ECONOMY

IMF calls for a salary freeze

In its latest draft report, the International Monetary Fund argues that the answer to the decline in competitiveness and to the risks threatening the Greek economy due to the global crisis is a salary freeze in the public and private sector. The IMF also criticized the government for allegedly acting with shortsightedness in reforming the social security system and for being desperately slow in imposing the law about state companies. A team of experts from the international organization spent two weeks in Athens in order to prepare the IMF report on the Greek economy and had several meetings with ministers, the Bank of Greece and various social partners. Yesterday it turned in the draft of the report with its main observations to the Economy Ministry. In particular the IMF notes that the Greek economy maintained high rates of growth this year, higher than initial forecasts by the IMF and other international organizations, and that there is significant progress in public finances, which has brought about an end of the excessive deficit supervision by the European Commission. But this is where the good news ends, as the IMF expresses its reservations about the sustainability of growth as international developments may affect consumption, investments and exports. The global crisis in the international credit system and the rise of interest rates can affect credit expansion and therefore consumption and economic activity. At the same time the rise of international oil prices is bolstering inflationary pressures, which along with the rise of the euro against the dollar will have a negative impact on competitiveness and exports, that has spread in recent years, mainly to countries in Southeast Europe. The medicine that the IMF prescribes at this negative international conjunction is a tight income policy with salary freezing. This recommendation is not only meant for the public sector, where it notes that salary rises have been limited in recent years due to efforts to exit EU fiscal monitoring, but mainly in the private sector where the two-year collective labor contract that ends this year provided for salary rises above the rise of productivity. IMF officials are leaving Greece rather disappointed by the course of the dialogue toward the reform of the social security system. They note that the government is moving without a compass, as there are no actuarial studies on all funds nor about the benefit the proposed measures will have on the system. Therefore neither the government nor any of the participants in the dialogue can know whether the changes proposed are sufficient or other, more bold measures are required. Finally, the IMF expresses its disappointment with the application of the state company law. It suggests that reforms are implemented so slowly that the finances of public corporations are deteriorating. The draft report does not include forecasts on the main data of Greek economy because the National Statistics Service has not completed the adjustment of national accounts to the recent revision of gross domestic product. The final report is due in the spring.