–But EU/ECB/IMF Inspectors To Highlight Need For Speedier Reform
–Repeating Story Originally Transmitted Tuesday at 11:22 EDT

By Angelika Papamiltiadou

ATHENS (MNI) – Greece is likely to pass the ongoing inspection by
EU/ECB/IMF officials to receive a second installment loan for E9 billion
in September, despite concerns about lagging tax revenues and structural
reforms, sources say.

While the officials currently drafting a report of their visit here
are said to be “generally content” with the progress made so far, they
are also expected to highlight the need to accelerate reforms aimed at
boosting economic competitiveness.

Such reforms include speedier privatization, less spending for
local government, the restructuring of ailing public companies and the
opening up of closed professions like lawyers, architects, pharmacists
and taxi drivers.

The officials are also expected to ask for more detailed and
frequent inspections of tax evasion in order to bolster revenues.

According to the pre-agreed timetable, the inspectors are to submit
their report to the European Commission by the end of August and to the
IMF at the beginning of September.

The second E9 billion installment includes E6.5 billion from
Eurozone member states and E2.5 billion from the IMF. The first tranche,
approved in May, was for E20 billion, with E14.5 billion from the
Eurozone and E5.5 billion from the IMF.

Sources close to the inspection said that while approval of the
second tranche of loans seems secured, Athens must now show
determination to pass the reforms despite social unrest.

The prime concern of inspecting officials — locally called “the
Troika” for the three participating organizations — remains government
revenues, which are trending below target. The Finance Ministry appears
confident that once tax increases kick in, including a VAT hike of 23%
on July 1, the targets will be met.

Doubts persist, however, as tax evasion is widespread and VAT
receipts remain low amid the 4% slump in GDP. Inflation has surged above
5% the past two months. The report is expected to call for measures to
curb inflation and toughen controls on price-gouging.

Another risk is the deficit in the health sector, especially at
hospitals, where audits are currently under way to determine their
financial state.

Pensions funds are another source of concern, as most of them have
already used up their annual budgets and are now asking for further
government contributions.

The state’s financial obligations towards hospitals, pension funds
and local government have raised concerns as to whether the drastic
spending cuts seen in the first half of the year are sustainable.

Inspectors are also expected to highlight the need to speed up
liberalization of the energy market and break up the monopoly for
distribution of electricity and natural gas by the first half of 2011.

It has been widely reported in the local press that the Commission
has asked the government to sell up to 40% of the distribution units of
the state-run electricity company DEH. But the government reportedly
backed down after DEH management threatened to shut down the electricity
distribution. The government has hinted that it will devise a different
plan to produce the same effect.

The report is also expected to highlight once again that local
banks depend almost exclusively on ECB funding. The “Troika” has already
expressed the view that mergers and acquisitions will be needed in order
to boost the resilience of the sector.

According to the agreement signed May 7, banks will undergo a new
round of tough stress tests in September and those that fail will be
asked to raise capital on their own or fall under the supervision of the
Financial Stability Fund formed for this purpose.

Ratification of a bill to open up closed professions in September
will be a litmus test of the government’s authority, since the first
attempt with fuel-tanker drivers triggered strikes that left the country
without gas supplies for three days.

The government was forced to implement an emergency plan and call
in the truckers for civil duty under the threat of prison sentences. The
strike was lifted, but truckers say they will stop work again if
negotiations with the government fail to satisfy their demands.

The truckers fear a steep loss of income if the market is opened up
and argue that the price of new licences will be well below what they
were obliged to pay — up to E400,000.

The same sources said the report will underline the need to cut
deficits at state utility companies DEKO, which have been feeding off
the state budget for years, creating massive debts and deficits.

In its report from last month, the IMF argued that these utilities
should be shut down if plans for their reconstruction fail, which would
mean more layoffs of public sector employees.

DEKO’s arrears are expected to be added to the public debt and
deficit figures, which will be revised upwards once the inspectors have
a clearer picture of state liabilities in the health, pension and local
government sectors.

The collection of data has so far been incomplete and the officials
have already demanded “speedier and better quality data.”

a_papamiltiadou@hotmail.com

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