IMF turns its back on Euro­peans in Greece bailout

Arab News - - BUSINESS & ECONOMY -

WASHINGTON: The “break­through” deal an­nounced Wed­nes­day to re­sume hand­ing out bailout money to Greece sounded like old times: The In­ter­na­tional Mon­e­tary Fund work­ing with Euro­pean coun­tries again as of­fi­cial lenders to Athens.

In the end, how­ever, the anti-global cri­sis len­der again re­fused to sup­port Greece’s third res­cue pro­gram with its own fi­nan­cial con­tri­bu­tion.

The IMF said it won’t give an­other penny un­til it sees a con­crete plan from the Euro­peans to sub­stan­tially cut the coun­try’s debt bur­den. Wed­nes­day’s agree­ment by the Eurogroup fi­nance min­is­ters failed to de­liver that.

The IMF is now fo­cused on pro­tect­ing its own rep­u­ta­tion af­ter the fail­ure of the first two joint Greek res­cue op­er­a­tions — even if it sours re­la­tions.

But with the Greek econ­omy still tee­ter­ing with Athens ow­ing the fund bil­lions, can the IMF af­ford to stand back?

“Of course,” says Thanos Cat­sam­bas, who rep­re­sented Greece at the IMF un­til July 2015.

Just by re­main­ing in­volved in bailout ne­go­ti­a­tions, the IMF is do­ing a fa­vor for Ger­many and other Euro­pean heavy- weights that want the fund to en­sure Athens im­ple­ments promised re­forms, Cat­sam­bas said.

The land­scape has changed since 2010 and 2012, when the IMF pro­vided Greece with the largest loans it had ever given any coun­try in trou­ble.

It agreed un­der heavy pres­sure from Europe, fear­ful that a Greek melt­down would frac­ture the euro­zone it­self. Even at the time, how­ever, the IMF had doubts those plans would work.

The fund com­mit­ted $65 bil­lion to Greece in to­tal, dis­burs­ing around $34 bil­lion before the bailout pro­grams ran into trou­ble.

“In 2010, Greece was so cen­tral in hold­ing Europe to­gether, and the IMF had to com­pro­mise on its prin­ci­ples and to go along with some­thing they prob­a­bly knew couldn’t work, but was aimed at avoid­ing a fi­nan­cial cri­sis,” said Des­mond Lach­man, a for­mer IMF of­fi­cial.

Now that the Euro­peans have their own fi­nan­cial sta­bil­ity mech­a­nisms, Greece’s prob­lems no longer threaten the broader euro­zone econ­omy.

The IMF is more pru­dent, too, af­ter Greece missed debt pay­ments of around $2 bil­lion last year, the largest ever de­fault the fund has in­curred, threat­en­ing its cred­i­bil­ity.

Although Greece fi­nally made those pay­ments, the risk of de­fault re­mains: Athens still owes the IMF $16.2 bil­lion.

Now the fund is in­sist­ing that any bailout pro­gram en­sures Greece’s fi­nances are “sus­tain­able” — that it will be able to both grow its econ­omy and re­pay loans over the long term.

With Athens ow­ing cred­i­tors hun­dreds of bil­lions of dol­lars, the IMF says the Euro­peans must come up with a plan to lighten the bur­den to achieve sus­tain­abil­ity.

That would re­quire cut­ting in­ter­est rates, ex­tend­ing re­pay­ment pe­ri­ods and set­ting a long grace pe­riod before Greece must start re­pay­ing, the fund spelled out in a re­cent anal­y­sis.

“The Fund is say­ing let’s end the cha­rade and let’s get se­ri­ous,” Lach­man said.

But even as they un­blocked more than $11 bil­lion in new funds for Greece on Wed­nes­day, the Euro­peans of­fered only a vague debt re­lief plan.

That was in­suf­fi­cient.

“We need to be as­sured that the uni­verse of mea­sures that Europe is will­ing to com­mit to is con­sis­tent with what we think is needed to pro­duce debt re­lief,” a se­nior IMF of­fi­cial said af­ter the deal. “We do not yet have that at this point.” The IMF man­age­ment is un­der pres­sure from emerg­ing mar­ket mem­bers not to bend any more of its own rules to help Greece.

But the fund held out the pos­si­bil­ity it would add its funds to the Greek bailout if the Euro­pean side of­fers a de­tailed re­lief plan by year’s end. That may be wish­ful think­ing. Ger­man Fi­nance Min­is­ter Wolfgang Schaeu­ble de­rided the IMF’s sug­ges­tion to free Greece from ser­vic­ing its debt un­til 2040, say­ing cred­i­tors might as well “do a grace pe­riod of a thou­sand years.”

Cat­sam­bas be­lieves the IMF may be ask­ing too much of Euro­pean politi­cians who must an­swer to pub­lic opin­ion in their own coun­tries, say­ing post­pon­ing re­pay­ment years into the fu­ture is the equiv­a­lent of a debt write-off.

“I don’t know if the Euro­peans can ac­cept this.”

In 2010, Greece was so cen­tral in hold­ing Europe to­gether, and the IMF had to com­pro­mise on its prin­ci­ples and to go along with some­thing they prob­a­bly knew couldn’t work, but was aimed at avoid­ing a fi­nan­cial cri­sis.

Greek Prime Min­is­ter Alexis Tsipras with Greek Fi­nance Min­is­ter Eu­clid Tsakalo­tos in Athens. (AFP)

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