Dr Louka Katseli addressed the lecture titled “Recent Fiscal and Labour Market Adjustment Experiences in Europe and Lessons for the Low-Income Countries,” held on Tuesday 18 November 2014 at Lakeshore Hotel, Dhaka.
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Published in The Financial Express
Bangladesh needs to diversify economy beyond textiles
Expert for productivity-boosting reforms to meet challenges
FE Report
Bangladesh needs to diversify its economy beyond textiles and execute productivity-boosting reforms to weather likely challenges ahead and attain higher economic growth, said a renowned Greek economist here Tuesday.
Dr. Louka T. Katseli, from her experience fresh from the Eurozone crisis and recurrent recession in her own country, underscored the urgency of pursuing more active industrial policies and undertaking governance and institutional reforms for Bangladesh’s economic development.
“Each country must have a vision for its future and a transformative strategy based on its own history, endowments and culture,” said Dr. Katseli, a professor of Economics at the University of Athens, while addressing the Centre for Policy Dialogue (CPD) anniversary lecture session.
The CPD, a globally reputed think-tank in Bangladesh, invited Dr. Katseli, also a Greek politician and former minister, to its 2014 anniversary lecture to share her thoughts and lessons drawn from the Eurozone’s recent experience of endemic financial troubles.
The CPD organized the lecture as part of its founding anniversary celebrations.
Drawing on experiences from her own country, Greece, Dr Katseli cited common policy challenges for the Eurozone which appeared similar to that of the developing countries.
Despite differences, she said, there are many things interesting and relevant to Bangladesh as the country tries to promote sustainable and inclusive development in a fiscally-constrained environment like her country.
According to Katseli, shaping and implementing a transformative strategy for the future is a must for both Greece and Bangladesh.
In her lecture on ‘Recent Fiscal and Labour Market Adjustment Experiences in Europe and Lessons for the Low-Income Countries’ she dwelt at length on her country’s constraints in various economic fields.
The fields facing the strains include growth, investment and employment.
She listed their endeavours to overcome the crises.
The European economist focused more on how to promote structural change and productivity-enhancing reforms to upgrade the productive base, develop new sectors, products and services.
Investment in powerful enablers such as governance, infrastructure, human capital or local, regional and global networks was also underscored.
Besides reducing the country’s economic dependence on textiles sector, she also stressed the need for building public-private partnerships for development, mobilising development assistance, trade and domestic taxes to finance infrastructure and other specific enablers.
“Developing countries, including Bangladesh, and even many emerging economies, are in a better position to reap low labour-cost competitive advantages,” she added.
CPD chairman and renowned economist Professor Rehman Sobhan chaired the programme held at a local hotel. CPD Distinguished Fellow Dr Debapriya Bhattacharya introduced Dr Katseli, an expert on international economics and development policy. She has served as Director, OECD Development Centre, as member and vice-president of the UN Committee for Development Policy.
Dr Katseli currently leads the Social Pact Party and has held positions such as Greece’s Minister of Labour and Social Security and Minister of Economy, Competitiveness and Shipping.
In his opening remarks, CPD Executive Director Professor Mustafizur Rahman said Dr Katseli was invited to share her reflections on the salient features of the financial crisis in the context of globalising economies, her assessment about the way the crisis was managed, and her insights on lessons that can be drawn for their own policy making.
Referring to the Greek economic crisis, Dr Katseli noted that concerted action by few financial speculators can produce an unprecedented crisis for a national government.
“In the times of crises, policymaking is shaped by the interests of a global financial system which, in the absence of regulation, appropriate incentives or effective oversights, caters to its narrow financial interests as opposed to the national interest,” she noted.
Pointing at the unemployment scenario in the Eurozone, she noted that combination of credit crunch and austerity policies result in dramatic reduction of aggregate demand, firm closure and surge in unemployment.
She further mentioned that excessive labour-market flexibility increases unemployment due to adverse income and productivity effects.
It was also observed that sharp reduction in wages does not necessarily enhance final price competitiveness due to fall in productivity and increases in non-wage cost components.
Among the useful lessons that emerged from the analysis was the observation that primacy of fiscal goals as the backbone of a policy strategy that aims to improve financial stability, competitiveness and growth is self-defeating.
