Monday, June 16, 2014

IMF on Greece --- 226 Pages and One Graph

The IMF's Review of Greece (the fifth!) covers 226 pages and is full of carrots and sticks. And... there is the following graph:

First a caveat: "Exports excluding oil and tourism" is a misnomer because tourism falls into the services section of the Balance of Payments (BoP). Also, the above numbers differ from the statistics which the Bank of Greece (BoG) publishes on its website. Nevertheless, since BoG and the IMF are indicated as sources, one should assume that the message conveyed by the graph is correct.

This small graph suggests that Greece's exports (however they are calculated) are today running at about 10% below the level of 2007. In fact, they have been declining in the last two years.

Greece is in the fortunate position of having two major revenue categories in the services section of the BoP: shipping and tourism. Thus, Greece can support a much larger trade deficit than other countries would be able to. For example, in 2013, Greece had an overall trade deficit of 17 BEUR, quite an enormous amount (though almost minute compared with the staggering 44 BEUR of 2008), but with revenues from services, other income and current transfers, a positive current account could be achieved.

The issue is jobs and everything else which is related to jobs (income taxes, social contributions, etc.). When a country imports products which could also be produced at home, the country is exporting jobs. When a country does not fully utilize its capacity to export, it is limiting job growth.

Given the substantial internal devaluation which Greece has gone through and given the fact that the Euro today is cheaper against the USD than it was back in 2007, it is hard to explain why Greece's exports could not have expanded in similar fashion as those of the other countries shown in the graph. The only explanation which comes to my mind is that Greece's productive sector, never strong to begin with, has even weakened further during the last years. 

Lower prices do not automatically translate into export growth. There has to be an export infrastructure both domestically and internationally. Domestically, there has to be a strong export lobby. There have to be public or private agencies which advise/assist Greek companies in expanding their exports. And, internationally, there have to be export promotion agencies in all countries which would be interesting targets for Greek products.

When a country like Germany follows the strategy of 'exporting its way out of a crisis', one has to take that with a grain of salt given Germany's enormous trade surplus as it stands. When a country like Greece, with its dismal trade deficit, does not follow a strategy of 'exporting its way out of a crisis', it's nothing other than disregarding opportunities.


  1. Comment from twitter:

    George Markides ‏@georgiemark 27m
    @kleingut Check this out … (haven't read it carefully yet but I'm a bit reluctant on the conclusions)

  2. A general suggestion (for my view).
    I MF in all reviews conducted, analyse a detailed technical approach with great graphs, full of data. But all these remind me of a university research less focused in the real object of research. In case of Greece the issue is the DIRECTION.
    I would expect in relevance to e.g the Mckinsey's "10 years ahead" IMF to make a SWOT analysis, suggest and support a growth model.
    Their effort should be to dig up smart ideas. Many times “trained citizens”* with no or small expertise, but common sense, present good ideas.
    1. Internal devaluation implementation is totally a mess because althought salaries reduced on average 25-30% in goods and services the % of reduction is limited. VAT 23% in minerals,excise duties (top 3 in eu ) cause a great damage: More than 500 m € reduced revenues in 4 months period compared to 2012! In a country with basic gross salary 586€ (in papers) can the gasoline cost 1.65-1.70 € ?
    There are also many issues in supermarkets policies and the quality of competition.
    2. The stabilization of consumption in parallel with the effort to produce more goods for exports is a theme. The failure in exports is related and with general environment, of the economy.Greece's performance in creating capital or technology intensive companies is poor.Better schools and research experience are vital.
    3. Current account is not so critical and exports under the view that banks have given loans 220b €. Deposits are 160b€. More than 80 b € are characterized as NPL from Greek banks. So, only 80b € left to finance the economy of 220 b € loans?
    Capital inputs are vital more than ever, current account even a bit negative is not bad.
    4.Taxation is still Greek for individuals and SME in complexity. Tax collection efficiency from high earners is by far a great failure.

    *The ancient Athenians speaking about politics made some remarks:
    Only shipbuilders and people conducting a war are experts. All the others could take decisions in politics and in economy with common sense. Athenians choose people by draw so as to "train voters" insticts.
    Specific knowledge with expertise or general knowledge?
    Aristotelis said : citizen is the one who can govern but also to be govern.
    "Experts" in Greece, either serve personal interests and elites which promote them, or they don't know anything in many issues because they are not trained, as citizens to develop common sense!


  3. "Greece exports ⅓ less than what regular international trade patterns would predict on basis of Greek GDP ( ... ) We estimate that structural reforms improving the Greek institutional framework to the EU/OECD average level would close between ½ and ¾ of the Greek export gap. Much of the Greek export gap can be traced back to the Greek institutional deficits."