Business Times

Reducing size of Govt. won’t help budget deficits and debt : top intl economist

Reducing the size of government is not the answer for a small country facing the twin problems of budget deficits and debt, according to Dr. Richard Parker, who is part of the three member team, supported by the International Monetary Fund and the European Union, which is currently advising Greek Prime Minister George Papandreou.

Speaking to a Sri Lankan audience, via the American Centre's local video conferencing facilities recently, on the occasion of the fifth Harvard Pathfinder Foundation Seminar, Dr. Parker's presentation titled "Small Countries in a Time of Dramatic Global Change: What Can Greece teaches us?” also emphasised that "fiscal consolidation was essential to address the deficit/debt driven financial crisis and to stabilise the economy," while also calling for a "balanced approach that respected the relative roles of government and business."

Dr. Parker also suggested an approach with 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."

In the Greek context, he recommended "transparent and less discretionary decision-making processes" for addressing the Greeks' lack of confidence in successive governments, as well as "a widespread perception of extensive corruption and a large shadow economy." Problems which he opined were not as serious as popularly believed in that country.

He also "identified restructuring of the public service and building its capacity as a crucial challenge for Greece," indicating it to be integral for stabilisation. Further, he also highlighted "non-income based benefits as a means of raising morale and motivating public servants."

Additionally, 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.

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