THE GREEK ECONOMY UNDER THE JUNTA

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00875R001700040027-7
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 17
• Document Creation Date: December 20, 2016
• Document Release Date: March 30, 2006
• Sequence Number: 27
• Publication Date: October 1, 1972
• Content Type: IM

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Confidential
DIRECTORATE OF
INTELLIGENCE
Intelligence 1Vlemorandurn
`I"he Greek Economy Under the Junta
Confidential
ER IM 72-144
October 1972
Copy No . r'! 6
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CENTRAL INTELLIGENCE AGENCY
Directorate of Intelligence
October 1972
INTELLIGENCE MEMORANDUM
THE GREEK ECONOMY UNDER THE JUN'T'A
Introduction
1. In April 1967 the Greek government was toppled by military
officers seeking to remove leftist influences and establish political stability.
The junta has been criticized for suppressing the democratic process and
mismanaging the economy. With respect to the economy, however, the junta
has used its power monopoly to pursue sensible policies. At the time of
the coup, the economy was experiencing a slowdown.. following several years
of rapid expansion. The junta put one of its leap ling members in charge
of economic affairs and rapidly initiated measures to accelerate growth.
Under Colonel Papadopoulos, who took over as Prime Minister in December
1967 following an abortive counter-coup, the regime has given ~onsiderarle
attention to orderly, broadly based economic de~~elopment. This
memorandum assesses Greek economic policy and performance under the
military government, together with the outlook for the next several years.
Summary and Conclusions
2. Greece's economic grow~h during 1967-71 was the most rapid
in Western Europe. Contributing to this growth were the country's return
to a mc,:e stable political situation following the tumult of 1965-66 and
the new military regime's espousal of conservative economic policies,
notwithstanding its talk of creating a new Greece. Although investors
initially were apprehensive, private capital outlays soon recovered, adding
impetus to economic growth. Output gains have averaged 7.5% yearly, only
slightly lower than in the 1961-66 boom period. Per capita income rose
almost as rapidly because low rates of natural increase and substantial
emigration field population gains to about 0.5% annually.
Note: This memorandum was prepared bl~ the Office of Economic Research
and coordinated within the Directorate of Intelligence.
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3. Unde*lying this rapid growth has been the progress made in
huiiding up the industrial base and improving the composition of agricultural
output. Private investment was augmented by large increases in public
investment. While various fiscal measures were used to stimulate growth,
the government held inflation to about 2;"o annually -considerably less
than elsewhere in Western Europe. Emigration of workers - ~ mostly to West
Germany -combined with a moderate expansion of industrial employment,
kept unemployment low.
4. Because of the need for capital goods imports and foreign
investment, the balance of payments is the major potential constraint on
economic growth. Since 1966, however, this situation has been more a worry
than a problem. Foreign reserves reached a record $525 million in December
1971 despite a wic~.ening trade defi;;it. Although merchandise exports
expanded appreciably, they could not keep pace with the 70% increase
in imports. The accumulation of reserv~.~ was made possible by large gains
in tourist earnings, shipping receipts, and remittances from Greeks working
abroad, together with rising capital inflrws. Despite condemnation by many
observers abroad, the regime gradually won the confidence of foreign
investors.
5. The outlook for continued rapid economic grow?h over the next
few years is good. With public and private investment apt to expand rapidly,
Greece should be able to sustain at least a 7% annual. growth rate. Although
the trade deficit will likely continue to worsen, the prospects for ~Towth
of seavice receipts are good, and Greece should. be able to attract cut 'icient
medium-term and long-term capital to prevent erosion of its foreign
exchange reserves.
Background: The Pre-Coup Boom
6. In the early 1960s, Greece made major economic strides despite
initially low investment and increasing political turmoil. With its gross
national product (GNP) increasing ar. average of 7.7% annually in 1961-66,
Greece was second only to Spain among West European countries. Although
private investmr;nt declined moderately in 1961-63 in reaction to excess
capacity and declining US economic aid, growth generally held up well.
Moreover, 1964 saw the start of an investment boom characterized by
growing private outlays i'or housing, tourist facilities, manufacturing plants,
and ships, as well as heavy public spending oi~ infrastructure, especially
transportation and power prej~cts. As a result, the share of gross fixed
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investment rose from 19% of GNP ir- 1955-GO to 22% in 1961-66. Public
programs, financed with little inflationary effect, provided much of the
growth impetus, but private outlays continued to make up nearly
three-fourths of total investment.