It was learnt from experience that government is likely to lose credibility if living standards deteriorate.
mzrbd@yahoo.com
Published in Dhaka Tribune
Diversify economy to address financial crisis
Tribune Report
‘A Greek economist recommends Bangladesh sharing the experience of global financial crisis’
Greek politician and economist Professor Dr Louka T Kateseli has recommended Bangladesh to diversify its economy beyond textiles through pursuing active industrial policies to avert economic crisis like Greece.
She also stressed on undertaking governance and institutional reforms and building public-private sector partnerships for development, mobilising development assistance, trade and domestic taxes to finance infrastructure and other specific enablers.
“Developing countries, including Bangladesh and even many emerging economies are in a better position to reap low labour cost competitive advantages,” she told a function in Dhaka yesterday.
Dr Katseli was addressing the CPD Anniversary Lecture 2014 on “Recent Fiscal and Labour Market Adjustment Experiences in Europe and Lessons for the Low-Income Countries” with CPD Chairman Professor Rehman Sobhan presiding.
She served as member and vice president of UN’s Committee for Development Policy and currently leads the Social Pact Party and has held positions such as Greece’s Minister of Labour and Social Security and Minister of Economy, Competitiveness and Shipping.
She was invited to share her reflections on the salient features of the financial crisis in the context of globalising economies, her assessment about the way the crisis was managed, and her insights on lessons that we can draw for our own policy making.
Dr Kateseli called for building partnership among least development countries to push for major reforms in the global agenda for inclusive growth. “I think LDCs should raise strong voice and collective action for pushing the UN in changing global agenda.”
She said some of us in the OECDs share same concern for inclusive growth. “So, it is a call for action,” said Dr Kateseli, who is an expert on international economics and development policy and served as Director, OECD Development Centre.
However, she expressed concern over the alliances by the LDCs and, on the other hand, the segregation of voices of the developed countries. “Each country is trying to resolve its own issue and to become more loyal to the large institutions in the prevailing order.”
Dr Katseli, professor of economics at the National Kapodistrian University of Athens, said the present global financial system is clearly not fit for the purpose.
“Financial crisis such as the one that hit both the US, Europe or East Asia in the past will continue to occur as long as commercial and investment activities of global financial institutions are not kept apart,” she said.
She expressed concern that there are no clear rules of conduct, standards or effective oversight to mitigate collusive practices, speculative attacks or manipulation of currency and interest rates. “That’s why we should all join forces to push for a major reform agenda in this area.”
In response to a question, she said the exchange rate is not such a powerful tool of adjustment as we normally think. “If we have not joined in the Europe yet, we would have had the exchange rate as important tool and probably the market would have adjusted earlier devaluing currency.”
Referring to the Greek economic crisis, Dr Katseli noted that concerted action by few financial speculators can produce an unprecedented crisis for a national government. In the times of crises, policymaking is shaped by the interests of a global financial system which, in the absence of regulation, appropriate incentives or effective oversight, and caters to its narrow financial interests as opposed to the national interest.
Pointing at the unemployment scenario in the Euro zone, she noted that combination of credit crunch and austerity policies resulted in dramatic reduction of aggregate demand, firm closure and surge in unemployment.
Dr Katseli said self-employment is increasing, this is probably not the outcome of the crisis, it would not be sustainable, what we need to think of how we can increase productivity by enhancing employment generation.
“We need to convert unemployment benefits into the active jobs even in social sector, this trend is tremendous potential right now in African countries where social entrepreneurship is on the rise,” she said
She said social entrepreneurship fund needs to be formulated for young people to start small business. “We need to convert unemployment benefit into active jobs in municipalities and most communities need.”
Published in The Daily Star
Join hands to plug loopholes in global financial system
Greek economist tells developing nations at CPD lecture
Star Business Report
The developing and least-developed countries, including Bangladesh, should raise voices to plug the loopholes in the global financial system that cause economic crises, a Greek economist said yesterday.
“We need more voices, collective actions on the part of developing countries,” Louka T Katseli, a professor of economics at the National Kapodistrian University of Athens, said at a lecture styled ‘Recent Fiscal and Labour Market Adjustment Experiences in Europe: Lessons for the Low-Income Countries’.
