SLID webinar on SL’s crisis highlights lessons from Greece
View(s):The Greek financial and economic crises were longer than it should have been due to mistakes that were made which need to be avoided in Sri Lanka, according to a former Finance Minister of Greece Dr. George Papaconstantinou.
He was speaking at a recent Sri Lanka Institute of Directors (SLID)-organised webinar titled “Sri Lanka’s Economic Crisis: Lessons from Greece”.
Dr. Papaconstantinou in his keynote said: “No two crises are the same. but there are many similarities such as warning signals, incidents, and unfortunately the same long and painful recovery periods.”
In comments released to the media by SLID, he had spoken about the key learnings from the Greek experience, critical actions that are required from a political and economic sense, the roles of business, government, and citizens in trying to find right solutions, short term quick fixes vs long term sustainability, and gave some broad recommendations that can be considered as Sri Lanka moves forward.
“In some of the key metrics such as debt/GDP, fiscal and current account deficit, you can see a lot of similarities between the crisis in Greece and in Sri Lanka, which also have a lot to do with the actual incidents of the crisis including accumulation of early warning signals and the failure to see the signals, rising deficits and debt to around 10 per cent of GDP and triple deficits in 2009 (in the case of Greece), ” said Dr Papaconstantinou adding that the deeper causes behind the crisis was a combination of clientelism, a dysfunctional political system, and weak institutions that could not act as a counter-balance to check political decision making. Greece had three bail outs, by far the biggest in any country. Unsustainable debt levels, excessive public expenditure, massive tax evasion, huge credit expansion and wages outstripping productivity gains contributed to the decline in the economy’s competitiveness.
He said it is important to focus on the logic of the IMF bailout which is to provide funds until Sri Lanka regains access to international financial markets. In order to continue getting these funds, a combination of fiscal consolidation, monetary and exchange rate policies, and reforms in product, labour, and financial markets must be implemented which can be extremely unpleasant. He pointed out that fiscal consolidation would lead to recession but would eventually restore investor confidence and enable the return of long-term investors. He stressed the importance of long-term investors over the short-term opportunity-seekers for the economy’s long-term sustainability.
Dr. Papaconstantinou cautioned that the country risk immediately spilled over to the corporate sector and had stayed over a long period in Greece, and they had a hard time tapping into international markets and had to grapple with issues such as acute forex shortages, and flight of highly skilled human capital that was essential for rebuilding the economy. He said the Greek economy was still carrying the cost of lost human talent.
“A lesson that we learnt was that one should not delay taking painful decisions, which is important for politics as well, because the longer it waits the tougher it becomes,” he said.
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