?. The balance of payments remained precarious during 1961-66 but
did not require special controls. Imports jumped from $723 million to
$1,153 mi;li:,n, and -although good gains were made in sales of minerals
and simple manufactures such as te:Ktiles, metal products, cement, and
chemicals -merchandise exports equaled only 35% of imports n 1966,
compared with an already low 40% in 1960. The growth in workers'
remittances during the six-year period, from $90 million to $238 million,
greatly helped in closing the gap. Tourism also was a bright spot: net
earnings more than tripled, reaching $103 million in 1966. Even these
revenues and a large gain in shipping receipts did not forestall increased
current account deficits, however. Growing capital inflows, mainly long-term
private capital and suppliers' credits, thus were important factory enabling
Greece to avoid payments difficulties.
8. Although economic growth rates remained high, they slipped in
1965-66 because of political tensions and gover:~ment efforts to ease demand
pressures. During this period, four governments fell, and strikes and riots
occurred almost daily. A..ttempting to divert some investment funds from
housing into more productive sectors, the government in 1966 imposed a
tax on real estate transactions. It also tightened monetary policy to combat
rising prices. These events combined to reduce annual investment growth
to about 15%, down from about 25% at the boom's 1964 peak.
The Junta's Economic Policies
9. The junta's economic policies have been essentially conservative,
resembling those followed by Brazil's military regime. It thin contrasts with
the nationalism, populism, and revolutionary reforms that some military
coups elsewhere have brought forth. T'he government has guided and
supported the country's economic advance but has nc ~ resorted to
nationalization or direct involvement in production and distribution. It
clearly sees the private sector as playing the main role. Moreover, the regime
has strongly encouraged foreign private investment, writing into the 1968
constitution guarantees against nationalization and against blocking capital
remittances. ~:reece's new leaders seem to have a genuine interest in
improving the people's material welfare. So far, at least, they have pursued
this goal no: through income redistribution but by fostEring economic
growth.
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10. The military's commitment to economic development was
indicated most explicitly in the 1968-72 five-year plan, which included real
per capita income increases averaging 7.5% annually. Investment was to
increase 10% annually, with the public share rising from 29% in 1962-66
to 33% in 1968-72.. In public investment, the junta has stressed expansion
of educational, health, transport, a;~d communications facilities throughout
the countr~~. In addition, it has worked out schemes for building up
manufacturing, tourism, and certain lines of agriculture -particularly those
advantageous to the balance of payments. The government obviously also
hopes that long-term economic progress will be furthered .by various
financirl incentive programs, by its plans to provide more technical
education, and by r~:orms designed to make the civil service more expert
and responsive to direction.
Initial Tasks
11. The junta's immediate economic priority upon taking power was
to reverse the slowdown that had begun in 1965. This action could not
be accomplished without restoring business confidence, which had been
shaken by the earlier confused political situation and then by uncertainties
about the officers' aims. The Revolutionary Council, as the coup leaders
walled themselves, quickly tried to reassure domestic and foreign investors
that private enterprise was secure and that no drastic reforms were
contemplated. To help strengthen demand, the regime stepped up public
spending, especially investment outlays. After stagnating in 1967, investment
budget expenditures jumped by 29% in 1968. Private investment increased
even more rapidly, as the spacial tax on real estate transactions was repealed
and new incentives fir manufacturing investment were offered. Private
demand also was buoyed by a 22% rise in the minimum wage. These stimuli
made possible a 7% GNP growth in 1968, somewhat better than in 1967
but below earlier levels. A more impressive outcome was prevented by
drought and other problems that reduced agricultural output.
Return of High Growth Rates
12. The overall economic growth record for the junta's first five years
is creditable. With average output gains of '7.5% (see Figure 1), Greece
almost matched its earlier accomplishment and outdid all other West
European countries. Population growth continued to be slow -only 0.5%
annually. Henc,~ ~, per capita outnut rose almost as fast as total output -
ab~ut 40% ove, the five-year period. Although private outlays dipped in
1970 because of a credit crunch on housing investment and normal
fluctuation in shipping investment, fixed investment showed considerable
strength, advancing to an average of 26.5% of GNP during 196%-71 (see
Figure 2). Moreover, a greater share of investment comprised new
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Greece: Econc-mic Growth Under the Junta
1968=100
180
Greece: Trends in Gross Fixed Investment
1966=100
Private Investment
80
1966 67 68 69 70
Pubic Investment as a Percent of Total Investment
26.0 31.0 26.0 25.5
Total Investment as a Percent of GNP
71
Est.
