Athens, July 3, 2015/ Independent Balkan News Agency
By Spiros Sideris
The relief of the greek debt suggests the International Monetary Fund, in its preliminary sustainability report by decision of the Board. The Fund, which is in an uncomfortable position after Greece’s decision not to pay the installments in June, believes that there must be a brave extension of maturing loans given to Greece by the member countries of the eurozone.
The IMF proceeded to a “coercive” move aimed at the Europeans, as it states that if there is no “effective treatment”, itself will not deliver a report to the board and will not examine the greek program and thus not give more money from the amount that has been approved.
A Fund official stressed that Greece will need by the end of 2018 about EUR 60 billion to cover its financing needs. And stressed that the eurozone countries should pay the vast majority of the amount, about EUR 36 billion.
The representatives of Germany and Finland reacted when the proposal for the publication of the report was brought in front of the Board, but both Christine Lagarde, and the US and representatives of Latin American countries supported the request.
According to the debt sustainability report, net financing needs of Greece reach EUR 50.2 bn from October 2015 to December 2018. The total amount that is needed reaches 60 billion with the loans Greece should pay to the IMF and the ECB.
According to the report, the greek debt is unsustainable. The Fund invites Athens to accept and implement reforms and its European partners to meet the financing needs of Greece. Otherwise, the only solution will be the haircut of the debt.
According to officials, the situation could be worse due to the closure of banks and the fact that lately reforms have been abandoned and the deficits have increased. Most negative development is considered the government’s decision not to pay the installments to the Fund, which is expected to reject the extension asked by the Greek Prime Minister in a letter to Lagarde.
What’s interesting, however, is the position of the Fund that although the economy was extremely vulnerable, May 2014 showed that Greece would return to the path that leads to sustainability.
In the introduction to the report it is recorded that “the Greek authorities imposed capital controls on banks” and at the same time defaulted payments of loans to the IMF. These developments, it is noted, have a significant negative impact on the sustainability of debt projections and the underlying economic forecasts, on the recession and the deficit.
The Fund announces and warns that it will not disburse new tranches without first having paid what it’s owed, and certainly will not grant additional funding.
According to the report, in May 2014 the debt dynamics was viable. According to the forecasts. it would have fallen from 175% of the GDP at the end of 2013 to around 128% of the GDP in 2020 and to 117% of the GDP in 2022.
The Fund argues that if the Greek government implements the program would not need further debt relief. It is noted that the fall in interest rates improved the dynamics of debt.
The IMF says that because of political developments the financing needs of the country increased significantly. Thus, based on the proposals of the Institutions, the financing needs of the Greek government will rise to EUR 50 bn by December 2018, which must be met by the European (EUR 36 billion) and other sources.
A Fund official said that “Greece has now been noticeably increased financial needs. Its inability to absorb additional debt is given”. The official dismissed any suggestion that the report has been released for political reasons and turned his arrows to the Europeans saying that Europeans should agree to an “effective response” to the debt problem (he useed the words comprehensive operation).
Referring to the possibility of a haircut of the debt, the official said:
“What is important is a significant haircut or significant extension of maturities, something leading to debt reduction in net present value (NPV). We cannot get in the IMF Executive Board for the Greek program without a credible solution to the debt.
The Fund has been as hard as it could to the European debt issue”, he said, adding that reducing the debt by extending the ripening is a dramatic development, which, however, meets resistance from politicians. To have haircut, the official said that drastic reforms are needed by Greece.