By Alexander Apostolides on October 01, 2010

The stupidity of the IMF in Greece

So the Greek debt is 125% of GDP. What is the solution the IMF is forcing the Greek government to implement? Make everyone dislike it by liberalizing the trucking business, as the resulting strikes have led to goods running out in the country's periphery.

It is very interesting that the ideal solution is quite obvious, while is very hard to implement. With the informal economy being estimated as large as 40% of the economy, the interception of such "under the table" activity should be the prime focus of any recovery plan. However doing this is hard: it upsets established corridors of power, it reduces nepotism, and affects the upper middle classes more than the poorer classes. Other economists argue that to reduce corruption and informal trading is impossible. The truth is that economic history teaches us that change is possible - the 12th to 16th century government positions in England where some of the most corrupt in the world, yet England champions its self a a bastion of clean governance today. The efforts to bring this informal economy to bear have been weak at best, partly as the IMF has not focused so much on this aspect of reform.

So what is the second-best solution actually dictated by the IMF? - A huge painful and bitter array of reforms, some of them necessary and some dogmatic. Up to now all efforts have been to reduce the government deficit, ignoring that this also reduces the GDP thus increasing the Debt to GDP ratio. In addition some reforms are being pushed along with the necessary reforms that are just causing more harm that good right now.

Exactly how much GDP growth would liberalizing the trucking business give to Greece? 3-4 % of GDP over 5 to 10 years? The current strike wave caused by such measures that could wait is at least causing negative fall of GDP (at maximum ) of 0.5% - 1% GDP today aggravating the main issue today - debt to GDP ratio.

So why do it now? Because now the IMF still believes that the hard shock therapy of the "Washington consensus" that was given to former communist countries is right - don't solve the issue - just introduce capitalism in all forms and the rest would be taken care off automatically.

In the mean time Greece is being plunged to further crisis, and the reforms seem increasingly unfair to the average Greek person, who hears stories and stories of corruption and government incompetence.

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