For a country that is known for its ancient theatre, the drama around Greece’s default and the impending referendum on Sunday (July 5) is not surprising. The ancient theatre had three genres - tragedy, comedy and satyr (a genre that is a mix of tragedy and comedy). Anyone following the ongoing financial crisis in the Mediterranean country will find doses of each genre in the unfolding drama.
We in India too went through a similar emotional rollercoaster, when the country flirted with a near-default, back in 1991. The story of Indian liberalisation, privatisation and globalisation was preceded by a nightmare of balance of payments problem.
India’s drama
To recollect the well-known story (for the sake of building the narrative), the country had only $1.2 billion in its reserves; just enough to buy three weeks of imports (a tragedy). The Government, headed by Prime Minister PV Narasimha Rao, took an emergency loan of $2.2 billion from the International Monetary Fund (IMF) by pledging 67 tonnes of the country’s gold reserves. The RBI airlifted 47 tonnes to the Bank of England and 20 tonnes of gold to the Union Bank of Switzerland.
Years later, in 2009, economist Lord Meghnad Desai would reveal, citing “very, very reliable sources,” that the van transporting the gold to the airport broke down, creating panic (now decades later, we can afford to laugh at this ‘comic’ part).
But the $2.2 billion loan came with conditions, including opening up the domestic economy to foreign investment and reduce bureaucracy and red-tape.
Today, we hail the then Finance Minister and now the former Prime Minister Manmohan Singh as the father of these forced reforms is nothing but satyr.
The gold question
When Greece defaulted on the $1.2 billion payment to the IMF on June 30, one was left wondering if the country didn’t have any gold reserves to save the day.
There are few clear answers to that. Reports put Greece’s gold reserves at 114-147 tonnes, valued at about €5 billion. That is surely enough to prevent the default. But one view is that this is still just a drop in the $270 billion-ocean of total debt that the country owes.
Others speculate that the Greek Prime Minister Alexis Tsipras might have already decided to leave the Euro zone. “However, there is logic in keeping some gold in reserve when launching a new currency. According to the World Gold Council, Greece has the 32nd largest gold reserve in the world,” says Professor Campbell Harvey in this post .
The referendum on July 5 might bring some clarity if the Greek will use their gold or not. First they have to agree or disagree to the conditions put forth by the IMF. While fulfilling the IMF’s conditions had made then Finance Minster Manmohan Singh a legend, the Greek government’s finance head, Yanis Varoufakis , is at present considered more iconic for his rock star personality and the Yamaha bike that he uses to travel around Athens instead.
A few interesting facts on India and its gold craze
1) Three gold loan companies from Kerala hold more gold than countries such as Singapore and Sweden.
2) India’s gold reserves have risen to 557 tonnes as on March 31, 2015. But it ranks a mere 11th in the global largest reserves list, which is topped by the US with 8,133 tonnes.
3) But India tops the charts when it comes to total gold held by citizens. Indian people have over 20,000 tonnes of gold, the highest in the world, stored in their homes and bank lockers.
4) An interesting turnaround from the 1991 days was when India bought gold from the IMF in 2009 for over $6 billion .