IMF's New Austerity Measures in Greece Include Public Sector Salary and Job Cuts; a Reduction in Health Spending, Pensions and Disability Service; Increased Taxes; and Sell-off of State Holdings in Companies and Real Estate

A decade ago, with the breakup of the Soviet Union and the start of market-oriented reforms in many former socialist economies of Central and Eastern Europe, the prospect of privatizing inefficient state-owned companies figured prominently in both popular and academic writings... After a decade of transition experience in the post-socialist camp, what can now be said about the expected central role of privatization in the process? In most transition economies a high proportion of economic activity remains in state hands. For example, one of the most advanced countries in private sector development, the Czech Republic, still holds all or a majority stake in the major utilities, majority ownership in 40 large firms and banks considered strategic, as well as the majority share in 30 nonstrategic firms. Although the privatization yet to be accomplished is huge, commitment to reform remains strong and widespread in most countries. This suggests that the privatization still needed can probably be undertaken in the next decade or so. - Privatization in Transition Countries: Lessons of the First Decade, International Monetary Fund, August 1999

Greek Reform Efforts Reach Critical Stage

June 10, 2011

AP - Greece's struggle to enforce new austerity and avoid default moved into a critical phase Thursday, as Prime Minister George Papandreou pressed his Cabinet for approval and international creditors reprimanded the country for its lax efforts.

The new measures — budget cuts and a sell-off of state holdings in companies and real estate — are a precondition for Greece to receive the next part of its euro110 billion ($161 billion) rescue package granted a year ago.

Without that euro12 billion payment, Greece, which remains stuck in recession and locked out of international bond markets, will default on its massive debts.

Papandreou and his ministers have come under intense criticism from their own Socialist party deputies in a series of marathon meetings over the plans. They include a remedial euro6.4 billion ($9.4 billion) package of cuts and tax hikes for this year, a renewed austerity drive for 2012-2015 and a euro50 billion ($73 billion) privatization program.

The pressure on Papandreou and his government is bigger than ever, with the country's international creditors calling for cross-party support for the bailout program and openly criticizing the slow pace of reforms.

"After a strong start in the summer 2010, reform implementation came to a standstill in recent quarters," the European Union, the European Central Bank and the International Monetary Fund wrote in a summary of their recent assessment of Greece's efforts.

The Associated Press obtained a copy on Thursday.

The three institutions, known as the troika, also cited "political risks" to the implementation of the budget cuts and privatization program in their findings, which were circulated among eurozone finance ministers Wednesday.

Those "doubts on the ability and the willingness of the Greek government and society to persevere in fiscal consolidation, and in restoring competitiveness" are the main reason Greece likely won't be able to access financial markets again next year, leading to serious financing gaps, the troika concluded.

While the general problems with Greece's bailout have been known for some time, the summary of the troika report is much more critical than earlier statements.

The report also details some of the additional cost-cutting measures the Greek government plans to take over the coming year. In order to stick to the targets set out in the program, the government has to make budget cuts and other measures worth some 10 percent of economic output between 2011 and 2014, the troika said.

Among those are salary and job cuts in the public sector, a reduction in administrative and defense spending, savings in state-owned enterprises, health spending, pensions and disability services, the report said. Only one in 10 vacancies in the public sector will be filled this year, and only one in five will be filled until 2015.

The government also plans to increase taxes on fuel, property, soft drinks and tobacco, as well as on restaurants and bars.

Some of the additional cuts are necessary because Greece's economy has been doing worse than expected last year, when the bailout was first announced.

In the first quarter, Greece's gross domestic product shrank 5.5 percent from a year earlier, the national statistical agency said Thursday. The troika now expect Greece's economy to shrink by 3.8 percent in 2011, worse even than the 3.5 percent drop the EU predicted only in May.

Without the additional measures this year, Greece's budget deficit would remain above 10 percent of economic output, the troika said, way off the 7.5 percent target set out in the program and also above the 9.5 percent forecast by the EU last month.

The shrinking economy has not only led to holes in the government's revenue, but also caused hardship for citizens.

Workers at Greek state-run companies walked off the job Thursday to protest the government's privatization plan, which they fear will lead to further job and salary cuts. Under the slogan "we won't sell," they marched through central Athens.

Public transport workers were walking off the job in the early morning and late evening, while port workers, post offices and banks called a 24-hour strike. Television station technicians were also on strike, as were journalists at the state-run broadcaster, disrupting live news programing. A general strike has been called for June 15.

Angry Greeks have taken over the central Syntagma Square, setting up a tent city in a sit-in. Tens of thousands of people thronged the square, which lies in front of Parliament, last Sunday.

Flashback: The Big Privatisation Debate – African Experiences (Excerpt)

With the intensified push for economic liberalization by the IMF, World Bank and other creditor institutions, more and more African leaders are agreeing to privatize. Over the past decade, African governments, often under pressure from creditor institutions to act quickly, have sold off thousands of state-owned enterprises. - Privatization shifts gears in Africa, African Recovery, April 2000

November 13, 2002

Africa Policy E-Journal - ...Beginning in the 1970s, and gaining momentum throughout the 1980s and 1990s, has been the global trend away from state ownership and control towards privatisation.

