Pay heed to the IMF

Although predictable, the International Monetary Fund’s (IMF) annual report on the Greek economy, delivered on Tuesday, and the government’s reply merit particular attention and comment. The report again contained the usual exhortations for bolder and faster reforms, or structural changes. Despite their routine character, the IMF recommendations acquire special value as many analysts are finding that Prime Minister Costas Karamanlis, after his summer reform offensive, has again relaxed his government’s drive and seems to be calibrating his steps to opinion poll ratings. This is a pity, because the time for forging ahead with all the required extensive reforms in education, health, even culture – together with social insurance – are being pushed back until after the next election. That is, if the government can win it. The minimization of political cost is returning as the government’s golden rule. Economy Minister Giorgos Alogoskoufis’s reply to the IMF admonition that the labor market must be further liberalized is characteristic: In the government’s view, the structural reforms in the labor market have been completed, he said. That is, by reducing the cost of overtime and enhancing management’s right to lay off staff. I fear that Alogoskoufis is mistaken, and he will realize this soon, with the assignment to Greece of a lower competitiveness rating, precisely because businesspeople and economic analysts view labor relations in Greece as inflexible and unfriendly to investors. Of course, the IMF has a strict recipe which envisages no limits on dismissals, pay raises lower than inflation and not necessarily sticking to collective labor pay pacts. Its rationale, again, is predictable: When entrepreneurs are subjected to ceilings on dismissals they react by simply not investing. And Greece’s major problem at this point is unemployment, with the highest rate in the old 15 EU members and an unenviable productivity record. Ignoring the IMF’s recommendations may carry a high cost. I am aware that the IMF is not at all popular in Greece and many other countries, where people say the body lacks social sensitivities and proposes neo-liberal recipes which cause social upheavals wherever applied, without solving the pressing problems. One may suitably recall Andreas Papandreou’s famous reference to the «wolves of the IMF.» Whatever the value of such objections, the IMF’s worthiest contribution that must be tapped is its experience in issues of managing the economy. Two special IMF delegations have recently come to Greece at the invitation of the government, to look into the issues of cutting waste and improving revenue collection, respectively. On both issues, the research being conducted by the IMF is advanced and, besides, American experience in these field is invaluable. So, just as when a firm wishing to acquire know-how looks abroad, the Greek government, with its outdated and ineffective practises, should tap the experience of the IMF.

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