Privatizations and Long Run Growth: Doing it Right?

Yannis Ioannides, in a presentation at McGill University, Montreal, on April 4, 2013, discussed the issue of privatizations in Greece, as part of the stabilization program and Greece’s agreements with the Troika. Massive privatizations were put on the agenda of negotiations with the lenders, perhaps as a way to make assistance to Greece more palatable to voters in other eurozone countries, and were estimated originally as capable of generating 50 billion euros. The figure has been continuously revised downwards to less than 20 billion euros since first proposed. At the same time, political arguments over major privatizations reduce their projects’ values in the assessment of potential investors. This in turns feeds a vicious circle, a self-fulfilling prophecy, that has the Greek public being worried that Greece’s public wealth is being sold at “fire-sale” prices. Ioannides proposes that major privatizations can be seen as the proverbial “Big Push,”  which the Greek economy desperately needs. Privatizations involve mainly undeveloped land throughout Greece. Furthermore, the capital inflows that the projects would likely generate over the purchase payments will cause increases in GDP for the same reason that the fiscal consolidation associated with the stabilization program has caused decreases in GDP.

Ioannides focuses on the proposed development of the site of the former Athens International Airport at Ellinikon. This site of 6 squ. kms at a distance of 8 kms from the center of Athens offers a rare opportunity, as vacant urban land on that scale so close to a metropolitan center is  rarely available. Ioannides mentions that the public is in the dark about the assumptions made by the Hellenic Republic Assets Development Fund in evaluating the project for the purpose of soliciting bids by potential investors. He cites, in particular, the claim that “the full development of the Hellinikon site is expected to enhance Greek GDP by 0.3% per year and to create over 10,000 new jobs on a yearly basis for the next decade.” He argues that public review of the project via public hearings, a standard practice for large projects internationally, by involving the public and thus helping reduce social tensions, also stands to increase the value of the project to potential investors.

The text of the talk is available here and the slides here. The event, titled “How The Greek–Euro Crisis Is Transforming Europe … and Greece?” took place at McGill University on April 4, 2013, and was organized by Prof. Tassos Anastassiadis, Phrixos Papachristidis Chair in Modern Greek Studies  at McGill, and by Prof. Stylianos Perrakis, RBC Professorship on Financial Derivatives, Molson School of Business at Concordia University. A video link for the entire event is here.

About Y_Ioannides

Tufts University

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3 Responses to Privatizations and Long Run Growth: Doing it Right?

  1. Very sensible comments by a specialist! Thank you, Harilae!


  2. Harilaos N. Psaraftis says:

    Yanni I just read your article, which I like.
    I do not think procedures such as the one you suggested on public consultation can work in Greece. Or, if adopted, they will just be window-dressing, and at the end of the day, they will do what the troika wants.
    I also have one comment on the OLP- Cosco deal. The 4.3 billion euro value is undiscounted and can be misleading, given the 35 year duration of the deal. The guaranteed Net Present Value of the deal assuming a 9% discount rate (that’s the one assumed by OLP) is only about 665 million euros.
    For some related articles, I recommend you take a look at this web page:
    Incidentally, whereas I am in favor of the Piraeus port privatization, I think the government and TAIPED is on the wrong track. I do not think that selling OLP’s stock to a single buyer is a good idea.
    Best regards,

  3. O Καθ. Σπύρος Πολλάλης, Harvard Graduate School of Design, Πρόεδρος της Ελληνικόν ΑΕ, μου υπενθύμισε ότι σε συνέντευξη του στην Ναυτεμπορική, 4 ΦΕΒΡΟΥΑΡΙΟΥ 2013, “Δίχως ίχνη ανάπτυξης το σχέδιο για το Ελληνικό,” ανέπτυξε με μελανότατα χρώματα τους φόβους του γιά την έκβαση της λύσης που έχει επιλεγεί απο την Ελ. κυβέρνηση. Η συνέντευξη είναι εδώ.

    O Καθ. Ανδρέας Γεωργούλιας, Harvard Graduate School of Design, έχει επίσης εκφράσει αντίστοιχους φόβους, σε συνέντευξη του στην Ημερησία, 21/7/2012, εδώ:

    Αναρωτιέμαι λοιπόν: ακούει κανείς; Εάν το πιό σημαντικό έργο στο χαρτοφυλάκιο της ΤΑΙΠΕΔ δημιουργεί τέτοιους φόβους, τότε γιατί αγνοούνται;

    Γιάννης Ιωαννίδης
    Συντάκτης του “Ιδιωτικοποιήσεις και Μακροχρόνια Ανάπτυξη: Τις κάνουμε σωστά;”

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