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By Dr. Jim Leontiades
Cyprus International Institute of Management
A president’s first few months in office are traditionally a honeymoon period. Voters withhold judgment until the new president has had a chance to show some results. That period is now over. I think everyone realises you took over the office at a particularly difficult time. Furthermore, the Euro group has not treated Cyprus or yourself justly or even competently. It is not fair but this is the situation we are now in and this is the job you asked for. The citizens of Cyprus voted for you and now they expect leadership consistent with the difficult situation Cyprus is in today.
THE WORST OF ALL WORLDS
The danger signals are obvious. Once more, Cyprus has been downgraded by an international rating agency. Does this sound familiar? Euro zone countries, particularly those that have signed an MOU, have no choice but to follow the austerity prescriptions of the Troika, however misguided they may be. The danger is that once again we are following the footsteps of Greece, implementing these proposals halfheartedly and with delay. This risks the worst of all worlds, bringing the hardships of austerity which such measures entail without taking action quickly and decisively enough to really make a difference – a difference in our national indebtedness that will point the way toward an exit from the MOU and restore international confidence in this country.
Surely, you do not believe that eliminating the potato and wine marketing boards etc., amounts to even a baby step in this direction. The softly-softly, slowly-slowly approach will not do the job. In the situation Cyprus is in today, we require quick and drastic reductions in government spending to build an atmosphere of confidence and a feeling that the economy is moving toward freeing itself from the Troika and the MOU.
The kind of measures needed are no doubt painful. They are the kind that will face powerful opposition. They are not the kind that will win votes. But the result of not taking them raises the prospect of Cyprus incurring a second MOU with the immense damage that it will bring.
PUBLIC SECTOR
Privatisation is one of these measures. The Auditor General’s latest report on the publicly owned organisations has highlighted the general mismanagement, high cost and high compensation which has resulted in Cyprus having the highest electricity prices in the Euro zone. This is one of the so called “profitable” government owned organisations. Of course it is profitable. What company cannot be profitable if it controls prices?
The problems of Cyprus Airways seem to have become a permanent part of our economic landscape. Lengthy negotiations which try to please all interested parties will continue to have the same result as in the past.
The elephant in the room is of course the public sector. A number of studies have shown that the average public sector wage has been substantially higher than in the private sector. Yes, there have been a few reductions here but hardly anything to match the loss of jobs, drastic wage cuts and fall in pensions seen in the private sector. If anything, the gap between the public and private sector compensation has become wider.
It is not simply a matter of costs or even social justice. Mindless and unnecessary bureaucracy is itself a major cost. Every survey of foreign investors in Cyprus cites bureaucracy at every level as a major impediment to foreign investors who desire to establish businesses here and offer jobs. The continuing problems with titles for house ownership has discouraged the purchase of new homes, another major source of employment and government revenue.
Furthermore, the undoubted attractions of working in the public sector acts to “crowd out” employees available to the private sector. Private firms hire and train personnel only to see them whisked away at the first offer of government employment – where both wages and security are higher but productivity lower.
It is not enough to commission studies that will forward suggestions at a future date. The present situation of the economy is dire. Action, no matter how painful or whatever votes may be lost is needed now.
