ECONOMY

Debt to drop by 900 bln

The government has found a way, through transfer of interest payments and other operations, of attaining its goal of reducing total debt by 900 billion drachmas, to 97.3 percent of the country’s gross domestic product by the end of 2002. The exact nature of the operations is not known, but they are believed to be costly, a fact pointed out by International Monetary Fund experts who visited Greece recently and provided the government with a summary of their findings last week. According to sources, one operation involves the transfer of a 400-billion-drachma interest payment to an unspecified future date, thought to be five years. This accounting method allows the payment to be entered in the 2002 budget. The actual payment, however, whenever it takes place, will be augmented by extra interest. The second operation involves the payment of part of the principal, worth some 500 billion drachmas, over a period of 15 years. This also incurs an annual interest, which has not been revealed. Both operations have been agreed on with lending banks which, sources say, are state-owned. The banks stand to make handsome earnings from the interest. Regulating debt payments this way is not peculiar to Greece. It has also been tried by Italy, whose debt level is even higher than Greece’s. Both countries, and others with them, have become eurozone members with the specific commitment of reducing debt below 60 percent of GDP over a reasonable period of time. When Italy’s accounting methods became widely known, however, the European Union balked. Eurostat, the EU’s statistics body, said this method of debt reduction was incompatible with accepted practices, causing the European Commission to intervene. The exact nature of the agreements, as well as the commission charged by banks, is known only to the Public Debt Management Organization. Other costly arrangements, including debt swaps from one currency to the other, are also performed in the utmost secrecy; even the Bank of Greece is kept in the dark.