One Year of Troika

17 May 2012 – One year of Troika

An initiative of the Nova Economics Club, from the Master in Economics of Nova School of Business and Economics

The Memorandum of Understanding on Specific Economic Policy Conditionality (MoU), essential part of the financial rescue program applied to Portugal, was signed one year ago.
The MoU defined a large range of structural changes and structural measures to be implemented in the Portuguese economy. The aim is to foster structural change to set the conditions for future economic growth. The policy commitments accepted by the Portuguese Government go well beyond rebalancing the public accounts deficit. They touch several key areas of economic and social functioning of the country.
The importance of these structural changes justifies a monitoring of the effects produced. Implementing the MoU is relevant, but economic analysis cannot stop at counting legal documents produced and use the MoU as a check list. It is important to understand which effects are produced by the different changes, what is the magnitude of change, and ultimately whether it contributes, and to what extent, to economic growth.
It is probably too soon to know a full answer to these questions. But it is the moment to lay the foundations on which such assessment can be produced. These foundations are a series of indicators, associated with the adjustment process objectives and tools.
The students of the Master in Economics, members of the Nova Economics Club, present, in the reports below, a first set of indicators that can be used to monitor the transformation in the Portuguese economy. The interest is not in public deficit. Of course, the public deficit is a quite important issue, but other institutions and analysts follow it closely. We see our effort as a contribution to a more general knowledge on how the main areas included in the MoU do change over time.
This first set of reports proposes for discussion indicators of performance in each area. These may be useful, or may turn to be uninformative. Time, suggestions and comments will tell. Future documents will fine tune these indicators and report new ones.
Three areas are covered today, Labour Market, Housing and Justice. The production of indicators to health care reforms and on relative prices of tradable vs. non-tradable sectors will follow soon.
In each area, indicators are defined and computed with current data (when available). Defining the right set of indicators, and obtaining reliable data, is more difficult than it may seem, and it is therefore a task to be done carefully.
We select one highlight from each report to motivate potential readers, with more details and other insights provided in the reports:
1) from the labour market review, policy initiatives associated with active labour market policies received attention in the MoU, and the data shows that since 2010 an increasing number of people have been benefiting from such policies (with a seasonal drop in August of every year). The next step is to trace the effects produced by this exposure to active labour market policies.
2) from the housing review, a concern that could be shared with other countries is the existence of a bubble in the housing market. From the available data, no such bubble is detected in the Portuguese case. Additionally, Portugal had always a thin renting market, which is clear from the data collected. Potential for development of an active renting market seems to exist, as a number of vacant houses exist. Following up the numbers in the coming months (years) will provide an evaluation of this objective.
3) from the judicial system review, a major issue is the definition of the appropriate indicators. A revision of national and international literature shows the need for precise definitions of concepts and indicators, which the report addresses. From the issues raised and proposals found in the literature, matching the data to proper indicators of improvements in efficiency is the next step.
We hope these reports provide a basis for a more informed discussion on the Portuguese economy. All comments and reactions can be sent to Nova Economics Club, or using the comment box below.
The reports benefited greatly from collaboration with ESAME – Estrutura de Acompanhamento dos Memorandos. Of course, all errors and omissions are our responsibility. Opinions expressed reflect only the view of the students involved.

Report NEC 2-2012 (housing)

Report NEC 3-2012 (Justice)

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