The prospect of higher interest rates makes privatizations all the more urgent
Economy and Finance Minister Giorgos Alogoskoufis is slated to meet senior officials of Wall Street’s biggest institutional investors in New York early next week, particularly those who include Greek shares in their portfolios. The aim of his two-day visit is to provide an extensive briefing on the government’s intention to launch an ambitious privatization program in 2006. Evidently, Alogoskoufis wishes to create a positive climate so that the public assets to be sold fetch the best possible prices in order to give public coffers a revenue breather. For this year, the government had budgeted for privatization revenues totaling 1.6 billion euros. However, the successful placements of soccer betting and lottery firm OPAP and of telecoms utility OTE allowed the target to be exceeded by about 30 percent, bringing the total collected to 2.15 billion, or 1.3 percent of gross domestic product (GDP). According to European Union regulations, such revenue does not belong to the ordinary budget but goes toward paying off public debt, which has climbed to 119.2 percent of GDP. Of course, the primary and proper objective of privatizations is to bolster competition and development of the economy, as they attract capital that is lacking for modernization and efficient management. Under the present circumstances, however, when a new round of interest rates is looming internationally, the cash-earning potential of privatizations acquires added significance for public debt. Greek public debt has been galloping in recent years; from 160.6 billion euros in 2001 it reached 214.5 billion this year. In other words, it rose 34 percent in five years, which proves that the public sector continued to produce deficits at a faster pace and that the privatizations that took place were insufficient. So Deputy Finance Minister Petros Doukas is right in saying that privatizations do not simply need to be accelerated; they need to be multiplied. Interest expenses are already high and a serious burden on the budget. This year, we shall pay 9,730 million euros for interest on public debt, and the forecast for 2006 was 5,600 million. But with higher interest rates looming, the prospect is for total interest expenses to rise rather than fall. Fortunately, 82 percent of public debt is on fixed-rate interest (around 3.5 percent), which is satisfactory, given that it is the same as Italy’s, whose credit rating is higher than Greece’s. This means that if interest rates rise by one percentage point, the additional expense will not exceed 150 million euros. Sources say that Alogoskoufis will tell Wall Street that the government intends to complete the privatization of Emporiki Bank, Greece’s fourth largest by assets and in which the government controls about 42 percent; sell a further 20 percent of ATE Bank; list the Postal Savings Bank and Athens International Airport on the Athens bourse; and sell provincial ports and airports to private entrepreneurs. As regards Emporiki, there is speculation that Alogoskoufis will meet with representatives of Credit Agricole, which already holds a 9.5 percent stake and has the right of first refusal but does not appear to be interested in buying a further 20 percent which the government wishes to sell, citing a high share price. It is believed that he will make it clear to the French that the price cannot be lower than the current stock market price and that other investors will be sought if they do not agree. There are many suitors, including Greek banks. Furthermore, privatizations must proceed quickly because if interest rates start rising, stock market prices will fall and the proceeds accordingly. Perhaps the government ought to rethink the case of the Public Gas Corporation (DEPA), the privatization of which the previous government had approved but the current one has curiously frozen.