The Centre for Policy Dialogue organised the event at the capital’s Lakeshore Hotel to mark the think-tank’s 21st anniversary. “It’s a call for action. I think we have been too passive, too inactive. In my view, a lot can happen if we all rise and build partnerships.”
Also a former minister of Greece, Katseli called for steps to keep commercial and investment activities of global financial institutions apart.
She said the financial crises will occur as long as there is an absence of clear rules of conduct, standards or effective oversight to mitigate collusive practices, speculative attacks or manipulation of currency or interest rates.
“That’s why we should all join forces to push for a major reform agenda in this area.”
About Bangladesh, she said the country would do well to diversify its economy beyond textiles, pursue active industrial policy and undertake governance and institutional reforms.
She also recommended the country should build partnerships for development and mobilise development assistance to finance infrastructure and other specific enablers.
Katseli, also a former director of the Organisation for Economic Co-operation and Development Centre, also suggested collective global efforts to combat tax avoidance, tax havens and promotion of stringent rules and regulations against bank secrecy.
She said $7.6 trillion, which is 8 percent of word’s personal financial wealth, is stashed in tax havens.
About the Eurozone debt crisis, she blamed the global financial institutions’ speculative behaviour and lack of oversight and regulation.
Noting the crisis in Greece, she said everyone was aware of the serious fiscal and external imbalances of the Greek economy as well as the need for adjustment.
But neither Greece’s newly elected government nor the European Commission, the European Central Bank or even major international banks had predicted, let alone prepared for, the crisis.
The speculative attack against the Greek bonds and indirectly the euro itself, triggered by the downgrading of ratings for Greek bonds in mid December 2009 by Fitch, Moody’s, and Standard & Poor’s, brought the Greek government to its knees and the Eurozone to the brink of collapse.
The first lesson to be drawn therefore from the Greek crisis is that concerted efforts by few financial speculators can produce an unprecedented crisis for a national government, she said.
Katseli, who is now the president of the Social Pact Party in Greece, said the Eurozone crisis has similarities with Southeast Asian financial crisis at the end of 1990s. “Clearly, the international community did not learn any lesson then.”
She said a report by the UN’s Committee for Development Policy in 1998 called for adequate oversight and proper regulation for global financial system to avoid repetition of financial crisis and advocated for creation of the World Financial Organisation.
Instead of considering the recommendations, the US’s repeal of Glass-Steagall Act, also known as Banking Act 1933, created incentives for the build-up of risky assets in global financial institutions’ portfolios and increased speculative behaviour.
Katseli said there has been a dramatic shift in economic political power towards financial capital relative to governments, non-financial private sector and labour.
As the financial institutions are becoming the dominant players, both at the national and global levels, their interests shape the conduct of policymaking.
She said policymaking, especially in times of crises, is shaped by the interests of global financial system, which, in the absence of regulation, appropriate incentives or effective oversight, caters to its narrow financial interests as opposed to the national interest.
The European policymakers chose to focus their collective efforts on protecting creditors and banking system at the expense of European productive enterprises.
“Large European banks managed not only to avoid paying the costs of past dubious lending practices or toxic derivatives, but were compensated for their losses through taxpayers’ money.”
Katseli said Greece borrowed 219 billion euros between 2010 and 2013 and 97 percent of it was used to pay back creditors. Less than 8 billion euros have been used to support the pressing domestic budget needs or to channel liquidity to a starving market.
She said sharp reduction in fiscal expenditures coupled with increase in excise VAT and property taxes have plunged the Greece economy into deep recession, which has lasted for seven years.
Austerity measures and internal devaluation has lowered real GDP of Greece by 25 percent compared to the expected 5.5 percent decline, she said, adding that unemployment soared, public debt to GDP ratio rose and along the way, converted the debt crisis into a social and political crisis.
Drawing lessons from the experiences, she said a combination of credit crunch and austerity policies result in reduction of demand, firm closure and surge in unemployment in the economy.
A sharp cut in wages does not necessarily enhance final price competitiveness due to a fall in productivity and increases in non-wage cost, she added.
CPD Chairman Rehman Sobhan chaired the programme.