FOR SOME time now, the president and his finance minister have been claiming that the economy was on the road to recovery, that we would be able to exit the memorandum sooner than scheduled and go to the markets for the state’s financing needs. These claims are subject to public ridicule, because they are very difficult to believe, but the government must feel it has an obligation to talk up the prospects of the economy after everything the country has been through in the last 18 months.
Confidence remains very low and the government has been trying to give it a boost by regularly focusing on the positive signs – it was able to raise money in the markets; the performance of the economy was better than the forecasts; unemployment figures had recorded a small decline. As there are no elections in the near future that would have otherwise explained the positive spin, it is clearly an attempt to reverse the negative psychology that has taken hold of the country.
But it is naive to think that talking up an unremarkable improvement in public finances would boost public confidence and create a positive psychology. Reducing the public deficit is commendable, but it is not an indication of a strong performance of the real economy. The wealth-creating sector of the economy – businesses – is still struggling to stay afloat in an unfriendly environment of high interest rates, high taxes and excessive bureaucratic regulation.
The banks may now have money to lend, but very few businesses are applying for loans. High interest rates are not the only disincentive. The Central Bank-imposed procedures for loan applications involve so much paper-work that it would discourage most people from applying. As is so often the case, we have gone from one extreme – the indiscriminate granting of loans to anyone who walked into a bank – to the other, by which an applicant has to divulge every last detail of personal information before the bank even looks at his application.
The main reason that demand for loans is so low, however, is that business-people do not consider economic conditions favourable for expansion or new ventures. They feel that the prospects of the economy are so poor they are not worth taking a risk, even if we are rid of the Troika next year, as the finance minister has been predicting. The truth is that while improvements in public finances are welcome, they are no indication of an imminent economic recovery, as the government would have us believe.
And it will take a lot more than positive declarations by the president and the finance minister to restore business confidence.