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Papantoniou speech: Doing Business in Greece, 97-04-18
Doing Business in Greece: The Role of Greece in Southeastern Europe
by Hon Dr. Yannos Papantoniou,
Minister of National Economy and Finance of the Hellenic Republic
Speech given at the Harvard Business School Club in New York on April 18, 1997.
Globalization has become the dominant trend in the world economy
with individual countries becoming more interdependent as they link
themselves to the global economy through trade, investment, capital
flows, technology exchanges and communications. The challenges and
opportunities arising from the new competitive environment underpin
all major policy and strategic initiatives in both sides of the
Atlantic.
In Southeastern Europe, a region of relative instability, but
nevertheless of high growth potential, Greece is probably the only
country with a well developed economy, sufficient infrastructure,
a well established democratic regime and political stability. More
importantly, however, Greece is the only country in Southeastern
Europe and Eastern Mediterranean which is among the founding members
of the OECD and a member of the European Union. At the same time
our cultural and economic ties to the peoples of this region,
together with Greece's advantageous location at the crossroads of
three continents, create the potential for Greece to become an
efficient gateway to the regional emerging markets. We are determined
to realize this potential and play our historical role as a
stabilizing factor in the region, promoting free market principles
and the establishment of democratic regimes.
In the last three years the Greek economy has shown considerable
progress on many fronts. The fiscal deficit has already been reduced
by 7 percentage points of GDP since 1993, from 14.4 percent to 7.4
percent in 1996, and is expected to fall to 4.2 percent of GDP at
the end of 1997. The debt to GDP ratio has been stabilized and is
expected to start falling from this year. Consumer price growth
has fallen from 12.3 percent at the end of 1993 to 6.0 percent in
Larch 1997 and is expected to fall below 5 percent at the end of
the year. At the same time, GDP growth has gradually accelerated
from minus 1 percent in 1993 to an expected 3.5 percent in 1997.
Greece is now moving on a Virtuous cycle with lower deficits, lower
inflation and higher growth. Undoubtedly, these developments have
been among the most intensive macroeconomic adjustments recorded
in the European Union over the period in question.
The major forces that have created this virtuous cycle have been
increased policy credibility, a considerable boost in business
confidence and profitability, a significant fall in real lending
rates and an expansionary public capital formation programme, which
is partly supported bv European Union funds. All these factors have
brought substantial benefits and have made the Convergence Programme
targets more accessible. Present trends indicate that Greece can
achieve the Maastricht Treaty convergence criteria in 1998 or 1999
and hence participate in the third stage of the European Monetary
Union by the year 2000 or 2001 at the latest. In this process, the
handling of the fiscal crisis at the end of 1993 and of the foreign
exchange crisis in NIay 1994 have had catalytic effects on subsequent
developments.
The increase in the primary fiscal surplus in 1997 will be mainly
the result of the tax expenditure bill and the public spending
bill. These two bills have been voted by Parliament in February.
Certain new taxes (on large property, on new issues of treasury
bills and bonds etc.) have also been imposed.
The public spending bill establishes expenditure cuts in budget
transfers. freezes new recruitment and imposes institutional spending
constraints on numerous public entities. At the same time, it
liberalizes legislation concerning the management of state property,
including that belonging to various agencies and entities of the
wider public sector, such as hospitals, universities, social security
funds etc. In addition, all budget transfers to public entities
and corporations are made conditional on business plans being
submitted to the Ministry of National Economy and Finance. On the
other hand, according to the tax expenditure bill, more than three
hundred tax benefits have been eliminated, including those concerning
Members of Parliament, journalists, and other powerful groups.
The restrictive stance of fiscal, monetary and exchange rate policies
has contributed to the substantial deceleration of inflation since
1993. The stable drachma policy did not have serious adverse effects
on competitiveness, taking into account the substantial fall in
lending interest rates to which it has contributed. Profitability
levels of the business sector in recent years, which mainly produces
traded goods, support this view. However, from now on, cost
developments in the private sector should be geared more closely
to the exchange rate policy pursued, in order to avoid loss of
competitiveness.
Apart from macroeconomic policies pursued, the Government is
determined to put more emphasis on policies aimed at enhancing
competitiveness and adjusting the Greek economy to globalization.
Recent legislation which introduces market oriented management of
public corporations, the partial privatization of the Hellenic
Telecommunications Company and other public utilities, as well as
the full privatization of industrial firms, the creation of the
Hellenic Investment Center (one stop shop) to facilitate foreign
direct investment, and legislation concerning new labor market
policies and putting more emphasis to labor market flexibility,
are expected to produce favorable results for the Greek economy in
the coming years.
One may ask what are Greece' s virtues that might attract an astute
investor or business person to this country. Admittedly this is a
very legitimate question, especially in an international economic
arena characterized bv the competition of countries to attract
foreign direct investments and business presence. I have a number
of answers to offer, pointing to two levels. The national market
and the regional market level.
