The Semi-Unfixables: Cyprus, Tunisia

♠ Posted by Emmanuel in ,,, at 3/14/2014 08:41:00 AM
Oh, the western world's woes: it has now taken on the incredible financial basket case that is Ukraine while not exactly "fixing" the situations of its other chronic deadbeats. Today, consider the plight of Cyprus and Tunisia, Europe's nearby ne'er-do-wells that are, er, not doing well despite Western tutelage and all that jazz.

First, consider Cyprus. Despite all the protestations that this is not your grandfather's IMF with all sorts of harsh conditionalities [1, 2], the truth is that Cyprus has been put under the gun of privatization--or else. Last month, their parliament voted down privatization measures demanded by the EU/IMF, thus endangering its bailout package. This month, it reversed course and supported these privatization demands calling for an immediate sell-off of SOEs:
The Cypriot parliament has approved a roadmap for privatisations, averting a showdown with international lenders insisting on state sell-offs as part of a $13.77bn bailout package. In a show of hands on Tuesday, 30 politicians in the 56-member parliament endorsed a guideline for asset sales, a day before a deadline for approval was set to expire on March 5.

The parliament's rejection of an earlier privatisation motion on February 28 risked derailing the bailout accord that was brokered with the European Union and International Monetary Fund in March 2013. Cyprus must raise $1.93bn from privatisations as a condition of the bailout, or rescue money will not be distributed.  Left-wing parties had thrown out the bill over concerns that workers' rights would not be safeguarded.

Finance Minister Harris Georgiades applauded the vote which he said ensured that the country could stay afloat and on a path towards stability. "Apart from being an obligation, the privatisation programme is also an opportunity to attract investment, bolster efficiency and competitiveness and shed the weight of state control on significant sectors of the economy,'' said Georgiades.
So that's an IMF-Europe sort of deal. However, consider also another Bretton Woods institution here with a World Bank-North Africa deal. Like virtually all Arab Spring countries, the unfortunate truth is that they're worse off now than before those political shenanigans took place. Check out Tunisia via the World Bank press blurb:
World Bank Regional Vice President for the Middle East and North Africa, Inger Andersen announced today a US$1.2 billion program of support for the democratic transition in Tunisia. The announcement came at the end of a three-day visit to Tunisia to consult with government officials, civil society and the private sector on how best to seize upon the momentum established by the adoption of the country’s new constitution...

The financing planned for 2014 would include up to US$750 million in support of government reforms to level the economic playing field and promote growth and job creation, while increasing accountability in the delivery of services to citizens. The level of support will match program performance during this last year of democratic transition. A US$300 million project focused on building up the capacities of local government will support the provisions on decentralization in the new constitution. The remaining funds will supplement ongoing Bank activities. A credit facility aimed at supporting Banks that give small and medium enterprises much needed access to credit will benefit from an added US$100 million investment. An extra US$50 million for a project designed to promote exports will help identify sectors where Tunisia can be particularly competitive. Lastly, as part of a continuing collaboration with the national water authority, a US$20 million project is scheduled for this year that will provide the greater Tunis metropolitan area with another water pumping station.
By the World Bank's own admission, Tunisia is in dire straits. In colloquial terms, it is messed up:
[S]hort-term measures will be needed to contain the budget deficit. The deficit should reach 7.2 percent of GDP against 5.1 percent last year. This increase in public spending combined with high commodity prices and sluggish manufacturing exports have kept the pressure on external accounts. The current account deficit will remain high at an estimated 8.1 percent of GDP (same as 2012). Foreign Direct Investment and other net external financing inflows will not suffice to prevent a run-down in foreign exchange reserves, which should stand close to the equivalent of 3 months of imports by year end. Given the mounting strains on the fiscal and external balances, adjustments will be necessary in 2014.
Does the West really have unlimited funds and patience to deal with these basket cases to take on more such as Ukraine? I guess there's only one way to find out. I have classed these countries as semi-unfixables. Ukraine, on the other hand, is a hardcore unfixable.