GLOBAL ECONOMIC CRISIS 2008

Global Economic Crisis and Difficulties Caused in Accounting Treatment Because of Misusing PPPs and PFIs

Global Economic Crisis and Difficulties Caused in Accounting Treatment Because of Misusing PPPs and PFIs

Introduction

The present international economic turbulences stand as the most negative economic crises in the last century, perhaps with more devastating effects than ever before. The overall international economic system, almost all individual national economies and especially the vulnerable transition economies of South East Europe are affected. It has been observed that during the global economic crisis occur in 2008, many countries, to hide their level of debt and to meet the deficit and debt requirement by supra national bodies like EU and IMF, has used PPPs and PFIs concept. This has created difficulties in accounting treatment of these aspects. This paper would try to explore the effects of misusing PPPs and PFIs approaches during global economic crisis, as well as the problems it has caused in accounting treatment process. (Abed, 2002). As unbiased accounting reports is of accounting is of high importance for everyone including foreign, national and local investors as well as common people, so that people would realize the current economic situation of the country and would critically analyze the ongoing policies formulated by government to overcome such issues. On the other hand, if people have clear picture of their country's economy, this might affect the political system, as one can easily witness in America, that how economic situation has changed people's mind. (Alvarez et al., 1998)But due to abusive application of PPP and PFI approaches, it is becoming more and more difficult to treat these aspects fairly in accounting.

PPP or PFI

The term PPP or Public Private Partnership, is used to describe such schemes that entails private businesses in public sector project that are backed by the government. Infrastructure, policies and services are covered in this term. The coalition between government and private companies to complete any project falls under PPP domain.

PFI or Private Finance Initiative refers to such long-term schemes of PPP in which private sector financed and operate the public sector infrastructure and charge their services. However, both PPP and PFI are the terms that are being used interchangeably as the purpose of both are same.

Need for PPP and PFI in global economic crisis

After the great depression in 1930s, the global economic crisis of 2007-2009 has been considered as the worst financial crisis for the history. The 2008 financial crisis was caused by the blindness and the greed of financial markets and institutions, by unsustainable macroeconomic strategies undertaken on the one hand by 'mercantilist' countries (China, Germany) and on the other hand by Anglo-Saxon countries, but not by a high burden of public expenditures, debts or deficits. The financial crisis has shown that fiscal policy, public intervention and regulation remain necessary. The crisis provoked a rapid rise in public debts and deficits as governments had to intervene to rescue the financial system.

The crisis which has not only collapsed many financial sectors, but many European countries were ...