REPRESENTATIVES of the IMF team, which has been in Cyprus in the last few weeks looking at how our economy was performing, gave a news conference on Wednesday at which its evaluation was given. The team’s observations and forecasts for next year were given a lot of air-play, even though, strictly speaking, it said little that had not been said on countless occasions in the past couple of years.
Everyone with a very basic understanding of how an economy works knows the “situation is very serious” and that the “fact the government cannot access the capital markets is very serious.” As for the advice, that Cyprus needed to take urgent action to shore up the economy, it did not really qualify as big news. Academics, rating agencies, former ministers, the Central Bank Governor, employers’ groups, deputies and journalists have been unsuccessfully urging the government to take urgent action for the last two-and-a-half years.
Until three months ago, the government ignored the warnings but when it reached the stage at which decisions had to be taken, it did not listen to the economists but chose to adopt the proposals made by ignorant and self-serving union bosses. Union bosses, who did not have the first idea of how a healthy economy worked, dictated the inadequate measures, which centred on the slogan that the workers should not be burdened with the effects of the economic crisis. It was the crisis that was responsible for the out of control public sector pay-roll according to the union experts.
It may sound like wishful thinking, but the IMF would have made a big contribution to the economy’s future if its advice is taken on board by the government. The finance minister Kikis Kazamias, speaking on television on Wednesday night, said “we take very seriously” the evaluation and recommendations of the IMF. He added that the 2012 budget, tabled in the House yesterday, had been adapted to take into account the zero growth forecasted and this was why the budget deficit was expected to rise to 2.9 per cent of GDP. Last week’s forecasts had put it at 2.3 per cent.
Even more encouraging, was Kazamias’ assurance that the government would not hesitate to take additional measures “promptly”, while not ruling out the possibility of a third rescue package if it is called for. This readiness for a strong policy response ignored one crucial factor – the president, who has made a habit of vetoing measures for the economy proposed by his finance minister. Would he ever endorse the IMF suggestion for the abolition of CoLA, given that his comrades who run the unions would never accept it peacefully?
We can only hope that the warnings voiced by the IMF officials would prove the wake-up call that the Christofias finally took seriously.
