No easy neo-liberal solutions to challenges faced by small countries

The key challenge for small countries in the context of a rapidly changing global economic landscape is to be nimble, flexible, and adaptable enough to be an effective niche player.

Dr. Richard Parker made this comment at the fifth of the Harvard/Pathfinder Foundation Seminar series held at the American Centre recently and participants included influential figures from business and research institutes/academia. It was organised by Pathfinder Foundation with the support of the American Centre, which provided the videoconferencing facilities.

The title of his presentation was ‘Small Countries in a Time of Dramatic Global Change: What Can Greece teaches us?’ Dr. Parker is a member of a three person team, which also includes Prof. Joseph Stiglitz (Nobel Laureate) and Kemal Dervis (former Head of UNDP and Finance Minister of Turkey), that is currently advising Prime Minister Papandreou of Greece on the wide-ranging reforms that are being implemented, with support from the IMF and EU, to address the country’s severe financial crisis.

Dr. Parker argued that there was no easy neo-liberal solution to the Greek crisis which was triggered by the twin problems of budget deficits and debt. He pointed out that slashing the size of government was not the answer.

Dr. Parker, did, however, emphasise that fiscal consolidation was essential to address the deficit/debt driven financial crisis and to stabilise the economy. He called for a balanced approach that respected the relative roles of government and business.

His strongly Keynesian approach envisaged a robust role for government while recognising the need to provide the space for wealth creation by the private sector. He recognised the importance of fiscal consolidation and strengthened debt management for regaining the confidence of both domestic investors and international markets.

Dr. Parker pointed out that Greeks had a culture of strong non-confidence in their governments as well as a widespread perception of extensive corruption and a large shadow economy. In his view, these problems were not as serious as popularly believed but needed to be addressed seriously through transparent and less discretionary decision-making processes.

In his presentation, Dr. Parker identified restructuring of the public service and building its capacity as a crucial challenge for Greece. It was also an integral element of the fiscal reforms essential for stabilisation. Dr. Parker stressed the importance of non-income based benefits as a means of raising morale and motivating public servants.

Dr. Parker pointed out that fiscal devolution was also a part of the reforms being introduced in Greece, with a move away from the previous highly centralised system where central government accounted for 80% of public expenditure. The devolution process also entails consolidating small local authorities into regional entities to create conditions where there was sufficient capacity in the de-centralised units for fiscal devolution to be effective.

A lively discussion followed that recognised the resonance of a number of the issues raised in Dr. Parker’s presentation for Sri Lanka.

The issues focused upon included the political economy issues that require management by the government when administering wide ranging reforms; the challenges of addressing the twin problems of deficits and debt; loss of monetary sovereignty due to membership of the Euro area; the implications of high external debt servicing for exchange rate management; and the quality of data and its impact on economic management.





(This was the fifth of the series of Harvard/Pathfinder Foundation Seminar series on socio economic changes of the world and view exchanges on face the challenges. The series will be continued on a monthly basis going forward. Comments or inquiry on participation could reach via email to [email protected] or directed to Gamini Sarath Godakanda 0777 735556.)