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January 10, 2013
January 10, 2013

Portugal: Playing government

Author: Pedro Lains Translator: Vera Pinheiro
This article is also available in: elpt-pt
Portugal: Playing government

“Perhaps the most important question one should be asking regarding the IMF report about the Portuguese State entitled “Rethinking the State. Selected Expenditure Reform Options”, is how the IMF management can carry out such a role. A second issue, more common, would be to understand why the Portuguese government is bothered with this kind of schemes.

Our government’s economic and financial policy has been marked by the initiative of our Minister of Finance, whose power is directly proportional to the lack of knowledge of his colleagues in office on the Portuguese economy in the current crisis. Well, Vítor Gaspar, after making his entry in the country as a distinguished technocrat that would finally make the difference and change everything, with his “expansionist contraction” –in other words with the idea that economies should be squeezed in order to grow– as well as his “profound structural reform”, turned out to be a disillusionment for many of his old supporters both inside and outside the government parties, leading them to jump ship.

Among the institutions that, apparently, deviated from some governmental options is the European Commission (although not necessarily its President, Durão Barroso).

Perhaps that is the reason why the current public report about the State holds the exclusive authorship of the IMF and not the rest of the Troika partners. I am aware that most of what is said here is pure speculation, but it is nonetheless legitimate. Anyhow, we are facing an isolated action, which makes its analysis much easier.

The IMF was created to manage international finance, allowing the rescue of countries with difficulties in their external accounts, but with potential to overcome them. Such a role has been crucial, since the international economy is necessarily guided by imbalances that stem from the malfunction of the financial markets or from problems related to the economic growth, and therefore they need to be corrected. Without the IMF, financial crises would lead the affected countries to the exit door of the international economic circuit which is something one should avoid at any cost.

The problem is that the loan granted by the IMF needs to be accompanied by conditionality measures, in other words by measures that keep an eye on rescued governments. Those are the same measures that allow lower interest rates, since they decrease the risk of needing such a thing as a loan. This is a key principle: it could never be different. Nevertheless, the IMF has rather negative results to show in this respect, mainly due to the fact that its interventions are mainly done in less developed countries, which means the inexperience of IMF’s technocrats is added to the political inability of those countries under intervention. They repeatedly result in policies that are not recommendable and, in most cases, with the strong support of dictatorial regimes. Note that countries like Argentina or, more recently, Brazil were able to get released from this vicious circle, as the respective national political institutions gained greater maturity. The alternative to the IMF might not be brilliant but also is not always the worst.

The IMF knows well the problems of the past, living in a moment for reflection that eventually will lead to some kind of transformation. But it is taking too long, which does not prove the organisation’s efficiency; it would be good if they concentrated some of the attention addressed to countries towards its own reform.

The current international crisis and, in particular, the enormous Eurozone malfunction, have lead the IMF to come into contact with more developed economies, such as Portugal, Ireland or Greece. Until the international crisis of 1973, the Bretton Woods system –of which the IMF is part– had worked quite well with more developed economies.

In the 70’s, some interventions were made in developed countries such as Great Britain, but they were merely sporadic.

When they arrived in Portugal, the IMF technocrats, if they were not aware of, were surely surprised by the quality of our national institutions, as well as with the level of knowledge on the subject, but still they used what was available to do their job. One should note that IMF’s institutional framework may not necessarily be the most appropriate one, but that their field staff does certainly possess qualities to adapt themselves. Then another problem appeared –one that has to do with the IMF and the associated institutions, such as the ECB and the EC; they assumed the role of the spokesperson for the national interests. It is true that the interests that are well served are the ones that have common points with those of the creditors’ – but are nonetheless own interests. That is why, just to give an example, privatisations appear in the Portuguese memorandum but not in the Irish one.

While dealing with a developed country such as Portugal, the IMF technocrats ended up playing the role of sounding board of the national ambitions or, in other words, the ambitions of the groups with whom they talk. This fact became evident during the implementation of the 2011 Memorandum but it was not that serious, since the IMF had the company of the other Troika Institutions as well as a broader array of interlocutors, both in the government and in the opposition.

However, based on the report analysed here, the IMF was talking exclusively with the Portuguese government in its highest levels, giving a concrete goal – to start with, 4 billion euro cuts in public spending (and without knowing how this value was calculated).

With this purpose as a base, what the report does is to compare the average of expenses in various items, without worrying about the reliability of these averages and comparisons, so as to then conclude on “cuts”. This is nothing but a preliminary work, of ample spectrum and without the necessary depth. To give a relevant example, the report contains a table in which the average salary of civil servants in several countries is compared to the respective GDP per capita, but does not account for differences in qualifications between the public and the private sector. Nevertheless, in a country like Portugal, where only the current generation has achieved full compulsory education, the public sector, with its doctors, judges, teachers and nurses, possesses a level of education well above the national average, in contrast to what happens with countries where three or more generations have had full literacy. Bad luck, the “experts” argue.

The implicit specifications in the IMF report resulted in the definition not only of the amount to be cut, but also of the range of subjects in which the comparisons are made. The Portuguese State has expenses that are not related to pensions, health, education and insurance, but this report ignores them completely. And it says nothing about the impact of cutting 4 billion euros in the national product and, thereby, in the future revenues of the State. In a report that wants to be complete, the absence of so many important things can only be associated to the specifications.

In conclusion, and to answer the questions with which we began, a weak government uses such a scheme to impose a political agenda and is still understandable. What is far from being understandable is how the IMF can get involved in such a game. No wonder the European Commission decided to stay out if – although there are no guarantees about its future attitude pressured by Germany or Durão Barroso.

It is hard to say this about prestigious institutions. But it is also necessary when they are captured by interests that have nothing to do with the progress of nations and Europe.

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