UPDATE: IMF Approves EUR28 Billion Loan For Greece
March 15 2012 - 1:02PM
Dow Jones News
The International Monetary Fund's executive board Thursday
approved a EUR28 billion ($36.49 billion) loan for debt-beleaguered
Greece despite fears by some members that political risks may
derail the program.
The decision allows for an immediate disbursal of the first
EUR1.65 billion tranche of the loan.
As a small share of a joint program with the European Union, the
loan helps Athens stave off default and the euro zone to
temporarily prevent the debt contagion from spreading to other
ailing countries in the region.
Still, several board members have expressed reservations about
the ability of Greece to successfully carry out the four-year
program.
The IMF has repeatedly said the Greek program runs a very high
risk of derailment given the depth of economic restructuring
required for the joint IMF-European Union package. The IMF is
especially wary given Greece's track record of failing to meet many
of its fundamental program targets.
Fund staff have warned that a failure of Athens to implement
needed economic changes would push financing costs up to EUR245
billion. That's compared to combined debt-restructuring costs and
official-sector lending under the new program of around EUR230
billion.
"The debt trajectory is extremely sensitive to program delays,
suggesting that the program could be accident prone, and calling
into question sustainability," IMF staff wrote in a recent report
to the IMF board. IMF staff assume in that report that additional
financing requirements would be covered under the terms of the
European Financial Stability Fund, the euro zone's bailout
facility.
"It may take much more time than assumed to identify and
implement the necessary structural reforms to improve the primary
balance," IMF staff warned in the report. "And concerning asset
sales, delays may arise due to market-related constraints,
encumbrances on assets or political hurdles," they said.
The fund is attempting to counter what many board members fear
is overexposure to Greece. Compared to its European partners'
contributions, the IMF's EUR28 billion loan is proportionally
smaller than the bailout package it succeeds. The IMF and Europe
abandoned the first program after it failed to stem the crisis,
replacing it with tougher economic conditions, a restructuring of
EUR206 billion in privately held Greek government bonds and more
bailout cash.
Also, the IMF is extending its payout period by a year, making
it a four-year program instead of three. The longer payment
schedule allows for smaller disbursements and preserves more IMF
capital should the IMF halt payments for program failure.
Some economists still predict Greece ultimately may have to pull
out of the euro zone or, at the very least, restructure its debt
again. Many have said Greece already is at the limits of its
ability to enforce already-approved policies.
Several of the most powerful politicians in the Greek government
have given the IMF written political commitments to carry out the
economic reforms. Some, however, expect that commitment to the
program may wane after elections planned in the coming weeks.
Some analysts say the fund is using the IMF loan program for
Greece to buy time for other ailing euro-zone countries to put
their economies back on a healthy path and for banks to insulate
themselves against a worsening of the debt crisis. The fund is
urging euro-zone leaders to boost the size of its general bailout
fund by at least half and to use some of that cash to bulk up
banks' capital defenses.
-By Ian Talley, Dow Jones Newswires; 202-862-9285;
ian.talley@dowjones.com