Bloomberg — The IMF sought to maintain leverage in Greek debt talks after the lender retreated from a key demand and agreed to work on a new loan to the country to support its latest bailout accord with Europe.
International Monetary Fund staff want to see more details from the Europeans on their Greek debt-relief plans before presenting the loan proposal to the fund’s executive board later this year, an IMF official told reporters Wednesday on condition of anonymity. The board retains ultimate authority to approve the deal and the IMF could potentially judge that the European measures aren’t sufficient, the official said.
The preliminary accord reached earlier in the day by finance ministers in Brussels paves the way for Greece to receive a 10.3 billion euro payout under a bailout from its European creditors. The agreement doesn’t require euro-area governments to provide debt relief before Greece receives the money, as the IMF had argued was necessary to keep the country’s borrowing burden sustainable.
“There’s plenty of wiggle room for everyone to stay engaged,” said Jacob Funk Kirkegaard, a senior fellow at the Peterson Institute for International Economics. “For an organization like the IMF, whose business it is to be preferably the only global financial-crisis firefighter, to walk away from a country as high profile as Greece would be very damaging.”
Still, he predicts the fund’s involvement will be relatively limited compared with past bailouts.
“The IMF will remain involved financially, but overall their involvement will be scaled back dramatically.”
“If you look at what the IMF was at least publicly trying to achieve and what Germany was trying to achieve, the outcome was closer to Germany’s wish list,” said Diego Iscaro, senior economist at IHS Inc. in London.
A new loan would be a fresh test of credibility for the IMF, which has been burned by Greece in the past.
Worried that a Greek default might trigger a European banking crisis, the fund’s board agreed in 2010 to waive a condition of IMF bailouts that requires the borrowing nation’s debt to be sustainable. The use of a loophole known as the “systemic exemption” allowed Greece to borrow 30 billion euros over three years.This time, the IMF won’t be able to use the same systemic exemption.
In January, the fund scrapped the clause at the behest of U.S. Republican lawmakers, who felt the IMF shouldn’t bend its lending rules.
In an analysis released earlier this week, IMF staff listed a number of factors that caused Greece’s debt to spiral, including a deeper-than-expected recession and the failure of past Greek governments to follow through on reforms.
IMF staffers may face skepticism about a new Greece loan from board directors representing emerging markets such as China and India, said Domenico Lombardi, director of the global economy program at the Centre for International Governance Innovation in Waterloo, Ontario. But their concerns will probably be mollified by the relatively small size of the funding request, as well as the debt-relief commitments secured from the Europeans, he said.
“With this agreement, Lagarde can credibly say that the IMF has laid down an exit strategy for Greece,” Lombardi said.
