Interview with Poul Thomsen, Deputy Director of the IMF’s European Department and Mission Chief for Greece
Published in To Vima, January 27, 2013
To Vima: Have you evaluated what you refer to as “political obstacles”? Could you be more specific as to how this factor could undermine the goals of the program?
Thomsen: We are confident that the government’s economic program gives Greece the opportunity to recover. Resources have been channeled to the country and this has given Greece time to adjust its finances and complete other needed reforms. But political stability is an essential element in making recovery happen. The political crises since 2010 severely eroded investor confidence and contributed to a far deeper than expected credit crunch, while delaying urgently needed reforms. Worst case scenarios—euro exit—were avoided and the government is determined to put these fully behind the country. But to make it all work, Greece does need greater stability going forward.
To Vima: The reemergence of terrorist incidents in Greece is said to reflect the brutality of this crisis. Are you worried about the consequences?
Thomsen: We have followed with concern the recent episodes of social unrest in Greece. As the Managing Director expressed recently, the key to restoring growth in Greece and reaping the benefits of the difficult measures already adopted, is the continued support of the Greek people for the authorities’ economic program. Only with a consensus for change can Greece move forward and overcome its deep-seated problems.
To Vima: All the projections included in the first Memorandum (back in 2010) were proven false. Unemployment in 2012, for example, was closer to 25% than to 15% as anticipated. There was of course an issue of implementation of structural reforms by the Greek authorities. However, until now you have not discussed the problems in the initial design of the program and your possible share of responsibility as an economist. What is your comment?
Thomsen: We will never know what Greece could have delivered if it had implemented the original program as agreed. For instance, how much in public wage and pension cuts could have been avoided had tax collections been improved as envisioned, and how higher the level of employment could have been if structural reforms to boost productivity had been implemented. Of course, economic and political conditions are subject to change, and they certainly did in Greece, with a political crisis undermining program implementation and severely eroding investor confidence. But this is why we set up our programs to have regular reviews. So in 2011-2012, when it became apparent that different underlying assumptions were needed for Greece, we moved fast to update them accordingly.
To Vima: You have accepted that some of the first memorandum estimates proved wrong because you haven’t accounted for the deeper recession. What makes you certain this time the IMF will be proved right?
Thomsen: The Greek government has fully recalibrated its economic program, with policies modified to deal with current challenges, and with the support of additional financing and debt relief from Greece’s European partners. Concerning policies, to smooth the impact of program adjustment on growth, fiscal adjustment targets have been reduced, and more time has been specified to reach them. And more conservative assumptions have been made about Greek implementation capacity and the recovery of confidence. However, the bottom line is that neither the government nor the Troika can ever correctly anticipate everything. We and the government need to keep its program under close review and respond as necessary, as we have done to date.
To Vima: What will happen if the government misses the target for privatizations in 2013? You discussed the “replacement of current managers by foreign experts”. I have two inquiries on this subject. First, why do you judge foreign experts as best fit for the job than the current managers, or possibly other Greek experts, and also, in case that revenues fall short, should the budget cuts include wages and pensions?
Thomsen: Privatization is an area where outcomes to date have fallen well short of program commitments. In part this is due to difficult market conditions and to complex technical preparations, but political obstacles have also played a key role. Since this is a critical part of the government’s adjustment strategy—both to ignite growth and to provide financing to the government—we recommend that if delays persist by the middle of the year, the government considers giving the process a more technical character. Thus it could reach out to international market experts who specialize in selling assets, and they can maximize the value to the benefit of all Greek citizens. Of course, this may never prove necessary: the government is committed to accelerate privatization in the period ahead and has made good progress in identifying assets and removing technical barriers to their sale. But one way or another, privatization will have to move forward, and given its integral role in the recovery strategy, no one should think that it can be substituted by other policies.
To Vima: You made a very interesting remark a few days ago. You said Greece “has a very large debt overhang, which itself affects the willingness of consumers and firms to spend and invest”. I would like a clear answer: can Greece return to growth without a new haircut that settles the uncertainty over the debt issue? Are the Europeans in line with the IMF view?
Thomsen: We expect Greece to return to growth, in no small part due to the framework that Greece’s European partners have put in place to help address Greece’s debt problem. In particular, they have indicated that they will provide additional debt relief, so long as Greece fully implements its economic program. They will take stock of the situation in a year or so, and provide more substantial relief then as needed. Thus, going forward, Greece has considerable control of its own destiny, and the critical issue is for the country to fully and forcefully implement the program and on a timely basis.