Macroeconomic Fundamentals


Why doesn't Greece receive its
share of capital investment
from the global financial
community? Transparency,
oversight, compliance, and
economic freedom may
be part of the root problem.

By Christos Papoutsy

The greatest risk for investors and governments alike is a lack of information. Inadequate information inhibits satisfactory risk assessment and the efficient allocation of resources. As a result, investments lag without adequate risk assessment. One objective of e-Standards Forums, an online economic information source, is to encourage countries to furnish information for the capital market institutions, thereby promoting transparency and good governance.

Several indexes developed by monetary institutions guide risk assessment for investors and governments. The Special Data Dissemination Standard (SDDS), whose data is used by e-Standards Forum, was established by the International Monetary Fund (IMF) to guide members that might seek access to international capital markets as they furnish their economic and financial data to the public. Use of the SDDS is expected to enhance the availability of timely and comprehensive statistics and therefore to contribute to the pursuit of sound macroeconomic policies; it is also expected to contribute to the improved functioning of financial markets.

The Standard Index Methodology provides a score or snapshot of a country's overall compliance with twelve internationally recognized standards of financial and fiscal management and ranks all countries in the database on this score. The 12 standards upon which the score is created are data dissemination, monetary transparency, fiscal transparency, insolvency framework, accounting, corporate governance, auditing, money laundering, central bank payment system, payment system—principals and bank supervision, securities regulations, and insurance supervision. Each of these standards receives equal weighting in the calculation of the final score: full compliance, 10 points; compliance in progress, 8 points; enacted, 6 points; intent declared, 3 points; noncompliance, 1 point; no assessment available, 0 points.

Christos Papoutsy is also the author of "Corporate Social Responsibility: Is Moral Capitalism Possible?" and "Business Institutionalization Promotes Excellence, Combats Corruption."

Experts calculate the score for the Business Indicator Index as follows. They assign to a country a score of either 1 (complies) or 0 (does not comply) for each of 12 business indicators: Economic Model (market-based, private-sector driven capitalism); Forex Regulation (no capital controls and no exchange controls); adequate Foreign Investment Law; Trade Regulations (no import controls, no protective tariffs, export incentives, and no export disincentives); Tax Regime (incentives for foreign/domestic investment); competitive Tax Rates; Bankruptcy Indicators; International Dispute Settlement; Political Environment (commitment to growth/globalism by ruling authority, by political opposition, and positive attitude toward utilization of global resources to promote domestic growth); Political Stability; Corruption; and Adherence to Global Labor Standards. The sum of each of these scores constitutes the final overall score, which can range from 0 (no compliance with any factors) to 12 (full compliance on all criteria). Thus a country judged non-compliant ranks higher than one for which no assessment can be made due to a lack of publicly available information.

In the latest e-Standards Forum report for May 2005, Greece ranks 27th from top-ranked United States and 43% higher than last-ranked Syria in 83rd place. In this same index, Turkey ranks 44th from the first-place holder. In the Business Indicator Index, Greece ranks 41st from top-ranked Chile and 50% higher than last-ranked Iran. While the U.S. scores 8th place, Turkey earns a much lower rank in 46th place. For a detailed explanation of how the index scores are developed and applied to each indicator, and for a complete list of all the countries listed and ranked, visit the URL of the e-Standards Forum, http://www.estandardsforum.com.

But these two indexes only offer a limited assessment of the subject countries. Quality of human capital and capacity for economic change and growth, for example, can greatly affect the future economy of any country. Neither of these two factors appears among calculations for economic indicators. Enormous talent, I believe, resides in the people of Greece, with the natural result that Greece has the potential to rank at the top of the indexes cited above. How can Greece best benefit from these impersonal indicators like the Business Indicator and Standard Indexes? One solution would be to form a "Blue-Ribbon Index Audit Committee" of internationally recognized business persons who could review and audit the major economic institutions publishing these indexes, and then make recommendations to appropriate authorities in Greece and to the companies developing the scores. Given Greece's great potential for growth, I would volunteer quickly to serve on such a committee.

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