Kemal Derviş optimistic about Greek economy

Kemal Derviş optimistic about Greek economy

When Kemal Derviş was asked to sort out the Turkish economy fourteen years ago, few were hopeful. In 2001, this country was in the midst of its worst economic crisis in modern times and Derviş was given little chance, despite his 22-year career at the World Bank. He was seen as an inexperienced outsider with little knowledge of domestic politics. Yet, his political inexperience and distance from domestic vested interests gave him more independence to eventually devise a tough stabilization program with deep reforms, supported by the IMF and WB loans that managed to jump start the Turkish economy; his recipe has remained largely in force since then.

So his thoughts on how the Greek economy could be saved from its current dire state would be of extreme value to his current Greek colleague Yanis Varoufakis, who is also not a politician by profession. Varoufakis has been landed with the task of reviving his country’s economy and keeping it in the Eurozone at the same time.

Derviş, the honorary president of the Brooking Institute, was very critical of the bailout program designed for Greece by its creditors, the EU, the IMF and the ECB, while speaking in Washington to Greek TV Alpha. “The program that was largely designed by outsiders without any input from inside Greece, did not work because the forecasts, the calculations and the analyses made by the technicians of the IMF and the European Commission and some others turned out to be wrong,” he said. Derviş also believes Syriza has succeeded in opening the door for serious negotiations to improve the program. “That is a big success. Syriza is not saying, ‘just give us free money,’ they are saying, ‘give us some time to redesign the program. We accept the fact that there is a need for a program. And we want to stay in Europe and therefore cooperate with Europe, but we have different ideas. Are they right, are they wrong, we will see in time,’” he said.

Where many Europeans are pessimistic over the future of the Greek economy, Derviş is optimistic that a solution can be found. What is his recipe for Greece? “It needs small primary surpluses, some debt re-profiling with even longer maturities and somewhat lower interest rates. Structural reforms are needed, but of the type that really help,” he said. Will his colleague succeed like he did in Turkey?
“Whether Yanis Varoufakis and the prime minister, Mr. [Alexis] Tsipras will be successful in negotiating a program that would satisfy a good part of their electoral promise, we will see over the next four months. I think every Greek, whatever he or she thinks, should give Tsipras a chance,” he said.

In 2011, I interviewed Varoufakis - then an alternative economist-academic - for this newspaper, and he had some interesting comments on the Turkish economy in reference to Derviş’ reforms:

“The Turkish economy had been running since the banking crash in the late 1990s on a high interest, low exchange rate principle to lure much-needed hard currencies in the country. This policy coupled with a privatization policy unparalleled in Turkey’s recent history provided the fuel to run the economy... Since all state enterprises and energy distribution companies are sold to the local and foreign private sector, now the Turkish government has launched a campaign to sell rivers, lakes, motorways and bridges… The problem will be if the capital inflows, which I believe are accelerating due to low interest rates in Europe and the United States, do cause property bubbles which then burst, leaving Turkey in a state similar to that of the South East Asian countries in 1998.”

However, it still remains to be seen whether Varoufakis’ predictions about Turkey will come true.