Recently, Greece shut down its banks, imposed capital controls, and limited ATM withdrawals at $67.00 due to a government-imposed bank holiday.
These measures were imposed to shield their financial system from collapse after Greece defaulted on its debt from the International Monetary Fund.
How did it come to this scenario?
The common view is that this was triggered by the turmoil of the Great recession, but that the root cause for its eruption in Greece was a combination of structural weaknesses in their economy, along with a decade-long pre-existence of overly-high structural deficits and debt-to-GDP levels of public accounts.
In later part of 2009, fears of a sovereign debt crisis developed among investors concerning Greece’s ability to meet its debt obligations, due to the revelation that previous data on government debt levels and deficits had been misreported by the Greek government.
This led to a crisis of confidence, indicated by a widening of bond yield spreads, and the cost of risk insurance on credit default swaps.
In 2012, the government of Greece had the largest sovereign debt default in history.
Greece became the first developed country to fail to make an IMF €1.6 billion loan repayment on June 30, 2015. It had debts of €323bn.
It is important to note that the discovery that “previous data on government debt levels and deficits had been misreported by the Greek government” triggered the eruption of the present government debt crisis, and the deteriorated debt to GDP ratio.
So it is vitally important that government financial agencies reflect the truth about the economic indicators such as GDP growth rates, government deficits, government debt level, budget compliance, statistical credibility, government spending, tax evasion incidence, and corruption levels.
The Greek economy was dependent on its main industries: shipping and tourism, and as early 2010, economy commissioner Olli Rehn said, “Greece has had particularly precarious debt dynamics, and Greece is the only member state that cheated with its statistics for years and years”.
It was revealed that Goldman Sachs and other banks had helped the Greek government to hide its debts.
Taking into account that the Philippine economy has a significant reliance on remittances from Overseas Filipino Workers, past threats demonstrated the resiliency of the Philippine economy despite external shocks.
New York-based Global Source Partners stated, “The Philippine economy has proven to be quite resilient in the face of varied external shocks in the past, now especially bolstered by a strong external position, and capable monetary management. This time should not be much different.”
As of now, the Philippines faces three key constraints to growth: 1)tight fiscal situation due to weak revenue generation, 2) poor infrastructure (transportation, power, etc.), 3) pessimism in investment resulting from corruption and political instability.
Now it is up to each Filipino to make sure that the next President will continue the path towards economic stability. Be awake! Be aware!
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