o_19heefouak9i9v4do11ac41pi7a.pdf

Konstantinos I. Loizos
DEVELOPMENT BANKING IN GREECE 1963-2002:
PERFORMANCE AND INSTITUTIONAL TRANSFORMATION
Introduction: development banking in Greece
D
evelopment banks were established worldwide during the post-war period
as a necessary ingredient of policies –also supported by the World Bank–
promoting economic and institutional development. As both initiators and objects of
institutional change, development banks found themselves in the midst of a wave of
change in the financial regime that fundamentally determined their fate. The aim of
this paper is to study this aspect of the operation of development banks in the
Greek economy during the period 1963-2002, which encompasses both the shift
from the high growth of the 1960s to the stagnation of the 1980s and the reverse
shift from regulated finance to financial liberalization.
The first attempts to build development finance institutions in Greece took place
during the 1950s with the establishment of the EDFO (Economic Development Financing
Organization) in 1954 on the basis of an agreement between the Greek government,
the Bank of Greece and the US Operations Mission to Greece. EDFO pursued
four main tasks: 1) to collect the credits extended by the American Mission for
Aid (AMAG) and the Central Loan Committee (CLC) (1948-54) immediately after
the war for the reconstruction of the devastated economy; 2) to grant medium- and
long-term loans to specific sectors of the economy including industry, mines, navigation,
agriculture, fisheries, transport and tourism; 3) to participate with preference
shares in private and public enterprises; and 4) to act as an intermediary between
Greek firms and foreign suppliers of capital (Psilos, 1964:221-2). However, the pathology
of the preferential state–bank–particular families relationship revealed itself
in EDFO’s operation with the financing of high-risk projects characterized by low
efficiency and guided by political rather than economic criteria (Psilos, 1964:226-7) 1 .
Furthermore, these loans were guaranteed by the two major commercial banks
which acted as underwriters and distributors of the loans. However, high commission
fees paid to the commercial banks further undermined EDFO’s net income
1 Halikias (1978:244-5) differs on EDFO lending, stating that its lending activity was conservative
with the aim of minimizing risks. However, both Psilos (1964) and Halikias (1978)
refer to the same fact, that of financing existing large firms. Psilos (1964) regards this as a
risky policy to the degree that lending was inadequately diversified, involving only a few
large enterprises, while Halikias (1978) stresses the reluctance to lend to new medium-sized
enterprises as an element of conservatism.
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