On 20th June Nova Economics Club presented at Nova SBE the first reports regarding the construction of KPI´s to evaluate the Memorandum of Understanding (MoU) between Portugal and Troika. This presentation counted with the presence of Albert Jaeger and Martin Hallet, Senior Resident Representatives of the IMF and the European Commission in Portugal. During the session one representative of each group presented the first KPI´s constructed in the fields of Labour Market, Health System, Housing Market and Justice System. After each presentation the students from the club could engage in a rich and fruitful debate not just with the members of the Troika present, but also with several students and professors from the faculty who joined the session. These debates allowed the members of NEC to have an initial feedback to the work made so far, as well as good advice about what must be the following steps and what other KPI´S may be computed to enlarge the analysis done in the first reports previously published.
We can emphasize some particular remarks that deserved deeper discussion and attention during these debates. About the Labour Market report were underlined some relevant numbers, such as the unprecedentedly high unemployment rate registered presently in Portugal (15.2% in April 2012), unemployment that has been affecting particularly the youths, segment of the population where the unemployment rate already achieved values above 30%. The reforms in the unemployment benefits received particular study by the group, in special due to the impact it may have on the actual 40% (aprox) of long-term unemployed. The Labour Market presentation finished with the discussion of the very recent study regarding the Okun´s Law in Portugal. The government report quoted in the presentation, analyses the relation between the output growth and the variation of unemployment, being important to notice its great evolution from 2010 to 2011. In this presentation the group had also opportunity to give some insights about potential new KPIs to follow the new Labour Code recently approved.
The presentation about the Health Care System report highlighted the measures of the MoU that deal with the pharmaceutical sector. Thus, the group started to present some interesting KPI’s, which allowed stating the following conclusions: (1) The total public expenditure on pharmaceutical has been declining since mid-2010, when it reached its highest value (1.58% of the GDP). Despite the considerable effort expended so far, there is still an important reduction to be achieved in the coming months to meet the targets of 1.25% of GDP in 2012 and 1% of GDP in 2013. Moreover, cost containment occurred only in ambulatory care, as hospital pharmaceutical expenditure is still rising. (2) Since mid-2010 the average price of generic medicines has been significantly reduced. In fact, the average retail price of a generic medicine has never been so low. On March 2012, the average price reached 8.10€, 45% less than in March 2010 (14.75€). (3) The market share of generic medicines has been increasing in terms of volume over the last years. In March, the generics represented 24.27% of the overall volume of pharmaceuticals sold in that month. (4) Less than 60% of the medicine market has generic medicines competing with branded products. (5) The average reimbursement rate of medicines by the government has decreased 74% (Sept. 2010) to 63% (March 2012). Thus although the average price of generics has been decreasing, the user costs with medicines have increased in 2011. Finally, it is important to affirm that it is still too soon to reach more detailed conclusions regarding the achievement of the MoU targets for the pharmaceutical sector, since the majority of the policy changes were only applied in the last quarter of the last year and the first quarter of 2012.
During the Housing Market presentation were showed some data which are illustrative of the behavior or this market in Portugal during the last years. Clearly significant the graph which shows that in terms of prices of houses sold, Portugal does not seem to present a bubble, such as the one that has affected the Irish and Spanish markets. Although, for the Portuguese case, different period of analysis must be considered: Until 2003 the prices showed a very fast growth, a phenomenon that was smoother from 2003 until 2008, moment in which the prices started to stabilize. This stagnation of the prices makes that the house selling prices index and the house rental prices index seem to be in a trend that will make them cross for the first time since 1996. In terms of the dynamics on the side of the sellers and buyers of houses, to remark how the number of new houses starts has progressively decreased in Portugal since 2007, with particular incidence in the year of 2008. From the side of the buyers the KPI: Number of people looking to buy a house, allows us to understand how the demand has been retracting in Portugal (in 1998 more than 30 people were looking for a house to buy, but at the beginning of 2012 this number has dropped to 3 people exerting effort to buy a house).
The last presentation belonged to the group that is analyzing the changes in the Justice System. It was firstly pointed that for further international comparisons of the Portuguese system it is need to establish a clear definition that distinguishes what is a backlog and a pending process. Data were also showed, denoting how the number of pending cases have been growing, leading to an overwhelmed and unsustainable system. This situation is worse in the civil brench, where the majority of the pending processes are civil procedure actions, dominated by small claim cases, which are concentrated in small judicial districts. Therefore solving the problem of the slowness of the Portuguese justice must imply necessarily solving the problem related with the civil enforcement.
Albert Jaeger and Martin Hallet presented also to the students and professors insightful presentations denoting the major changes happening in the Portuguese economy. Martin Hallet underlined some significant numbers on the behavior of the public accounts and the external accounts situation of the country, as well as how is expected to develop the Portuguese public debt in order to turn it sustainable in the medium run. This expert from the European Commission highlighted the commitment of the country in fulfilling the demands of the MoU, reflected in the positive four reviews done by Troika so far.
Albert Jaeger illustrated the Portuguese problem using the Metaphor of an engine that worked at a slow and unsafe way during many years. This lead Portugal to have productivity levels below many of its euro zone partners, being now necessary to initiate a convergence process. This fact has lived together with chronically high public deficits, and an excessive leverage not just of the government but also of the households and the non-financial sector of the economy. With this framework Albert Jaeger gave us the main lines of action planned by troika, which intends to, at the same time, reestablish fiscal discipline, deleverage the private sector and bring reforms that can create the conditions for future growth of the economy.
NEC intends to continue this kind of sessions and become them open to the public. In the future we hope not just present further work done by the groups that presented in this first session but also the work that is now in progress from the two groups that were meanwhile created: The Relative Prices group and the Survey group. The Relative Prices group will try to measure how all the economic adjustment that is now happening in Portugal will have results in terms of the international competiveness of the country, mainly if we will witness, or not, a structural change of the Portuguese economy from the non-tradable sector to the tradable one. The Survey group intends to give an academic framework to the MoU. Presently the students are collecting relevant papers and scientific works that may be useful to understand the changes and reforms that are proceeding in Portugal.
Further discussion and feedback on the reports presented are very welcomed by NEC and any contact can be made through the NEC e-mail (email@example.com).
Soon NEC intends to publish a small booklet resuming this same session as well as some of the work done so far in the KPI’s construction.