http://www.nytimes.com/2015/07/15/business/international/international-monetary-fund-proposed-greek-debt-relief.html
I.M.F. Demands Greece Debt Relief as Condition for Bailout By JACK EWING JULY 14, 2015 FRANKFURT — The International Monetary Fund threatened to withdraw support for Greece’s bailout on Tuesday unless European leaders agree to substantial debt relief, an immediate challenge to the region’s plan to rescue the country. The aggressive stance sets up a standoff with Germany and other eurozone creditors, which have been reluctant to provide additional debt relief. The I.M.F role is considered crucial for any bailout, not only to provide funding but also to supervise Greece’s compliance with the terms. A new rescue program for Greece “would have to meet our criteria,” a senior I.M.F. official told reporters on Tuesday, speaking on the condition of anonymity. “One of those criteria is debt sustainability.” Debt relief has been a contentious issue in the negotiations over the Greek bailout. Athens has pushed aggressively for creditors to write down the country’s debt, which now exceeds €300 billion. Without it, Prime Minister Alexis Tsipras has argued the debt will remain a heavy weight on Greece’s troubled economy. But Germany and other countries, including the Netherlands and Finland, are loath to grant Greece easier terms, which are a tough sell to their own voters. German Chancellor Angela Merkel has ruled out a “classic haircut” on Greece’s debt. The I.M.F. is now firmly siding with Greece on the issue. In a report released publicly on Tuesday, the fund proposed that creditors let Athens write off part of its huge eurozone debt or at least make no payments for 30 years. The report was initially submitted to eurozone officials before a weekend meeting to consider the new bailout deal for Greece. The eurozone officials did not adopt the I.M.F.’s debt relief proposals in the tentative agreement they reached with Greece on Monday. In going public, the I.M.F. is making a tactical move, adding pressure to the negotiations over the bailout deal. But its aggressive position also complicates efforts to complete a deal, with Greece’s Parliament scheduled to vote on Wednesday whether to accept the creditors’ conditions. As the uncertainty over the deal mounts, Greece’s rapidly growing financial needs only create additional strains on the eurozone, while its unity is already shaken. With Greek banks closed and foreign investment at a standstill, the economy is sinking fast, undercutting tax revenue and making it even harder for the government to pay its debts. The I.M.F. and Greece make for strange bedfellows. Despite the I.M.F.’s help in making the case for Greek debt relief, the fund and Athens have an increasingly antagonistic relationship. Greece, which missed a big loan payment to the fund last month and another smaller one on Monday, has fought to escape I.M.F. oversight. And Mr. Tsipras held up weekend negotiations over the question of what role the fund would have in a new bailout program. Eurozone leaders who value the I.M.F.’s expertise insisted on having Greece invite the fund to take part in the program, and Mr. Tsipras relented. Antagonism aside, the I.M.F. in recent weeks has proved to be an important ally in other areas. On July 2, the I.M.F. published an analysis of Greece’s debt that estimated the country would need an additional €50 billion in financial aid, although that report also criticized the country’s current government for having made the problem worse. I.M.F. officials said at the time that their €50 billion estimate was already outdated because of the steady deterioration of the Greek economy. One fund official said on July 2 that the figure might be €60 billion. By Friday, when the I.M.F. presented its updated estimates to eurozone officials, the estimated shortfall had grown to €85 billion. The report to the eurozone, and similar assessments that came in on Friday from the European Central Bank and the European Commission, helped identify the eventual size of the bailout package. In setting the conditions Greece will need to meet in order to receive a new bailout, the eurozone creditors have acknowledged that it might be necessary for Athens to be given some relief in paying off its debt. But the document that the eurozone leaders issued on Monday, outlining the tentative bailout agreement, makes clear that no such relief will be considered unless the Greek Parliament first accepts the terms of the deal. The document stated unequivocally that no write-down of the debt — or a haircut — would be considered. The I.M.F. said in its report that a write-down could be avoided, but only if creditors extended the schedule for Greece to repay its debt. The only other alternative to a haircut would be for the eurozone countries to give Greece the money it needs to repay them. “The choice between the various options is for Greece and its European partners to decide,” the I.M.F. report said. The debt issue is an important one for the I.M.F. After missing a €1.6 billion payment to the I.M.F. on June 30, and a €456 million payment on Monday, Greece is now more than €2 billion in arrears to the fund. Greece cannot receive any more financial aid from the I.M.F. until it catches up on those payments. The organization has not yet taken disciplinary action against the country. Gerry Rice, director of communications for the I.M.F., said in a statement on Monday that the fund’s executive board in the coming weeks would discuss whether to grant Greece an extension on repaying the debt. Other debts are fast coming due. Greece has a €4.25 billion payment owed to the European Central Bank on Monday, for which it probably does not have the money. Under its rules, the I.M.F. also can’t participate in a bailout if the country’s debt is considered unsustainable. According to the latest I.M.F. estimates, Greece’s debt could equal 200 percent of gross domestic product in two years. That compares to 177 percent of G.D.P. at the end of 2014, when the debt totaled €317 billion, according to European Union figures. Only Japan has a higher debt as a proportion of the economy. Greece would need to spend a sum equal to more than 15 percent of G.D.P. annually to pay interest and principal on its debt, according to the latest I.M.F. report. And that, in the fund’s view, is an unbearable burden. === Robert Naiman Policy Director Just Foreign Policy www.justforeignpolicy.org [email protected] (202) 448-2898 x1
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