Lessons for Lanka from the Greek tragedy

9 July 2015 07:00 pm Views - 3024

As Greece teeters on the brink of economic ruin with a Sunday deadline set by European creditor nations being seen as a last chance to salvage itself from bankruptcy, the crisis offers valuable lessons to Sri Lanka, which was hurtling towards its own debt crisis prior to the January 8 presidential election. If not for the change of government, the country would have found itself in a Greece-like economic mess sooner rather than later.

Yet, it appears the new government has only slowed the speed at which the country was plunging towards an economic crisis. A comprehensive plan complete with efficient economic management guided by professional advice is still the crying need.  The interim budget in January did not give an economic formula to put the country on the right track. It was a budget with a pending election in focus -- more so, a Greek budget that allows the state to spend lavishly without increasing the revenue through taxes and other measures.

But what is reassuring is that the new government, at least, seems to understand the urgent need to restructure the economy.  Within weeks of coming into office, it approached the International Monetary Fund for a US$ 5 billion bailout deal – low interest loans to settle project loans obtained at commercial rates, mostly from China. But political uncertainty and the relatively satisfactory status of Sri Lanka’s foreign reserves prevented a commitment from the IMF. The government is now said to be seeking low interest loans from Japan to cushion the sting of high interest project loans. 

In a recent article in the Business Times section of the Sunday Times, Economist Palitha Ekanayake said the foreign debt issue had taken a dangerous upward trend since 2010 due to the previous regime’s policies and he called on the present government to manage it properly to avoid a debt crisis. 

“At the end of March 2015, the overall volume of foreign debt would have reached $70 billion or nearly five times of the government revenue while debt repayment is almost equal to the revenue. According to the evidence, the country could be closer to the ‘Dangerous Red Line’ of debt crisis.... The gateway out of the debt crisis lies in between the destiny of continuing to take foreign debt in the future and creation of a strong economy leading to earning sizeable volumes of foreign exchange while taking appropriate policy reforms to prevent a debt crisis. In addition, the probable remedial measures that can be taken to avoid this crisis lie in a politically stable government in Sri Lanka in the near future…,” he said.

It is not only on the score of foreign debt that Sri Lanka can be grouped together with Greece.  Corruption and the cooking of figures, too, put the two countries in the same category. 


A pensioner (C) reacts as she tries to enter a National Bank branch to receive part of her pension at the city of Iraklio in the island of Crete, Greece yesterday. A race to save Greece from bankruptcy and keep it in the euro gathered pace yesterday when Athens formally applied for a three-year loan and European authorities launched an accelerated review of the request. Reuters

In 2004, Greece admitted that it fudged budget figures to join Eurozone and to avoid being downgraded by rating agencies. In the centre of this deception was Goldman Sachs. This investment bank was accused of helping Greece to hide the true extent of its debt.  If Greece had shared the true picture with the Eurozone nations, the problem could have been solved at the beginning. But this is not the only reason why Greece is where it is today.  Apart from spending beyond its means with borrowed money, Greece has become a cradle of corruption.

Last week, the London Daily Mail published an article based on a new book -- ‘The Full Catastrophe: Travels among the New Greek Ruins’. In it, author James Angelos lays bare the corruption which filtered through all levels of Greek society. 

It was the rumours of an ‘island of the blind’ which first brought Angelos, a journalist, to Greece in 2011. He had heard that on Zakynthos, something like two per cent of the population were registered blind. All was not quite how it seemed, however, and it transpired that 61 of the 680 ‘blind’ residents were quite happily driving around the island. In fact, an astonishing 498 of those 680 were not blind at all -- or even partially sighted.  But being ‘blind’ had its advantages -- in particular, the €724 paid in benefits once every two months, and a reduction in utility bills.  It was a scam which could be traced back to one ophthalmologist and one official…. And, as Angelos discovered, it was only the tip of the iceberg.

The book also reveals how tens of thousands of families continue to draw the pensions of their dead parents.  Another issue was tax evasion. A Daily Mail investigation has revealed that opulent mansions and villas with their own swimming pools were, on paper, homes of virtual paupers.

“They were all allowed to declare their own income for tax purposes -- and officially, they were only earning €12,000 a year, below the tax threshold. Apparently, only 5,000 people admitted to earning more than £90,000 a year -- prompting one economist to describe Greece as a ‘poor country full of rich people’,” said the Daily Mail evoking little sympathy for collapsing pensioners outside ATMs in a country where everyone has joined the gravy train.

Corruption and tax evasion of this magnitude take place with official connivance. In Greece, the people call it fakelaki, which literally means a small envelope, but figuratively means bribes that one needs to pay even for surgery in state-run hospitals. 

Anti-corruption activists say roughly €1 billion a year is paid by companies in bribes to public institutions, while they estimate the total amount of bribes at roughly €3.5 billion a year. In Transparency International’s corruption index, Greece ranked at 49th in 2004, was down to 57th in 2008, and slumped to 94th in 2012 and recovered to 69th place in 2014, still the worst performer in Europe. Sri Lanka, where the issue of corruption has been dominating public discourse since December last year, was placed in the 85th position among 175 countries in the 2014 index.

In the case of Greece, richer Eurozone countries had rescued it every time it tottered near bankruptcy, unable to pay its international loans.  This is because they fear that if they let Greece exit Eurozone – the media call it Grexit -- and evade repayments of its loans, the repercussions would be equally disastrous to their economies. This explains why the European creditor nations and the IMF are still talking to Greece’s Prime Minister Alexis Tsipras. The premier won a resounding victory at last Sunday’s referendum where an overwhelming majority rejected the tough austerity measures proposed by the creditors, including the European Central Bank.

But if Sri Lanka faced a crisis such as that of Greece, there would be hardly a country, monetary institution or bank to rescue it.  The country may face the Latin American situation of the 1980s when country after country in the region plunged into what economists call a ‘lost decade’ as a result of their foreign debt exceeding by many times their revenue. One of the main tasks of the next government will be to prevent the economy from moving towards a Greek tragedy based on corruption and mismanagement.