25.0 22.5 26.5 29.5 27.0 26.5
51168 1077
r~~
`~ ~
140
Public Investment
20
'
~
Total Investment
'~ r
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manufacturing capacity -much of it export-oriented -? while a smaller
share was for luxury housing.
13. Led by new industries established in the early 1960s and expanded
later in tite decade, marufa:,turing output grew about 10% annua.'~y during
1967-71. The *nost notable gains were in metals (up 108% since 1966),
rubber and plastics (91%), and chemicals (68%). In contrast, output of food
and beverages rose only about 30%, and tobacco manufactures declined.
Mining expanded at about the same rate as manufacturing, paced by a ripe
in ouigut of nickeliferous iron o*e from about 90,000 rietric tons in 1966
to 883,000 tons in 1970, reflecting expansion of the Larimna operation.
14. In agriculture, modest growth was accompanied by desirable
chances in the composition of output and by wide-ranging institutional
reforms. Farm output rose an average of 2.5% to 3% annually Ids
Killion Current Drachmas
Deficit as a Percent
of Total Expenditures
13.9%
13.6%
13.6q?
14.0%
14.8q?
Figure 3
0 w 67 68 Bg 70 71
1966
policy of encouraging industrial development and structural reform in
agriculture; the regime selectively employed monetary policy to provide a
substantial, although not excessive, rise in credit to private industrial and
agricultural enterprises. At ?he same time, it restricted the growth of credit
for trade and housing construction. After rising about 1 % annually in
1967-68, prices climbEd by 2.5% in 1969 ar-d 3?I? in 1970 and 1971.
Although the inflation was low by West European standards, the government
reacted by setting up a committee to review price increases, raising
commercial bank reserve requirements, and directing the banking system
to curb expansion of some types of credit.
Foreign Trade Trcrds
19. Crucial to the econom,~'s continued rapid progress was the fact
that several means of `~llrancir>fg- ir~tports were available and all developed
fairly favorably. As a result of Greece's growing net receipts from services
and large inflows of foreign capital, the rapid rise of imports -and the
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consequent swelling of tha trade deficit to $1.3 billion by 1971 -did not
create balance-of=payments drain. The Indus*rial buildup and rising incomes
had a marked impact on imports, causing them to grow an average of 11%
yearly. In the forefront of this growth were capital goods imports, up 21%
annually to $584 million.
20. The campaign to broaden the asso,?tment of exports yielded good
results; overall export growth averaged 9% yearly in 1967-71. Greece did
especially well in nearly quadrupling deliveries of manufactured goods,
which rose from about one-eighth of total exports in 1966 to ogre-third
in 1971, as shown in the following tabulation:
1966
1970
1971
Percent Change
1971 over 1966
Manufactured goods
(including handicrafts)
54
224
209
28',
Minerals
27
46
47
74
Food and beverages
133
175
137
41
Tobacco
120
102
95
-21
Other
b9
66
87
25
Sales of metals (mainly aluminum, nickel, and steel) and metal products
averaged $101 million in 1970-71, almost half of all manufactured goods
exports. Also growing especially rapidly, albeit from a small base, were
exports of chemicals and pharmaceutical products, footwear and other
leather goods, and handicrafts such as pottery and ornamental earthenware.
Moreover, mineral exports rose considerably even though an increasing share
of the bauxite and nickeliferous iron ore mined was processed domestically
and exported as metal. Deliveries of dead-burnt magnesite boomed and
accounted for nearly half of mineral exports by 1971. In the aggregate,
sales of food and beverages also showed moderate gains. Large increases
in sales of citrus fruit, vegetable and fruit preserves, and wine were partly
offset by declines in exports of raisins and stagnation in exports of curanta,
olives, and olive oil. The most seriu~.~s decline among agricultural exports,
however, occurred with respect to oriental tobacco, still the largest single
commodity among Greece's exports. This decline is due largely to a shift
in world demand from oriental tobacco to ether varieties.
