BoG unveils strategy for growth

The Bank of Greece yesterday spelled out a three-pronged strategy for stability and growth as it urged the government to speed up its privatization program, accelerate tax reforms and set specific, binding spending goals. Presenting the central bank’s autumn report on monetary policy at a press conference, BoG governor Lucas Papademos said that stepping up the pace of changes is essential for ensuring that Greece can achieve its goal of a competitive economy and at the same time show that it is making progress toward real convergence. «Expediting pending cases of state selloffs and improving the efficiency of others will boost productivity in both the public and private sectors and at the same time reinforce Greek competitiveness,» he stressed. The appeal echoed a similar call from the Federation of Greek Industries (SEV) last week, in which the country’s leading industrialists criticized the slow pace of the state’s disposal program and the government’s preoccupation with raising funds from the scheme rather than ensuring effective management. After a momentary revival following the Cabinet reshuffle in October, the state privatization program appears to be bogged down by problems. With the exception of electricity company Public Power Corporation, which is slated for a market flotation on December 12, the sale of two state-controlled enterprises has reportedly run into difficulties. Local media said that German shipyard HDW Ferrostaal, which won the bid for Hellenic Shipyard, is asking for a review of the terms and agreements contracted by the latter in a move which could hold up the sale of ETBA Bank, majority owner of Hellenic, to privately owned Piraeus Bank. The most contentious sale, that of national flag-carrier Olympic Airways, could drag on even longer following the collapse of Axon Airlines, complicating talks with the other and sole bidder now, Integrated Airline Solutions. Attempts to dispose of the country’s tourism assets appear to be less than encouraging as last month Hellenic Tourism Properties, the asset management arm of the Greek National Tourist Organization, extended the tender for expressions of interest in the Parnitha casino to the end of this month. Referring to the government’s plans to curb spending, Papademos said that setting clear binding targets could help fiscal restructuring. The International Monetary Fund, in its recent review of the Greek economy, was equally enthusiastic on the benefits of expenditure ceilings. It noted that the public commitment to expenditure ceilings «would set a clear and easily monitored signal» on the «future size of government and thus ultimately the tax burden.» BoG said it was essential that the State contain capital transfers and instead restructure problematic government-controlled enterprises. The central bank also called on the government to step up tax reform, a portion of which was recently made public by the national economy and finance minister with the bulk of it due to be unveiled next year. The package of tax breaks and incentives, which accounts for 0.5 percent of gross domestic product, is expected to boost private disposal income by 0.7 percent. BoG’s report said that overall the Greek economy is expected to weather the current global slowdown better than other eurozone states with a projected growth rate of 4 percent for this year, which is due to slow by up to half a percentage point in 2002. The central bank’s forecast for next year corresponds to the Organization for Economic Cooperation and Development’s figure and is more optimistic than the official prediction of 3.8 percent and the European Commission’s 3.5 percent. The International Monetary Fund’s 3 percent is the most pessimistic. On the inflation front, BoG said that consumer prices are due to settle slightly below 3.5 percent this year and will fall to 2.5 percent in 2002. However, it warned of pressure from forthcoming wage negotiation talks. The central bank urged the private sector to consider the continuing fall in consumer prices and the fact that incomes will be strengthened by the new package of tax measures. It also pointed to high unit labor costs compared with other eurozone countries, which creates a drag on competitiveness.

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