Monday 11 December 2017

IMF split on Greece widens

On Thursday a debt sustainability assessment prepared by IMF staff warned that Greece will need €60bn to stay afloat over the next three years and a substantial restructuring of its €320bn debt, the equivalent of 180pc of Greek GDP.

The IMF also recommended a 20-year repayment moratorium. Fund officials also said that they would not recommend any Greek deal which didn't include both substantial debt relief and economic reforms to the IMF board.

The timing of the publication of the debt sustainability assessment - three days before the Greek referendum - was intriguing. While it may have been coincidental, it comes against a background of growing disagreement between the US and the other major non-European IMF members, and Christine Lagarde, the IMF's French boss, on how to deal with the Greece.

"The maturities of existing European loans will need to be extended significantly while new European financing to meet financing needs over the coming years will need to be provided on similar concessional terms," wrote the IMF. It also warned that if Greece was allowed to reduce primary budget surplus (the gap between government income and pre-interest spending) then "haircuts on debt will become necessary".

This isn't a million miles from the Greek position that any new bailout must include debt relief. Bernard Connolly points to the fact that most of the IMF staff were sceptical about the 2010 and 2012 Greek bailouts.

Meanwhile Ms Lagarde was publicly stating that "it would be preferable to see a deliberate move towards reforms" before any debt relief was offered to Greece. Does the IMF's left hand know what its right hand is doing?

The IMF has been split how to deal with Greece ever since the 2010 bailout, which was opposed by all of the non-European board members. With its staff seemingly at odds with the boss, will the Greeks be able to exploit this split to their advantage?

Sunday Indo Business

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