Recent studies on privatisation in several African countries have shown that:

• Privatisation led to the loss of over 60,000 jobs in Zambia while several hundred thousand workers were retrenched in Ghana.

• Privatisation led to increases in the price of services. In Zambia, a privatised bus company dramatically increased the bus fares and closed down unprofitable -- mostly rural -- bus routes. As a result many Zambians now walk many kilometres to their workplaces and schools because they can no longer afford the bus fares or because the buses no longer service the areas where they live.

• In Nigeria the prices for Kerosene increased by 6,000% between 1985 and 1995. Postal and telecommunications services increased their prices by 2,500 - 5,000% during that period while electricity prices increased by 883%.

• In Ghana the introduction of cost recovery programmes were part of privatisation and resulted in increased fees for health and education services. As a result, they became unaffordable for the poor.

• In Zimbabwe, privatisation also led to retrenchments and increased prices for services. The Cotton Company of Zimbabwe, for example, reduced its workforce from 3,000 to 500 after privatisation.

Flashback: IMF Forces African Countries to Privatise Water

February 8, 2001

www.afrol.com - A review of IMF loan policies in forty random countries reveals that, during 2000, IMF loan agreements in 12 countries included conditions imposing water privatization or full cost recovery. In general, it is African countries, and the smallest, poorest and most debt-ridden countries, that are being subjected to IMF conditions on water privatization and full cost recovery.

Ironically, the majority of these loans were negotiated under the IMF's new Poverty Reduction and Growth Facility (PRGF), says Sara Grusky from the Globalization Challenge Initiative [http://www.challengeglobalization.org]. The reform was announced with great fanfare in 1999 when IMF officials claimed that the new loan facility would re-focus the IMF's controversial structural adjustment measures on activities that borrowing government's would identify as leading to poverty reduction.

An example is tiny Sao Tome and Principe. The island government has been put under pressure to pursue the implementation of a public enterprise reform through privatization and liquidation of nonperforming public enterprises for which buyers cannot be found. Nine public enterprises will be privatised, including the water and electricity utility and the national airline (Air Sâo Tomé).

The objective is said to be "to increase access to safe drinking water through rehabilitation of the waterworks system," according to the IMF.

Some 20 percent of the population does not have access to safe water at present, but this number could rise if market prices are set on the service.

Rather than contributing to poverty reduction, water privatization and greater cost recovery make water less accessible and less affordable to the low income communities that make up the majority of the population in developing countries. The alternative is to revert to unsafe water sources or more distant sources.

The most immediate impact of reducing the accessibility and affordability of water falls on women and children. Worldwide, more than five million people, most of them children, die every year from illnesses caused from drinking poor quality water.

"When water become more expensive and less accessible, women and children, who bear most of the burden of daily household chores, must travel farther and work harder to collect water -- often resorting to water from polluted streams and rivers," says Sara Grusky.

This is confirmed by Ghanaian activist, Rudolf Amenga-Etego of the non-governmental Integrated Social Development Centre (ISODEC), who was in Washington recently highlighting the implications of having the poor pay "market rate tariffs" for water in Ghana. The World Bank has been pushing decentralisation in Ghana since 1988 and Ghana's Water Sector Restructuring Project is expected to be approved by the Bank's Board of Directors this year.

"Where cost-recovery becomes the underlying policy, water will become unaffordable for many poor people in Ghana," Amenga-Etego told the news agency IPS.

The significance of finding such a high number of conditions relating to water privatization and water cost recovery in IMF loans is twofold. First, in the hierarchy of international financial institutions the IMF is at the top. Compliance with IMF conditions enables governments to receive the "seal of approval" that permits access to other international creditors and investors. Thus IMF conditions weigh especially heavily upon borrowing governments.

Second, it is quite common that World Bank loans have, as their first condition, compliance with certain IMF conditions. This is known as "cross conditionality." In the division of labor between the two institutions, it is the World Bank that has primary responsibility for "structural" issues such as the privatization of state-owned companies.

Therefore, it can be presumed that in every country where IMF loan conditions include water privatization or full cost recovery, there are corresponding World Bank loan conditions and water projects that are implementing the financial, managerial, and engineering details required for such 'restructurings', says Sara Grusky.

In Ghana, civil society has announced its intention to resist the privatisation pushed for by the World Bank. Figures from the Government of Ghana have shown that only 36 percent of the rural population have access to safe water and 11 percent have adequate sanitation within the existing system. Water is also scarce in the capital, Accra. In typical working class areas of Accra such as Medina, it would cost a family 3,000 cedis to use 10 buckets of water a day if prises were to follow market rate tarrifs. Yet, the minimum wage per day is 7,000 cedis.

Also in South Africa, protest is spreading. The South African Anti-Privatisation Forum, a collective of community based organisations and labour unions, has mobilised against the privatisation of local government services, including water. Various strikes over social issues have marked the last year. The recent spread of cholera in South Africa is directly linked to the poor water quality in many working class areas. More expensive water could exclude even more people from clean and safe water.

The table identifies 8 African countries and paraphrases the specific IMF loan conditions relating to water privatization or water cost recovery, as mapped by the Globalization Challenge Initiative. In most of the countries, the IMF conditions require some form of privatization, and in several countries the conditions require both privatization and greater cost recovery...

Read more here and here and here.