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:? 1. With the progressive liberalization of tariff and other restrictions
under Athens' associate membership agreement, the European
Community (EC) has become an increasingly important customer. The EEC's
share of Greek exports increased from 36% in 1966 ~o about 46% in 1970.
It has risen to around three-quarters for some textile and chemical products,
which have enter~~ duty free since 1968. The EC countries also account
for very sizable shares of many Grc.?k agricultural exports such as raisins
(allowed duty-free entry) and olive oil ~:nd wine (which receive tariff
preferences). The share of exports going to the United States, still one of
Greece's leading trade partners, has stagnated since 196E - :vainly because
tobacco sales have plummeted while sales of most manufactured goods have
increased only moderately.
Importanc., of Service Receipts and Capital Inflows
72. Far. more important than exports iri supporting import growth
during 1967-71 was the overall gain in receipts from services. As shown
in Figure 4, workers abroad, tourism, and shipping have provided a large
and increasing share of foreign exchange earnings. 114any Greeks continued
to find jobs in labor-short West European nations, particularly West
Germany. In 1970, for example, there wen:; approximately 250,000 Greek
workers in West Germany alone. By 1971, workers' remittances reacP~ed
$457 million, compared with $238 million five years earlier. Remittances
grew r,~uch faster than the number of workers abroad, as the latter profited
from West European wage inflation and .changing exchange rates. To
capitalize on growing affluence in the United States and Western Europe,
Athens fostered construction of tourist facilities and held down charges
for lodging by exempting the business from certain taxes. These efforts -
and Greece's historic and scenic interests -combined to attract 2.5 million
foreign visitors in 1971, and net tourist receipts soared to $232 million,
or more than twice the 1966 level.
23. One of the junta's goals was to repatriate Greek-owned vessels
and thereby increase shipping receipts. Although Greek nationals owned
numerous vessels, less than half were registered in Greece in 1966.. The
government has persuac.ed many shipowners to register vessels in Greece
and transfer their home offires to Athens or Piraeus by offering tax
concessions and liberal loans for purchasing ships, improving facilities for
worldwide communications, expanding maritime banking and insurance
services, and opening additional seamen's training schools. Since 1966, the
number of ships operating under the Greek flag has increased by about
three-fourths -largely because of transfe*s from other countries -and net
transportation receipts have risen from $150 million to $284 million.
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Greece: Net Foreign Exchange Receipts from Services
Mglion US $
1000
900
-100
1966 67 68 69 70
24. Greece has continued to need sizable capital inflows to help cover
its import bill, but these requirements have neither grown as fast as imports
nor depended significantly on official aid. Receipts of private capital -
mostly long-term or medium-term -rose from $173 million to $306 million
during the period and largely covered the current account deficits (see the
table). Although considerable reliance was placed on su;lvliers' credits
(including some with short maturities), the junta neither initiated this
practice nor carried it to extremes, as some of its critics have charged.
Other long-term private capital inflows fell sharply in 1966 because several
large foreign investment projects had been completed and few new ones
were being initiated. Private capital inflow continued to stagnate for a time
after the military takeover, but in the past two years it has surpassed the
Net Receipts
~^
Workers' Remittances
eceipts from Transportation
(Mainly Shipping)
~'~lieceipts from Tourism
Other
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Greece: Summary I4alance of Payments
a. Including public power corporation.
1965 peak. In cemtrast to the large, capital-intensive projects undertaken
in the first half of the 1960s (for example, the Esso-Pappas oil refinery
and petrochemical complex and the Pechiney aluminum plant), foreign
investors recently have shown the greatest interest in relatively small
projects, often with an export or tourist orientation.
Benefits for Consumers
25. Whatever they may think about the political situation, most Greek
consumers can scarcely ccmplain about the economy's progress. Workers'
real wages increased between 4% and 7% each year in 1967-71. The diet
has imp*oved, as evidenced by sizable '.ncreases in both production and
imports of meat since 1966. Retail sales volume was up 65%, and the
number of passenger cars more than doubled during the five years.