Let us take the national market first. Today Greece is the focal
point of some of the biggest infrastructure projects in Europe. We
have embarked on a vast programme for infrastructure development
and improvement, a programme that will enable Greece to become
South Europe's crossroads for air, road and ship transport both to
and from eastern and western Europe.
The new Athens International Airport, a 3 billion USD facility that
will handle about 16 million passengers annually is currently under
construction. Egnatia, the biggest highway pro ject in Europe today
linking the northwestern coast of the country to the port of
Alexandroupolis, near the Turkish boarder is advancing in good
pace. The Hellenic Telecommunications Organization, the biggest
enterprise of the country, which is to offer a second tranche of
shares of 1.2 billion USD in the international markets in June,
has embarked on a 2.2 billion USD programme to digitalize the
network and offer new alue added products and services, like packet
switching, high density networks. cellular telecommunications and
videotext. Meanwhile, the Hellenic Railways Organization pushes
forward with an investment plan of 4.S billion USD to modernize
Greece's rails and establish a rail gateway to Europe.
In the energy sector, Greece is emerging as a key player in the
region. The 3 billion USD gas network project to introduce Russian
natural gas and Algerian gas into the Greek energy mix as of July
1997 is nearing completion. The same is true for oil exploration
as three major companies, two of whom from the US industry, have
been given licenses to explore in western Greece. Moreover, a
consortium of private interests among which a major US oil company,
promote, with full support from the Greek government, a project to
construct a 280 klms oil pipeline that will allow the vast reserves
of oil from Russia and the Black Sea to reach a secure outlet in
a northern Greek port Via Bulgaria.
Business initiatives in Greece can be supported by high quality
human capital regarding managers as well as skilled labor, and a
fast developing financial sector. The Greek banking system is now
functioning in a fully competitive environment, and will be further
strengthened as a big tranche of private capital is to be injected
to large state controlled banks, by the issue of new shares to
private investors, while two small state controlled banks are to
be sold to private investors in 1997.
At the same time, the Athens Stock Exchange has had a market
capitalization of USD 2.5 billion as of February 1997. Further
growth in both size and price is forecast for the Stock Exchange
in the medium term. The developments in the financial sector are
probably better understood if they are viewed together, in the
perspective of Greek banks and the Athens Stock Exchange to become
regional financial centers for trading in the Balkans, the Black
Sea and the Eastern Mediterranean. This potential is supported by
our policy to promote privatization of more public utilities and
industrial enterprises, to further modernize the capital and money
markets, and to establish schemes for attracting more private
capital for public works. Furthermore, foreign exchange controls
have been lifted and capital movements are now completely free
while significant reforms for the adjustment of the labor markets
are been undertaken.
At the regional and international level, the advantages, geographical
as well as historical, that Greece possesses for having a priority
access to the emerging markets of the region have already been
mentioned. However, these advantages constitute opportunities to
be exploited by business, based on favorable historical circumstances.
To help the business community realize this potential, the Greek
administration has had to leave behind its old ways of carrying
business as usual, as new strategies had to be analyzed and
implemented. We have done so and, I think, we have moved to the
right direction. Greece, with a renewed emphasis on economic
diplomacy, participates actively in the new regional fora, where
the economic future of the region is negotiated and drawn. We have
played a major role in shaping the Black Sea Economic Cooperation
Organization and establishing the Black Sea Bank for Trade and
Development which is to start its operations next month in
Thessaloniki. On the other hand, we have been an active founding
member of the South Eastern Europe Cooperative Initiative, a US
promoted programme to support regional development.
But although the Balkans and the Black Sea region are the obvious
areas where Greece has an important role to play, the Mediterranean
countries and north African region represent another area of
increasing significance as well. Greece has long and lasting ties
with these countries and Greek businessmen know the ground. Overall.
Greece can be considered as an efficient corporate base for the
potential investor who is attracted by the stability of the country
while sharing with Greek partners risks in the broader area
Ladies and Gentlemen,
I have been for some time now describing to you all, rather
one-dimensionalls, the virtues of Greece as an investment place.
And some of you might have been asking themselves "where is the
snake in this place". Well, I admit there is one, and its name is
Greek bureaucracy. But, apart from our commitment to proceed to an
overall restructuring and upgrading of our public service, we have
tried to develop a more direct response to the problem. It is the
Hellenic Investment Center, that is the one stop shop aimed at
helping the potential investor, by removing bureaucratic red tape
and promoting international alliances with Greek entrepreneurs.
The one stop shop supports investors throughout the implementation
stage and suppresses bureaucracy which used to be a counter incentive
for such endeavors.
In this context, we are confident that the outward orientation and
dynamism of Greek and foreign investors will generate higher growth
over the medium term, thus making the prospects for sustainable
expansion of the Greek economy look promising. Having this in mind,
it is your business judgment that will locate partners and
opportunities, in order to establish a successful presence in the
wider region.
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