Import Of Greek Debt Crisis – Lessons For Ghana

By Kwesi Atta Sakyi

11TH NOVEMBER 2011

I am sure if you check a list of countries in the world arranged in alphabetical order, you will find the name Greece close to where Ghana lies. What lessons can the world in general and Ghana in particular learn from the Greek tragedy and what is the import of this playing out tragedy on the rest of the EU members? I make bold to state that in the 80s and 90s, Ghana underwent severe economic reforms under the aegis of the IMF and IBRD by way of bitter economic nostrums such as SAP (Structural Adjustment Programme), HIPC (Heavily Indebted Poor Country) strategy, EPRS (Enhanced Poverty Reduction Strategy), among others. Ghana endured and graduated summa cum laude to be declared a star pupil of the IMF. The credit goes to all Ghanaians who endured indignities such as the ‘Rawlings Chain’, ‘Pipe Appae’, etc. Ghanaians are still suffering from the long term effects of those inhuman policies which saw massive retrenchments, privatization and contractional macroeconomic supply-side policies. For 13 consecutive years, the price of fuel was adjusted upwards in the budget and the tax burden on workers and consumers was unbearable. (Remember Dr Kwesi Botchway?). Those haemorrhagic and surgical prescriptions were in deed suicidal. I guess Greeks now have to bite the bullet and swallow some bitter pills in order to get themselves out of the woods in the long run. Currently, the PIIGS countries, Portugal, Italy, Ireland, Greece and Spain are reeling under massive national debts which are mainly owed to private lenders or commercial banks. In the case of Ghana, prior to debt cancellation, our debts were mainly bilateral and multilateral, owed to friendly countries and the Washington Consensus, the US Federal Treasury, IMF, IBRD and the Paris Club. In the case of Ghana, it was sad that some of the questionable loans were contracted for balance of payment support or to clear external trade deficits. Also some loans were meant for capital projects, some of which never saw the light of day. With so many changes in government from 1966 to 1981, it became difficult to nail or pinpoint the origins of some of the debts. In academic circles, it was believed that our debts were over - serviced and amortized so much such that the original principal had been repaid several times over by the compound interest charges slapped on them. In the case of the Greek debt (like the debts of the other debt-ridden members of the EU), loans were obtained from private banks to support budget deficits and to implement unbridled demand-side expansionary macroeconomic programmes. Care was not taken to operate within the EU prescribed budget overrun ceiling of 3%. To add insult to injury, the recent bad spells of global recession from 2007 to 2009 have not helped matters as the shrinking global economy means that Greeks cannot have enough tourist arrivals to their beautiful Mediterranean country. Also, their exports of wine, seafood and services like freight have taken a bashing. Some austerity measures in these dire economic straits become inevitable. Perhaps, Greece has to go by prescribed textbook panaceas such as selling their debts to affluent countries like China, Germany, Japan, Singapore, Saudi Arabia, among others. The EU has fashioned out a bailout or rescue package of a whopping 180 billion dollars. Greece is like a badly damaged Titanic that is sinking. Should we throw good money after bad money? The EU gurus and sages think so because the Greek contagion can spread like a virus to other countries and it could have a domino effect. Back to the text book prescriptions. Some austerity measures may include credit squeeze, wage freeze, resorting to the printing press to print more money into circulation( this may be inflationary and may dilute the exchange rate), cut backs or retrenchments. The Greeks may also sell off some Greek national assets, cut back seriously on the Greek national budget, hike taxes to reduce money in circulation or marginal propensity to consume, hike interest rates to discourage borrowing and attract savings, increase exports and cut down drastically on imports (wonder this will work in a free trade globalization era), attract massive Marshall – Plan type of Foreign Direct Investment (FDI), draw down on foreign reserves, renegotiate debts by seeking a moratorium, dampen population growth (long term), encourage emigration of Greeks and encourage immigration of foreign nationals, Greek government to sell bonds with long maturity date (25 years, say). We in Ghana need to borrow a leaf from the Greeks by cutting our coat according to our cloth. We should engage in incremental (gradual) development and not a quantum leap or radical transformational economic growth. We need to steer clear of the Dutch disease because of oil find. We need to grow more food in Ghana, embark on fish farming, livestock development and try to provide most of our needs such as rice, wheat, books and services such as shipping. We also need good corporate governance in our institutions so that there is probity, integrity, accountability and sustainable development. No more eleemosynary economics (largesse/freebies from government). This does not mean zero government intervention. Government support will be needed in strategic sectors such as energy, education, health, transport, security and agriculture. It is imperative that those of us in Ghana should learn lessons from our past mistakes and the mistakes of others. It is said that history teaches us that man never learns from history because history repeats itself. To escape from the vicious circle of poverty or the low equilibrium trap, we need visionary leadership. We also need Ghanaians to be patriotic and to be ready to make some sacrifices for a better tomorrow. Let us maintain political stability, a vibrant and free press and ensure also that every Ghanaian acquires quality education. Our future lies mainly in our educational and health delivery systems. We must beware of the STX Trojan horse. They say a Greek gift is dangerous as those in ancient Troy learnt a lesson the hard way. Since the Greek goddess of money is Hera Monetera, perhaps, their tragedy can turn a comedy if they pour libation to invoke the gods to their rescue – a deus ex machina.
