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Fiscal rule came to agenda once again last week in Deputy Prime Minister Ali Babacan's meeting with economy editors, and was widely featured on the media since then. Some media organs even presented formulas. I am sure some of my readers are bored of the graphs and figures involved widely in some of my commentaries. But please note that, as far as I remember, I have never gone that far and used formulas with x's, y's and z's in it. So, please regard my merciful attitude.
I have assumed this attitude concerning the fiscal rule discussions mainly because formulas are not at the top of the list when you enumerate the important issues about the fiscal rule. I have mentioned the issues I found 'more important' in my commentaries. I have to address one of these again because of two reasons. First is related with the current state in Greece. There is no confidence in the statistics and particularly the budget figures they declare. The credibility of Greece is damaged severely. In a report published in mid 2009, the IMF estimated that Greece's budget deficit will be high above the announced level. The realized budget deficit after the budget deficit was twice the IMF's estimation (12.5% of GNP).
Greece has to reduce the budget deficit radically and comply with the EU norms. The government will make decisions and implement those to this end. OK, but whether the decisions are complied with or not will be determined on the basis of the budget figures, which are manipulated. In that case, even no more manipulation was made, the past experience will raise doubts, which will prevent the achievement of the benefits expected from the fiscal rule.
To put it differently, if no one relies on the figures, fiscal rule does not ease the concerns about the sustainability of Greece's debt and thus does not reduce the risk premium and borrowing costs. So, there is need for a system which will ensure the transparency and credibility of budget figures. The system should not only control the figures for the current period but also examine the feasibility of announced future fiscal policy and the significance of the future assumptions.
The second reason why I address this issue for a second time is related with a concept pointed at the last Fiscal Monitoring Report TEPAV announced. The January-November average of the transfers from the budget to the Social Security Institution (SII) is 2.6 billion TL. This falls sharply to 0.4 billion TL in December 2009 and then rises to 2.6 billion TL in January 2010. The main reason for the sharp fall in the amount transferred in December to finance SSI's deficit is that at the same month premium collections of the SSI jumps significantly. TEPAV report underlines that in December, premium collections were more than 50 percent above the average for the first eleven months of the year.
There is no implicit reason for me to give a recent example on Turkey after talking about Greece. I am not implying that budget figures are manipulated in Turkey, either. I also have to say that I do not enjoy such an argument. What I want to say is quite different: the group preparing the TEPAV Fiscal Monitoring Report is composed of experts of the subject. So, if the experts of the subject find the reason of a striking budgetary development puzzling, there definitely exists a problem of transparency.
The morale of the story is: If you have transparency problems, which we certainly do, you cannot benefit from the fiscal rule implementation unless to design a system to eliminate the transparency problems. We can think of various alternatives. For instance, a mechanism that works within the Parliament but independent from the Parliament can be designed. So, are there any examples to such systems around the world? Sure, for instance Belgium, Denmark, and Sweden have such systems. I will continue later.
This commentary was published in Radikal daily on 01.03.2010