YESTERDAY, I discussed the Greek Debt Crisis on the radio station News Talk 93. The starting point for the discussion was the recent Guardian newspaper article “I know how I would vote in the Greek referendum” by Noble prize winning economist Joseph Stiglitz, implying — although not stating — that he would vote No in the planned Greek referendum.

Part of a series of pieces on a similar theme, Stiglitz observes that the IMF dramatically underestimated the economic impact of the fiscal “austerity” imposed on the Greek economy, and was extremely over-optimistic in the likely economic response to their “bitter medicine”.

The Greek bailout of 2010 was designed, not so much to bailout ordinary Greeks, but to bailout over indebted European banks (notably German and French) at a time of global financial crisis when it was feared that the contagion effects of a Greek collapse could be the straw that broke the back of the international financial system.

However, Stiglitz goes on to ascribe all the blame of Greece’s predicament on the overly “austere” policies of the European Union and the IMF, noting particularly that the “troika” is still demanding that Greece achieve a primary surplus of 3.5 per cent of GDP by 2018.

Unfortunately his views on Greece, while having macroeconomic validity, are surprisingly simplistic for such a strong theoretical economist, telling only half the story. They essentially ignore the impact of Greece’s demonstrably “deformed” economy, the longstanding need for key structural reforms, and thereforey amount mostly to a political viewpoint.

Over the five years since 2010, the Greek economy has declined by between 20 and 25 per cent of GDP, causing a further rise in its debt to GDP ratio to just under 180 per cent, even after its debt restructuring. Coupled with its massively high unemployment, it is thus unsurprising that the Greek people elected the radical Syriza party this year, in what could be described as a cry of pain.

However, Syriza’s negotiating strategy appears to have been almost comically (if the consequences were not so unfortunate) disastrous.

The golden rule

They first ignored the golden rule, meaning he who has the gold makes the rules, in this case Germany. Secondly, they decided to insult their creditors during their negotiations (refer to rule number one), finally threatening, effectively, in the image of the cartoonists, “if you don’t give me what I want I am going to shoot myself in the head”, meaning Grexit, the shorthand for the Greek departure from the Eurozone.

All of this is from a country dependent on imports of food and energy for its very survival. I will leave it to readers to determine if this reminds them of any country, say in the 1970s.

What all this has done is completely destroy domestic confidence. The economy had actually grown in 2014, the government had generated both a current account and primary surplus (the very severe macroeconomic adjustment had already occurred), and Greece had even regained international capital market access, meaning the foreigners were willing to lend them money.

All this is now in the process of being reversed, while a massive run on the banks has culminated in a week-long banking “holiday” in preparation for a referendum, supposedly this Sunday.

One additional point to note is that Greece has already received substantial “debt relief” (the Troika were apparently considering even more before Syriza’s negotiating tactics essentially backfired), as interest costs as a per cent of GDP are only 3.0 per cent this year. Greece’s average borrowing costs of 1.6 per cent are therefore in line with current ultra low German bond rates, and average German interest rates on their entire debt portfolio are probably significantly higher than Greece.

It also has a deferral on principal payments for most of its loans until 2022, with some of its loans having been stretched out until the 2050s.

While it is certainly possible to argue in Greece’s case that this is still not enough, Jamaica would love such terms on its own debt, and if by some miracle had got them, I believe our turnaround would already have begun. Indeed, as the respected Economist newspaper points out, if Greece left the Euro, it could find itself paying more interest on its debt, even though the remaining loans would be far smaller as a share of GDP.

Panamanian growth

It is interesting to compare Greece, Panama and Jamaica for a number of reasons. All three have no export manufacturing industry to speak of, limited agriculture, and a bias towards services, particularly tourism, and involvement in shipping (indeed many of the ships registered in Panama have Greek owners).

Panama had suffered a severe crisis under General Noriega, culminating in a default, and for a number of years the economy was fairly stagnant. Panama even physically resembles Jamaica in some aspects, and both Panama and Greece were regarded as having “easy going”, or less serious cultural attitudes to work, discipline, timeliness etc than say Germans.

Unlike Jamaica however, neither Panama (which uses the US dollar) nor Greece have their own currency.

The key difference with Jamaica and Greece is that since 2000, Panama has grown at more than 7.0 per cent per annum, making Panama’s economic growth the fastest in Latin and Central America.

In complete contrast to Jamaica and particularly Greece, Panamanian growth has actually accelerated in the years after the global financial crisis, with GDP expansion averaging over 8.0 per cent between 2006 and 2012, including several years of double digit growth.

The IMF has forecasted that for 2015, GDP growth in Panama will be 6.4% per cent, the highest in the region, compared with only 1.7 per cent in Jamaica.

The growth in their tourism industry, until relatively recently much smaller than Jamaica, has been accelerating. According to JP Morgan, a 5.8 per cent spike to 849,000 in tourist arrivals in the January to April period has driven an enormous increase in tourism revenues of 14.7 per cent to US$1.29 billion.

This follows the 4.6 per cent increase to US$3.47billion (7.5 per cent of GDP) in their tourism receipts in 2014, when arrivals rose 2 per cent to 2.14 million. Revenues in 2015 are projected to rise roughly 10 per cent to a little under US$4 billion, or a spend per visitor nearly twice that of Jamaica. Indeed, a recent analysis of World Trade Organisation data revealed that Panama has the highest receipts per visitor in Latin America.

This standout performance, much of it driven by Panama’s “logistics” industry (based largely around the Panama canal) is the reason the Private Sector Organisation of Jamaica (PSOJ), has invited Raul Moreira, dconomist and deputy director at the Ministry of Economy and Finance in Panama, to speak at their annual economic forum next Tuesday.

The forum theme, “Imperatives for Growth: Options and Opportunities”, will focus on Jamaica’s opportunities under the latest IMF agreement.

Major forum sponsor JMMB, through its social media page, has asked Jamaicans the key question “If you had responsibility for the economy, would you do anything different from what is being done under

the current economic programme and, if so, what?”. In another article I will answer this question.