With despondency reigning in Greece, many Greeks will emigrate to look for greener pastures. Ghana could receive some of these Greek entrepreneurs who are famous for their business acumen in running cruise/leisure tours, casinos, cinemas, restaurants, wineries, construction, agro-processing and estate development industries. Currently, the Greek government, led by a coalition, has accepted the bailout from the EU and has agreed to implement austerity measures. There is a change of the guards as Georgio Papandrou has made way for Lucas Papademos and in Italy, Sylvio Berlusconi has stepped down for renowned economist, Mario Monti. Many Greeks are very angry at their government as they think their sovereignty and dignity is at stake. The fragile coalition government is a temporary marriage of convenience because sooner rather than later, the incongruous bedfellows might differ and part ways. We in Ghana and the Ecowas have always looked upon the EU as a super model and we are rushing to launch our own supranational currency, the Eco. I am sure our risk appetite has now waned as we have to tread gingerly in pursuing that goal of monetary integration. Look at OPEC (Organisation of Petroleum Exporting Countries) which is a cartel or syndicate or collusive oligopoly. Whenever they fix supply quotas among themselves to avoid an oil glut or surfeit, some insincere members with heavy domestic burdens and pressures renege and cheat by producing more than their quota to sell at the prevailing high price. In similar manner, in a monetary union, there are big and small players such that the big players call the shots and the weaklings have no choice but to play ball. Besides, national cultures and dispositions differ widely. For example, in the EU, big players like Germany and France are noted for their mathematical exactitude and planning precision. The Germans are ultra perfectionists and conservative while the French are noted for their forthrightness, fortitude and rigmarole. The Greeks, Italians and South Europeans are reckless risk takers, easy goers and party goers. It is now clear that the British rejection of the Euro has paid dividends, yet Britain depends on the large European market for trade. Therefore, the British have to inure themselves against the Greek contagion. It is said that when your neighbour’s beard catches fire, you better take precautions by having water handy, in case you have to douse yours. This means the Greek tragedy should be the concern of everybody, including those of us in Ghana. The EU currently has stashed away I billion dollars for emergency bailouts. However, bailing out Greece means less EU money to be doled out as aid to developing countries like Ghana. Also, it means the foreign commercial banks may recall their investments abroad to beef up their liquidity. Fortunately, Ghana and Africa are less dependent on borrowing from European private banks. However, the Greek dilemma poses threats and opportunities. The threats are in the form of shrinking markets for our exports and reduced opportunities of obtaining easy euro money. However, a weakened euro exchange rate means a country like Ghana may have our currency appreciating and we may pay less for our imports but perhaps have less market for our exports. This is why we need to diversify our markets by discovering new markets in Asia and South America or we have to accelerate South-South cooperation. Ghana has to form partnerships with countries in the lower middle income bracket such as Gabon, Tunisia, Botswana, Mauritius, among others. We need to study the burgeoning BRICS countries (Brazil, Russia, India, China and upcoming South Africa). In the case of India and China, they developed an inward strategy of self sufficiency at first before going global and they invested heavily in human capital. In the case of Brazil, they received massive FDI from the US to counter communist threats, and coupled with their abundant natural resources, they had a visionary leader in the person of Lula da Silva, their ex-president. Russia’s wealth lies in oil, gas and aggressive entrepreneurs. Ghana needs to embark on long term plans which should be continued and bought into by all the political parties. Vision 2030 should be strategized carefully, so that we become a fully-fledged upper middle level income country by 2030 and we should avoid reckless national spending so as not to fall prey to the Greek calamitous tragedy.
It is instructive and comforting that the IMF and World Bank have already raised red flags on our contracting the STX loan. It will be unethical to mortgage and collateralize our oil wealth to external borrowing because we will then be unfair to future generations who would not have had any say in our current decisions. Increases in current budget deficits and borrowing will lead to hiked future taxes and this in economic parlance is called the Ricardo-Barro effect. This in essence leads to the generational effects. This is the genesis of the Greek malady, and for that matter, by extension, the burst bubble which is doing the rounds in the euro zone. Besides, the baby boom of the post war era has led to the current pension swell, whereby the baby boomers are now retiring in large numbers and demanding their pensions. To offset this, some countries are proposing crazy solutions such as ‘work until you drop dead’ (karoshi by the Japanese or retire at an advanced age, say 70+). Recently in Zambia, the newly elected President, Michael Sata, has floated the idea of hiking the pensionable age from 55 years to 65 years and many Zambians have thrown up their arms in vehement protest with the arrangement, saying that the national life expectancy at birth hovers around 45 years, and as such, many Zambians may die before earning their pensions. Was President Sata raising the bar for Zambians to try to live long or he was copying the European model? Many critics here think that if the proposal was adopted, it would inexorably deprive the thousands of qualified young graduands of job vacancies which early retiring workers would have created. The issue is still being debated upon and investigated. In some countries, this problem of massive youth unemployment is resolved partially by delaying the graduation age. You send kids to school perhaps when they are 8 and they complete secondary school when they are 19 or 20. What happens if they are in boarding schools? Baby boom and teenage pregnancies galore! Perhaps, other innovative solutions will be job sharing, shift work, moonshining, casualisation, freelancing, flexitime and labour intensive methods of production. Of course, these flexible working practices could increase the wage bill and reduce profit margins, but then there is need for a balancing act between supply-side mechanisms and demand-side solutions. (Keynesians versus the neo-classicals or monetarists).
In conclusion, we will need to pay attention to the facts on the ground and probe deeper. It would not be surprising to learn that most of these huge debts have been accumulated, sometimes because of massive fraud and corruption in government circles. This is why the Greek tragedy sends warning signals to our leaders in Ghana to institute tight oversight and gate keeping mechanisms and to respect the principles of rule of law, freedom of information, separation of powers, checks and balances, due process of the law and the application of sunshine laws. Let MPs exercise their mandate to scrutinize all proposed external borrowing, let the President exercise his veto powers where necessary, let the judiciary engage in judicial review of executive actions and the fourth estate to dig deeper into scandals to expose corruption. Also let our security wings and enforcers, regulators and agencies take the fight against corruption to the maximum level. This way, we will avoid going the Greek way.



By Kwesi Atta Sakyi
11th November 2011
Luaka