Monday, May 3, 2010

The Greeks' debts a lesson on corruption

IF someone wants to get a driving licence or a building permit, all that he or she needs to do is to fill a little envelope with some money and give it to an officer to smoothen the process.

A filled envelope can work wonders: businessmen could win bids for public contracts or hire lowly paid illegal workers. Does this sound familiar? However, this isn't what goes on anywhere near home.

This is about the day-to-day life in Greece, which has slipped to the brink of bankruptcy and is now getting aid from the big brothers in the euro zone. The reason Greece has sunk so deeply into a whopping debt problem is because of its ballooning budget deficit, which is equivalent to 13.6% of its gross domestic product (GDP), although the actual ratio could be higher, according to Eurostat.

Economics textbooks tell us that a country's budget deficit will start yawning when the government spends more than it earns, that is what it collects in tax revenue. But in Greece, even the man in the street who has never studied economics knows the root cause of the debt crisis, which is roiling their country, is corruption plus cronyism.

According to the Wall Street Journal, a Transparency survey shows that last year, 13.5% of Greek households paid bribes of €1,355 (RM6,775) based on last year's exchange rate on average.

In an article titled Tragic Flaw: Graft Feeds Greek Crisis, the newspaper said ordinary citizens handed out cash-filled envelopes to get driver's licences, doctor's appointments and building permits, or to reduce their tax bills.

In the past three years, senior politicians had resigned or been investigated over allegations that included taking bribes for awarding contracts, employing illegal workers and selling overpriced bonds to public pension funds, the report noted.

Cheating the government, especially on taxes, is widespread in Greece. Government procurement bribery and political patronage have bloated the Greek government's spending, and pervasive petty bribery eroded its authority over taxpayers, the newspaper wrote.

“The core of the problem is that we don't have a culture of civic society,” Stavros Katsios, a professor at Greece's Ionian University who specialises in economic crime, was quoted by the journal as saying. “In Greece, complying with the rules is a matter of dishonour. They call you stupid if you follow the rules,” he added.

In 2007, the government was found to have sold billions of euros of overpriced complex securities to public pension funds, resulting in large loss es at the funds. The shortfalls have to be covered by the government, and that widened the budget deficit further.

Economists estimate one quarter of all taxes owed are not paid in Greece. The newspaper quoted a senior government official as saying that if an individual or company owes €10,000 in taxes, they slip €4,000 to the inspector, keep €4,000 and pay €2,000 to the Inland Revenue.

Clearly, it is a classic example of plundering the public coffers. Back home, there is mounting concern about Malaysia's budget deficit after the two stimulus packages to revive the economy. Compared to Greece, Malaysians could probably breathe a sigh of relief that the country is still a long way from where the Greeks are now.

The country's budget deficit swelled to 7.7% of last year's GDP but the ratio is expected to drop to around 5.6%. Malaysia isn't in that alarming stage at all. That said, the debt crisis in Greece should raise alarm bells about the ugly fact that there are some similarities between the situation facing the Greeks and us.

One of the differences is that Malaysians are lucky enough to have oil money to replenish almost half of the country's coffers. Imagine if we were without the oil money, would the country's deficit still be so manageable? Could the government continue running the country the way it is doing today?

At a conference organised by the Associated Chinese Chambers of Commerce and Industry of Malaysia, YTL Corp Bhd's Tan Sri Francis Yeoh told the audience that he didn't need to know the former British Prime Minister Tony Blair to win the bid for Wessex Water.

What about his experience at home? Did it contain a hint which he didn't share with the audience?

Written by Commentary by Kathy Fong (The Edge Daily)

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