OECD sees high growth, urges reform

Report voices inflation fears

Greece's economy will grow at a higher rate than most developed world economies this year and next year, fueled mainly by strong domestic demand, low rates, European Union cash injections and preparations for the 2004 Olympics, according to the midyear country review published yesterday by the Organization for Economic Cooperation and Development.

However, the government will have to address a bevy of familiar concerns, including a profligate social security infrastructure, an inequitable tax system and an overstaffed public sector.

The Paris-based think tank, which has 30 members, said year-on-year GDP growth is likely to reach 3.5 percent in 2002 and 4.25 percent in 2003 - in both cases outperforming OECD growth. Domestic demand, supported by household consumption, is expected to provide the mainstay for the economy's growth, while new tax and benefit packages will keep household spending high in combination with low interest rates.

The OECD report argues that private sector indebtedness «is still low by international comparison, leaving ample scope for further borrowing.»

Inflation is forecast to remain «markedly higher than the euro area average.»

The report called for the better use of human resources in administration. «New demands for public services usually have to be met by the creation of new posts, with no commensurate reduction in posts in less important areas. Promotion continues to be based more on seniority than on merit or effort, and it is doubtful whether productivity levels and growth rates in the public sector justify the salary increases there for some categories of public employees, especially in recent years.»

The report refers to the pension system as one of the most generous and inequitable in the OECD, warning that, in the absence of reforms, age-related expenditure could rise by 12 percent of GDP by 2050.

And the report called for reform to the «highly complex» tax system, focusing on the uneven distribution of the tax burden. This year's tax measures, the report said, «partially address some of the problems of the current system... but they do it once more in a piecemeal fashion.»