The problem with the quick missions to devise a "memorandum of understanding" associated with a bailout in three weeks is that technicians from EC, ECB and IMF are, very often, not aware of the structural problems of the public finances in the particular country they are analysing. On the other hand their main advantage is that they have a fresh look from the outside. Governments and local politicians, who have been benefiting from the status quo, usually do not address these issues. The problems Portugal are facing today, apart from low economic growth which is a different story, lie on these 10 "capital sins":
1- The structure of federalism: central, regional and local governments
2- The measurement of public debt: European criteria and Eurostat rules.
3- The evolving structure of Central Government Administrations: the autonomous funds and services.
4- The spin-off of general government institutions: the new public sector “enterprises”
5- The Public-Private partnerships: decision-making and accountability
6- The non implementation of a control cost mechanism on Health expenditures.
7- The “bottom up” budgetary process and the Ministry of Finance.
8- The high proportion of pensioners and the inequality of pensions.
9- The non implementation of existing Constitutional rules to constrain expenditure 10- The excessive partisanship of public sector nominations.
As it is clear most of the problems have to do with institutions (either weak or badly designed), so that they will be beyond the scope of EC/ECB/IMF memorandum proposal.
Friday 15 April 2011
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Interesting. But there is a problem with the implict model in this. Why now? Weren't the capital sins more serious 10 years, 20 years ago?
ReplyDeleteNot really clear why measurement of public debt is a capital sin and a big problem for a country? Also don't see why low economic growth should be a totally 'different story'! Finally, some IMF programs (for example have been involved in Jamaica recently), include institutional reforms (such as tax administration modernization, etc)...
ReplyDeleteThere are problems? Yes, there are - and very serious ones!
ReplyDeleteWe've had good polititians? No, we hadn't!
Paulo Trigo Pereira is right about the 10 capital sins? Yes, he is!
But... was the bailout due to any of this? I don't think so: the kind of speculative attacks that we suffered were strong enough to put down at least half of the Eurozone countries - including Finland, of course (whose economy is not as strong as they say - at least according to some US analysts).
This was an attack to the Euro (not the last one, I bet) and not specifically to Portugal... and if the EU doesn't understand this another country will fall after us (unfortunately it would be Spain and not Finland). The current European denial about how fragile and vulnerable the Euro is could be dangerous. Though it is always better to think that this happened only because of the reckless Portuguese, the real reasons underlying all of this subsist.
This also explains why the IMF is trying to recover the Portuguese economy while the EU is looking forward to punish us (check this out - only in portuguese, sorry: http://economia.publico.pt/noticia/economistas-portugueses-preferem-plano-do-fmi-a-proposta-de-bruxelas_1490176).
Can we dismiss the EU willingness to "help" and work with the IMF alone?