The Troika’s missing link?

As in every other “Program Country”, Cyprus is faced with an immense –if promising- restructuring program for its state mechanism. Aside from the ailing Bank of Cyprus, which will require the already pre-arranged miracle to survive, it should be no surprise that structural reforms constitute the single biggest “implementation risk” in its Program.

With a National Health System lingering on since the late 1980’s, but never implemented, with a shockingly inefficient civil service and with vast amounts of public spending disappearing in local administration, it will not be easy for Cyprus to pull this hare out of the hat. Indeed, if Cyprus can rightly claim that “it’s not Greece”, it nonetheless faces a steep uphill effort to implement all that is foreseen in the MoU.

world bankThis is why structural reforms constitute the single biggest “implementation risk” that the Troika is warning about. To be fair, much has already been done. Fiscal tracking, according to Troika officials got to “where Greece is today in a few weeks”, while some civil service reform –including working day arrangements- have already been implemented. The best news in all of this, is that the government is taking this obligation seriously and that all of the reforms agreed in the Program are, in fact, measures that we have been talking about for years in Cyprus, but always got mired in the politics of powerful interest groups. Even now the civil servants’ union is trying its delay tactics on the argument that the Reform Commissioner appointed by the government is a civil servant and that she is not allowed to hold an executive office.

In one demonstration of the vastness of the problem, the Internal Revenue Department says today that it will fail to draw the projected revenues from the new land tax imposed. The reason noted –to nobody’s surprise- is that the Land Registry Department is not unable to determine the ownership of more that 130.000 pieces of land. This, on top of an estimated 150.000 pieces of real estate that have been purchased by owners, but for which deeds were never issued. Some of the transactions go as far back as 7 or 10 years.

As the Troika –and the European Commission in particular- announced through its president the constitution of a Task Force, charged with assisting Cyprus with all these reforms, the planning was already underway. Commission staff would be placed as advisors in Cypriot ministries or independent commissions, as per Cypriot request, to aid with drawing up reform plans.

This hasn’t happened yet, even though almost three months have passed since the announcement was first made.  Part of the reason was that the government of Cyprus took the initiative to invite the UK and the World Bank to provide the very sort of assistance that the Task Force was supposed to provide. Even though some of the decisions could be judged as bizarre (the UK advising anybody on local government reform?), work is already been done.

This, however, raises another question about the Troika. If one looks at Greece, Portugal, Cyprus, even Spain and (who knows?) Solvenia, part of the problem is the ability of the administration to carry out much of the agreed program. Everything from tax collection to health care spending, to payrolls, to the very ability of the state to govern, is part of the problem behind the crisis: Not only in the inability to cope with it, as in Greece, but also as a root cause.

In Cyprus radio ads are now being heard across the radio waves, for companies that promise to save citizens from “waiting in long lines”, from “running from one office to the next”, from the trouble, the time and the frustration of dealing with the labyrinth of red tape that Cypriots have to navigate in order to do pretty much anything that has to do with the state –paying taxes, registering a vehicle, transferring real estate, getting subsidies or social transfers…

The UK civil administration being one thing, especially for a former colony than never truly reformed its UK-based civil service, the World Bank is perhaps best suited for this sort of advise. And this is probably one very important link that the Troika is missing. When dealing with endemic failure of civil administration, as well as the ability to build lasting and well functioning institutions, the World Bank is probably the best suited international actor that can help.

No doubt, its presence would spoil much of the delicate balance between the ECB, the European Commission and the IMF. But at the same time, calling in the institutional expertise of the World Bank –or some other actor with similar abilities- is something worth pondering.


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