The IMF bids farewell to Troika memories for Greece: the dearth of one-handed economists

του Αντώνη Δ. Παπαγιαννίδη

It is Harry Truman who famously asked for a one-handed economist to be sent to him, tired as he was to get advice from eminent practitioners of the dismal science who hedged their bets saying “on one hand this, on the other hand that”. More than 75 years later, such unpleasant but useful tactics are still prevalent – especially so in the rarefied ambience of international organisations. So, it should come as no surprise that the recent IMF Article IV Mission Concluding Statement on Greece contains quite a lot of “one hand/on the other hand”. Since in the very next days, Greece will repay earlier than expected to the Fund the 1.8 billion euros balance of its outstanding support credits, so the country gets back to some sort of normal in its relations with the Washington institution, it was expected that less of Poul Thomson style/more of diplomacy would be on display.

To be true, “on one hand/on the other hand” caution on part of the IMF over Greece should be expected, if one remembers ex post the disastrously … one-handed guidance offered in the initial phases of the Greek sovereign debt debacle of 2009-2018 based on the exceptionally wrong IMF assessment of the Greek economy fiscal multiplier; also the equally one-handed/iron-fisted policy imposition on part of the Fund within the Troika that in effect ran the Greek economy for most of that bitter decade.

So, this time round, the IMF paper expects “growth [in Greece] to remain robust despite the adverse impact of the war in Ukraine and high inflation”. This translates into 3.5% expected GDP growth in 2022; with average inflation of 4.5% (it now stands at 8%) “before [inflation] settles down at 1.9% over the medium term”. The growth goal is at the high end of forecasts.

Quite supportive to the powers that be in charge of the Greek economy in the current tough situation, the IMF notes the “strong recovery from the severe Covid-19-induced recession in 2020” (based on faster-than-expected tourism recovery, rising private consumption […] and robust private investment supported by surging FDI – music to the ears of everybody in Government); also “commendable progress achieved in addressing [earlier] crisis legacies” (declining NPLs, receding unemployment, progressing reforms including digitization – the inevitable back-slapping to K. Pierakakis…. – and privatisations).

Now for the “on the other hand” part: “uncertainties and downside risks continue to cloud the outlook” – the war in Ukraine, a potential new Covid-19 wave, NGEU-funded programme implementation risks. More to the point, for an IMF paper, “spending pressures and unfunded tax cuts could jeopardise the medium-term fiscal adjustment path, increasing public debt and widening spreads”. (Oops!).

The IMF mission could not but follow the Fund’s general line on “[Greece] maintaining an accommodative fiscal stance in 2022” but “reaching a primary surplus in 2023”. If now one goes down to specifics, the suggestion is for a “primary deficit of 2% of GDP this year”, when the Supplementary Budget to be introduced next week in Parliament for some 2 bn euros of further public spending would bring the present target for 1.4% of GDP well above the 2.5% mark. (The assessment of rating agencies, e.g. Moody’s is twice more heavy-handed).

The road to “a primary surplus in 2023” is to be assorted with “accommodating downside risks through automatic stabilisers” – only. This translates in “support measures for high energy prices [to be] temporary and targeted at vulnerable groups”, which further means that there would be “a gradual pass-through of higher prices to consumers”. For this to happen in a clearly-election year, political courage is needed.

To add some salt to the wound, the IMF mission clearly frowns upon “plans for permanent cuts in social security contributions and in the solidarity tax for all taxpayers”: both constitute political decisions already announced for 2023…

So, the post-Troika reincarnation of IMF clearly lacks in “one-handed economists” that Harry Truman yearned for.