Is the International Monetary Funddemanding enough from Greece in exchange for its $40 billion three-year loan to the country?
The European Unionand the IMF have agreed to lend Greece more than $100 billion in exchange for promises to restore stability.
But perhaps the instability in the euro and the Eurozone’s stock markets has to do with the easy terms with which Greece is getting its money.
Greece joined the common Euro currency about two decades ago, forfeiting the option to devalue or inflate its way out of its problems. Since then, Greece has been accused of masking its true debt problems and of not reining in its public sector wages and pensions.
The IMF-EU loans add more debt to a debt-drenched country with little in the way of sticks behind the carrots. All of a piece with a bailoutculture that floods the system with taxpayer money first, but then asks questions or makes demands later.
The “IMF is dipping its toe back into the business of restructuring governments in exchange for access to funds,” says Fox News analyst James Farrell, who has reviewed Greece’s IMF loan details. “However, the other news is that it is treating Greece with kid gloves compared to the old days of the IMF giving a laundry list of conditions to get aid.
Greece should privatize its state-owned industries to pay off its $300 billion in debt, which include government ownership of hotels, ski resorts, marinas and casinos. Greece’s government owns much of the country’s tourist industry, too. It should be sold with the proceeds used to reduce public debt.
Just like Prime MinisterMargaret Thatcher did in the ‘80s in Great Britain, which led to a boom in the country’s productivity.
Privatizing would also force Greece to unload overpaid government workers onto the private sector, where they would have to work for their wages, which could possibly have a knock on effect of increased productivity, as the country has borrowed the equivalent of the GDP of Hong Kong but has a productivity level per capita equal to Croatia.
Instead the IMF is “only imposing ‘targeted conditions’ designed specifically to address Greece’s problems – not remaking its entire system of government (like it should),” Farrell adds.
Take a look at page 57 of Greece’s IMF loan, which outlines IMF’s conditions related to Greece’s state-owned industries.Click here for the loan information
The disbursements for the IMF loan are conditional on Greece implementing reforms in line with Greece’s three-year plan aimed at cutting its budget deficitfrom 13.6% of GDP in 2009 to below 3% of GDP in 2014.
The loan will be disbursed in tranches in order to encourage compliance with the loan conditions.
But you’ll see the IMF is demanding mostly more transparency in Greece’s finances, as well as state reviews, and little more:
“Managing and divesting state enterprises. These need to be subject to greater transparency to increase efficiency and reduce losses. As a first step, 2009 financial statements audited by chartered accountants of the ten largest loss makers will be published on the internet.”
The document continues:
“A time table and action plan for improving the financial performance of main loss-makers, most notably in the railway and public transportation companies will be produced.”
“This action plan will include concrete steps to reduce costs, including by streamlining the networks serviced and increasing tariffs. The government will review the role for divesting state assets, including of land owned by public enterprises or the government. The government will further review the scope for improving corporate governance, and enhancing oversight of state-ownership."
For the health sector, the conditions are:
“Health sector reform. The government will implement double-entry accrual accounting in hospitals, the regular publication of audited accounts, and improvements in pricing and costing mechanisms. The government also plans to separate health funds from administration of pensions, merge the funds to simplify the overly fragmented system, and bring all health-related activities under one ministry.”
Newsflash: Greece didn’t have double-entry accrual accounting in its hospital systems?
The conditions further note that:
“The health care system, where there have been major expenditure overruns, will be overhauled through reforms in management, accounting and financing systems.”
No more details after that.
This only prolongs uncertainty and offers debt-holders a promise by the Greek government that will be hard to honor. No wonder markets are skeptical.
Other key elements of the loan conditions are below. Whether Greece abides by them remains to be seen:
-new revenue measures to yield 4% of GDP through 2013 by raising the value-added tax and taxes on luxury items, tobacco, and alcohol, among other items;
-strengthening tax collections and budget controls (expected to gradually total 1.8% of GDP during the program period);
-a Financial Stability Fund, funded from the external financing package, is being set up to ensure a sound level of bank equity;
-entitlement programs are to be curtailed and selected social securitybenefits are to be cut;
-comprehensive pension reform, including curtailing provisions for early retirement;
-the government is to modernize public administration, strengthen labor markets and income policies, improve the business environment, and divest state enterprises;
-a significant reduction in military expenditures.