Economy still awaits the promised reforms

The government, which once presented the economy as its strong suit, is now trying to cut its losses. When, at the end of October, Nikos Christodoulakis replaced Yiannos Papantoniou at the head of the ministries of national economy and finance – since merged into a single entity as the Ministry of Economy and Finance – he had set as his top priority strengthening the economy’s competitiveness and promised, otherwise, to continue with the policies enacted by his predecessor, Yiannos Papantoniou. Christodoulakis failed in his main goal, and it wasn’t entirely his own fault. Nonetheless, exports continued to plunge during his tenure. As for his promise, he chose, at least in theory, to deviate in several aspects, because he thought Papantoniou had not pursued growth aggressively enough. He did not, however, manage to bring about significant changes, even though, truth be told, his plans suffered an early and severe setback when the proposed marriage between the two largest Greek banks, National and Alpha, fell apart. Where Christodoulakis followed Papantoniou’s line faithfully was in fiscal policy, especially in the part having to do with masking the extent of Greece’s debt through a series of creative accounting schemes. That is why he kept in place two key people: his own former aide Giorgos Koussoulakos in the Finance Ministry, and, in the National Statistics Service, Nikos Karavitis, an old hand at data manipulation. A year ago, when Christodoulakis presented the 2002 budget in Parliament, he made a series of declarations regarding bold initiatives that were later either abandoned or postponed. Specifically, Christodoulakis spoke of six reforms. The first reform concerned, in the minister’s words, «the new structural changes (in public utilities) on the basis of which we will help them build strategic alliances.» What was achieved was the passage of a law specifying that the State would eventually retreat from majority ownership in public utilities but would retain a «golden share,» that is, a minority stake with veto rights. The dreaded political cost, mostly the cost of displeasing the pro-government unionists who count public utilities among their bastions, remains a big obstacle to privatization. as for the «strategic partners,» they are still absent. The second reform would be a (yet another) development law, dealing with investment incentives to domestic, but mostly foreign, investors. This law ought to have been ready in the first half of 2002. It is still not, and nothing ensures that, should such a law be passed, it will facilitate investments. The third reform concerned the tax system. Indeed, three laws on tax reform were passed in mid-year and their provisions will be implemented beginning on January 1. However, somewhere along the way the ambitious plans were watered down by the State’s almost desperate need for revenues in order to deal with extremely high debt. The lofty aims announced at the unveiling of the tax bills – boosting employment and growth – are unlikely to be fulfilled, at least on the scale hoped for. This is all in the name of the State’s need to fill its, and the social security funds’, coffers. The fourth reform promised was the setting up of a modern framework for market oversight to ensure transparency in transactions. This is perhaps the only field in which real progress was made. However, and despite its best efforts, this government has lost the confidence of retail investors. That is why the oversight framework will not be enough to revive the moribund stock market. The fifth reform concerned allowing for a greater role by the public sector in financing public projects. The law was to be submitted to Parliament in February. Now, Christodoulakis would rather have us forget this particular promise. The draft bill was found to be nothing more than a laundry list submitted by contractors and was duly withdrawn. The sixth reform had to do with boosting entrepreneurship, especially in the technology sector, by creating the so-called business risk funds that would be available to willing new businessmen. The funds were set up, but the state of the stock market was not favorable. Besides these promises, Christodoulakis has been proven wrong where partial privatizations are concerned. Those of Hellenic Petroleum, the Public Gas Corporation and the Agricultural Bank have been mired in endless negotiations and a solution has yet to be found for Olympic Airways.