Lagarde defends Greek program, urges focus to turn to revenues

International Monetary Fund managing director Christine Lagarde has urged Greece to make greater efforts to boost its revenues as she defended the policy of frontloading the country’s fiscal adjustment program.

Speaking to the BBC, Lagarde said that the IMF and its troika partners, the European Commission and the European Central Bank, were correct to push for drastic measures from the start.

“What technical analysis and the history of crisis management tells us is that you’re better of doing it strong and hard at the beginning in order to enjoy the benefits of the process,” she said.

Lagarde’s comment comes a couple of weeks after the Fund’s chief economist Olivier Blanchard admitted in a working paper that the IMF had underestimated the impact on the economy of countries like Greece the austerity packages adopted over the last few years.

Blanchard said that a fiscal multiplier of 0.5 was used when the multiplier should have been 1.5, meaning that for every euro cut, 1.5 euros would be lost from GDP.

Lagarde, who has in the past identified tax evasion as a key problem in Greece, said the government’s efforts must now turn to boosting revenues.

“Greece has done huge and massive efforts in cutting expenses, in bringing the deficit down, in turning to primary equilibrium if not surplus now, which is the good news.

The country is going to turn out better results than what was planned. But it has to do a massive effort on collection of revenue and of tax,” said the IMF managing director.

“We forecast the eurozone to be delivering growth in 2013, which is better than the recession in 2012. So, there is an improvement and the beginning of a recovery.”

Lagarde said she was confident that the eurozone as a whole would be on the road to recovery this year.

“Clearly, this is the result of national policies and a regional effort to strengthen the zone to make that currency zone a more consolidated banking union and I hope fiscal union will be strengthened as well.

“It’s clearly the case that investors are returning to the eurozone.”