What will happen after the Memorandum?

July 10th, 2015 → 4:41 pm @

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A Troika team was recently in Cyprus to review the progress regarding the implementation of the Memorandum. I will not deal again with the issue whether the recipe followed for the cure of our economic problems was the most indicated one. I have emphasized, right from the beginning, that the correct recipe should have also included elements of growth. ‘With or without Memorandum, only growth is the solution’, was my position. I have never accepted the position of our Lenders: to correct first all problems regarding public finances and the banking system and growth will come automatically. The only consolation of the Memorandum was the inclusion of the need to effect certain structural changes we should have effected in the last several decades anyway.

It was since 1968 that the Personnel Department of the Ministry of Finance was ready with a restructuring plan to make the Civil Service more effective and productive (see The Second Five-Year Plan, 1967-1971), while the Planning Bureau, following a special study, had asked in 1972 the Ministry of Health to proceed with the introduction of the General Health Scheme, to refer to two examples that the Memorandum endorses. But the natural question that rises is whether this is the right time for Troika and the Government to occupy themselves only with the solution of these long standing weaknesses? Without underestimating at all the correct choice of the right civil servants, their promotion according to merit and the inter-changeability of them when there are needs in other Departments, I think that all these could have been taken care of later. Too much valuable time of so many people was taken up to prepare so many draft laws on these matters. Most of these experienced civil servants could have been occupied with the issue of the reactivation of the economy.

Unfortunately the emphasis given by the Troika team is still on austerity and not on the increase of production. They have even forgotten or put aside their pioneering suggestion in an earlier revised Memorandum for the need to prepare an Emergency Strategic Development Plan, as well as a Plan for upgrading of one of the most important sectors of the Cyprus economy, that of Tourism, elements which we applauded. What is happening now in Greece, where the same symptoms appeared previously and were treated in the same way, should have been an example to avoid. Nothing assures us that the organism we are trying to cure will not present other counter effects or will not need another series of medicines to be able to fully recover.

From the first university lessons of the political economy we are told that the Gross Domestic Product is a function of consumption, investment and another factor which the economists called technical change or technical progress. The GDP will increase if one of these elements or a combination of these ingredients will increase. So by now the imposed severe austerity should be relaxed and be replaced gradually with actions that enhance consumption (local and foreign-exports), investment (preferably the more productive) and technological upgrading and deepening of the economy. I have already welcomed the recent announcements by the President to proceed with the implementation of various government projects in the Districts, though these could have been selected to be part of a plan to promote longer-term objectives at the same time. It is also a good opportunity to implement as soon as possible all other projects and programs co-financed by EU Funds in a systematic manner so as to have a positive impact on economic activity.

What is happening, however, with regard to encouraging and assisting the private sector (local and foreign) to reactivate? Personally I would have liked to see combating /eradicating bureaucracy to have been given priority in the efforts to reorganize the Civil Service as well as all other Services which promote or assist the private initiative (issuing of permits, study and approval of applications, solving problems that business people are facing etc). At the same time I would have given particular emphasis in encouraging private initiative for reactivation. Why the implementation of so many big projects that are announced every now and then is not been realized? In parallel I would have examined the issue regarding the financing of these projects. Difficulties in securing financing should not be allowed nowadays to lead to the abandonment of big projects that have already been planned. I don’t want to stress again the immediate need for strengthening the Central Planning/Coordination Services as well as those of individual Ministries in order to promote as early as possible the work of the reactivation of the economy.

Regarding now general demand and consumption, shouldn’t there be as a matter of priority a relaxation of some of the austerity measures imposed (arbitrary cuts on pensions, imposition of charges for government services contrary to collective agreements, etc). Erasing of all these illegalities not only would bring back law and order in the Country but would act positively towards the much desired growth.

Finally, shouldn’t there be a systematic revisiting and reviewing of existing programs which promote technical change and upgrading of various sectors (use of sun and wind energy, exploiting and utilization of natural gas instead of prohibiting incurring other expenditure, other economic innovations, etc) instead of insisting again on privatization in order to improve public finances?

Unfortunately, the one-sided dealing with the economic crisis by Troika continues. While what is needed now is an all out effort to get out of economic stagnation and impasse, since we are one step before the exodus from the Memorandum, Troika continues to insist on other matters that could (and should) be dealt with later. The last work done to evaluate the situation and prepare a new Memorandum did not include the issue of the exodus from the recession and what will happen after its termination in March 2016. Or this is because they are anticipating the need for a new Memorandum?

Dr Iacovos Aristidou

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