“In some of the key metrics, such as debt/GDP, budget deficit and current account deficit, you can see a lot of similarities between the crisis in Greece and the crisis in Sri Lanka, which also has a lot to do with the real incidents of the crisis, including the accumulation of early warning signals and the failure to see the signals, the increase in deficits and debt to around 10% of GDP and the triple deficit in 2009, in the case of Greece, former Greek Finance Minister Dr. George Papaconstantinou said during a webinar initiated by the Sri Lanka Institute of Administrators (SLID) recently.
“The root causes of the crisis were a combination of clientelism, a dysfunctional political system and weak institutions that could not act as a counterweight to check political decision-making,” Dr Papaconstantinou added.
A press release from SLID said: “The Institute of Directors of Sri Lanka recently held a webinar titled Sri Lanka’s Economic Crisis: Lessons from Greece, featuring Dr George Papaconstantinou, former Minister of Finance of Greece. The session drew several relevant lessons from Greece’s own experience through its tumultuous period of unprecedented economic crisis in 2009-2018 and its path to recovery. The session was moderated by Faizal Salieh, President of SLID. There was a 30 minute keynote address by Dr. Papaconstantinou followed by a 30 minute question and answer discussion.
‘Dr Papaconstantinou in his speech said; “No two crises are the same. but there are many similarities such as warning signs, incidents and, unfortunately, the same long and painful recovery periods. He spoke about the main lessons learned from the experience Greece, critical actions that are required from a political and economic perspective, the roles of business, government and citizens in finding the right solutions, short-term quick fixes versus long-term sustainability, and gave some general recommendations that can be considered as Sri Lanka moves forward.
“Greece has had three bailouts, by far the largest of any country. Unsustainable debt levels, excessive government spending, massive tax evasion, huge credit expansion, and wages outpacing productivity gains have contributed to the economy’s declining competitiveness.
“He said that the Greek crisis has lasted longer than it should have because of mistakes that have been made and that need to be avoided in Sri Lanka, and that it is important to focus on the logic of the IMF bailout of providing funds to Sri Lanka. Lanka regains access to international financial markets. In order to continue to obtain these funds, a combination of fiscal consolidation, monetary policies and interest rates exchange rate and product, labor and capital market reforms must be implemented, which can be extremely unpleasant. He pointed out that fiscal consolidation will lead to recession but will eventually restore investor confidence and allow return of long-term investors He emphasized the importance of long-term investors over short-term opportunity seekers for the long-term sustainability of the economy.
‘dr. Papaconstantinou warned that the country risk immediately spread to the corporate sector and stayed for a long time in Greece, and that they were struggling to tap into international markets and had to face problems such as the acute shortage. currency and the flight of highly skilled workers. human capital essential to the reconstruction of the economy. He said the Greek economy still bears the cost of lost human talent.
“A lesson we have learned is that painful decisions should not be delayed, which is also important for politics, because the longer it waits the more difficult it becomes.” He stressed the need to move quickly on debt restructuring. “Delays come with costs and usually time is not in your favour. There is also a trade-off between short-term and long-term transformation, with the IMF asking for a lot of short-term measures, which makes it more difficult to have long-term reforms. It is important to promote the country’s long-term transformation and growth potential. In the private sector, when the bubble bursts, there will be a lot of losses and very few gains,” he added. “The crisis inevitably leads to political polarization, and even good companies can go bankrupt. This is where the government should step in and support them.
“Talking about the role of citizens, business and government, he said ‘Crises are transformative, dramatic and tend to completely upend a society, politics and business and often go through the 5 stages of grief – denial, anger , negotiation (Sri Lanka current stage), depression and acceptance. Crises consume governments. It is important to keep the political climate non-toxic by helping to reduce the duration of the crisis as in Portugal and Ireland and the elites must also bear the pain. If they are protected, it will prolong the crisis. The social partners must be part of the solution and must have a seat at the very table with the IMF discussing what needs to be done, and often the IMF is also wrong because their recipes are not necessarily useful for all countries.
“The pain that accompanies every crisis must be distributed in a socially equitable way. Everyone will suffer but the most vulnerable will suffer more. If the business and political elites are seen to have carved out a safe environment for themselves, it will backfire. The government must be fully accountable with maximum publicity, honesty and openness. Greece has passed a law where every government expenditure is published on the web, if not then it is not legal. Furthermore, a realistic fiscal trajectory must be determined, otherwise it could lead to a vicious circle and lead to the economic collapse that occurred in Greece. Adopt the necessary reforms, whether public sector, product/market reforms, market opening, professions or public enterprise reform, and privatization. It is important that the government strongly supports them rather than just fiscal consolidation after the fact. Finally, it is important to fully understand the story and recognize why you got into this situation and who is responsible. In Greece, we blamed the IMF, the Germans for being too tough, and blamed everyone but ourselves, the government and business for making bad decisions like relying too much on the government and not stand up,” he concluded.
“In response to a question from the moderator that the usual criticism of the IMF was that it had a ‘one size fits all’ prescription to address the situation and how it was handled in Greece, Dr George explained that the IMF is now different from the times of the Asian crisis, “it’s a different beast, they are actively trying to be more understanding of the social situation and they are open to keeping a recipe for measures that is balanced and protects the vulnerable, and they are open as long as you have the data to back them up and the arguments to trade some metrics for others if you can show them that a specific metric is harmful. At the end of the day, they have the money and therefore the right of veto, so it’s a delicate situation and you have to convince them of your sincerity and your competence. The conversation with the IMF does not end with the signing of the agreement.