12
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Prospects for the Next Several Yea*s
2fi. Prospects for further rapid economic growth during the next
several years are good. The recently announced development plan for
1973-87 sets a target ~f annual GNP gains averaging about 7%. If current
economic policies and high levels of fixed investment are maintained and
if - as seems like:y - abalance-of-payments crunch is avoided, Greece
should be able to approximate the 7% goal for the next several years, at
least. Greece probably will conti:rue to have a military-backed government
for some years, even though one conli~ion that the junta set for a return
to parliamentary rule - a per capita income level of $1,100 -has now
been attained. There is little reason to suppose that the Papadopoulos
regime, or any successor acceptable to the military, will change basically
the economic policies that obviously have been working well.
27. To avoid abalance-of-payments crunch, Greece almost certainly
will have to achieve large i:~creases in industrial exports and tourist earnings,
together with sizable gains in other current account receipts and capital
inflows. Only in this way will it be able to finance import expansion, which
Athens tentativelyestimates at about 12% annually fora 7% growth of
GNP. Prospects for boosting exports of manufactures -particularly textiles,
metals, chemicals, simple electrical appliances, footwear, and handicrafts -
are fairly bright. These products are of demonstrated competitiveness and
have been sold in rapidly growing amounts, particularly in the EC, in recent
years. In addition, ~,frica and the IVliddle East have been developing as a
market for these products. Capacity to make them has been increasing
steadily and can be expected to expand further. Thus, the possibility is
good that exports of ma:~ufactured and Handicraft goods will grow by 30%
to 40% annually for seve~?al ycars. Althougr: r;etais are subject periodically
to weak demand or excessive supply in the world market, Greece is counting
heavily on its metallurgical industry to boost export earnings and should
nave at least some success. Increases in metal processing and manufacturing
capacity should begin providing additional output beginning in 1973.
28. Growth prospects for agricultural exports -which still make up
half of total exports -are only fair, and even moderate gains depend on
further changes in the composition of output. Although the demand for
oriental tobacco is poor, demand for fruits and vegetables is strong -
especially in EC countries. Greece is subsidizing production of these
commodities and }ras had considerable success marketing them in recent
years. Cotton has also become an important agricultural export (second
largest in 1971), and Greece is experimenting with long-staple Egyptian
cotton, which is in great demand worldwide.
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29. 'i he outlook for earnings from services seems favorable. In
particular, tourisi receipts are expected to increase rapidly over tlt~ next
several years. Greece i-as the location and attractions to cash in on the
travel boom associated with growing affluence. Moreover, its pri~P1 ~*;;
expected to remain low compared with those of most other South European
countries. Although the West European demand for foreign labor probably
will decline toward the end of the 1970s, some increase is expected ever
the next few years. Tlris demand, combined with an available s:tpply of
Greek labor and rising wage rates abroad, should tend to boost workers'
remittances. Earnings from shipping activities are likely to be more volatile
and. will probably grow less rapidly than workers' remittances or tourist
receipts.
30. If exports and other current account receipts grow by 10% or
so during the nex: few years (about the same rate as in 1967-71), Greece
will still need to attract some $300 million to $500 million in medium-term
and long-term capital to Y.eep its external payments :lpt~roximately in
balance. With about $1.5 billion of foreigr, obligations -mostly short-term
or medium-term maturity loans obt^ined on commercial terms -falling due
within the next five years, the presently modest (13%) ratio of debt service
to exports and service earnings will rise. Greece, however, is meeting with
considerable success in obtaining new, longer term financing. Following a
lengthy hiatus after the coup, the military government recently has been
able to obtain sizable long-term loans -some on concessionary terms -
from the international Bank for Reconstruction and Development, an
international bank consortium, and a Japanese bank consortium. In addition,
seven-year ~::: longer suppliers' credits are now a~~ailable to Greek purchasers
as opposed to the three-year to five-year credits offered prior to 1 ?71.
31. If Greek foreign exchange earnings do not develop as favorably
as expected, the growth of output probably will slacken. Athens' foreign
reserves are sufficient to compensate partly for some widening of the
payments gap. Moreover, import restrictions, if necessary, could be focused
on the large flow of consumer goods, obviating restrictions on capital goods
and industrial inputs. Even with such measures, however, the government
probably could not head off a slowdo~.vn in growth, because
balance-of-payments strains would dampen private investors' confidence.
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