creditors, they found out. So, we faced the distrust not only of creditors but also of public opinion and citizens around the world, who see that neither our political system, nor our society is ready to change," was the call by Dimitris Daskalopoulos, the president of Union of Greek Industrialists.

The President of the National Bank of Greece Vassilis Rapanos, who spoke at the forum of the Economist magazine in his capacity of President of the Association of Greek Bankers, outlined the general situation of the Greek banking sector, which is the first victim of the debt crisis. The banks have not cause the crisis, but the crisis seriously has affected them. "The European Central Bank should provide liquidity to us by buying the government bonds but our own bank bonds too. However, every day it devalues ​​our bonds in accordance with the growth of the Greek spread-indicator. We would like more flexibility on its part. Banks are of the few multinational companies of Greece and they should be saved," Vassilis Rapanos called. According to Bob Traa, however, the problem is purely technical and not a matter of flexibility on the part of Frankfurt. The increase in the spread-index leads to devaluation of bank bonds.

Tags: Bob TraaInternational Monetary FundGreek debt crisisBailoutCreditsBanks
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