Clock tick­ing on Greece to re­pay IMF

The China Post - - COMMENTARY - BY JEREMY TORD­J­MAN

It’s the bil­lion-dollar ques­tion: is Greece go­ing to re­pay the In­ter­na­tional Mon­e­tary Fund on time?

Or will it, in the ab­sence of a new deal with its of­fi­cial cred­i­tors, dare de­fault on the global cri­sis lender that has joined two mas­sive bailouts of the Greek econ­omy?

Athens is sched­uled to re­pay 1.6 bil­lion eu­ros (US$1.8 bil­lion) to the IMF in four steps be­tween now and June 19. The first pay­ment is around 300 mil­lion eu­ros due on Fri­day.

But to make those pay­ments, Athens needs to ac­cess more funds from the Euro­pean Com­mis­sion, the Euro­pean Cen­tral Bank and the IMF, specif­i­cally a US$7.2 bil­lion trans­fer un­der the cur­rent Greece bailout pro­gram that has been held up for months as the two sides wran­gle over the con­di­tions tied to the money.

If the first loan re­pay­ment does not ar­rive on Fri­day night, the axe falls: Greece will be con­sid­ered of­fi­cially in ar­rears, and will not be el­i­gi­ble to re­ceive any of the 16.5 bil­lion eu­ros in fi­nan­cial sup­port that the IMF has com­mit­ted to sup­port the coun­try through 2016.

That risks push­ing the al­ready des­ti­tute Greek econ­omy fur­ther into the abyss.

So far the Greek gov­ern­ment, led by the Syriza party, has left un­clear whether it will make the pay­ment, while it con­tin­ues talks with cred­i­tors over the con­di­tions for a new deal.

At the end of May, In­te­rior Min­is­ter Nikos Vout­sis warned that Athens had “no money” to make the re­pay­ments to the IMF.

But af­ter that the gov­ern­ment stressed it would pay its debts, if it was in the po­si­tion to do so.

As of late Wed­nes­day, crunch talks be­tween Greek Prime Min­is­ter Alexis Tsipras and Euro­pean Com­mis­sion chief Jean-Claude Juncker were un­able to bridge the gap be­tween the two sides, push­ing Ath- ens ever closer to de­fault, with the con­se­quences of that not all clear.

Pos­si­ble De­fault

But the IMF has re­mained stone-faced. “We ex­pect the Greek au­thor­i­ties will pay us,” a Fund spokesman said last week. One sug­ges­tion to buy time for a deal has been that Athens group all of its June IMF pay­ments into one and de­liver the money at the end of the month.

But the coun­try has not asked to do that, a source told AFP Wed­nes­day.

A de­fault is def­i­nitely pos­si­ble, said an­a­lysts at Com­merzbank.

“With­out fresh bailout funds, the Greek gov­ern­ment is un­likely to have the money to meet the midJune re­pay­ments,” they said.

“This would be a red flag,” Domenico Lom­bardi, a for­mer mem­ber of the IMF board, told AFP.

The shock of a de­fault could spur the Euro­peans to raise the pres­sure on Greece, in­clud­ing a move by the ECB to tighten the flow of funds that have propped up Greek banks dur­ing the cri­sis, notes Lom­bardi.

“The ECB could de­cide to make the fund­ing of the Greek banks more com­pli­cated, even vi­tally im­pos­si­ble,” he said.

A Greek de­fault on IMF loans would place the coun­try among a few such coun­tries, with the oth­ers all at least able to blame war (Afghanistan, Iraq, Yu­goslavia) or a po­lit­i­cal tur­moil (Haiti).

But the IMF it­self would not come out un­scathed. It put its cred­i­bil­ity with its mem­bers at risk in help­ing ar­range and man­age the res­cue of Greece with the largest bailout loans the Fund has ever ap­proved.

Those loans were sharply con­tested in­side the in­sti­tu­tion, and non-pay­ment could re­new the con­tro­versy.

But an­a­lysts do not ex­pect a de­fault on the IMF to lead to the dis­as­ter sce­nario of “Grexit” — Greece’s exit from the eu­ro­zone.

“The as­sump­tion that Greece will get out of the eu­ro­zone if it misses a pay­ment is com­pletely un­war­ranted,” said Lom­bardi.

An­a­lysts at Com­merzbank agreed, though less defini­tively.

“If Greece does not ser­vice one of th­ese in­stall­ments to the IMF, Grexit would un­doubt­edly be an­other step closer. But it is un­likely to hap­pen in the near-term.”

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