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, though practically the payout
may not be transferred to Athens until Monday.
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.
"The challenges confronting Greece remain significant, with a
large competitiveness gap, a high level of public debt, and an
under-capitalized banking system," said IMF Managing Director
Christine Lagarde in a statement.
"The new Fund-supported program will enable Greece to address
these challenges while remaining in the Eurozone," she said
One board member said the IMF was acting "to help prevent the
contagion scenario."
Euro-zone countries Wednesday signed off on its lion's-share
portion of the joint EUR130 billion bailout package for Greece.
Still, several board members have expressed reservations about
the ability of Greece to successfully carry out the four-year
program. Paulo Nogueira Batista, representative to the IMF for
Brazil and eight other countries, abstained from the decision, a
diplomatic way of opposing the program. Technically, there is no
vote as the board decides based on consensus reached before the
actual meeting. But the positions of each delegation are recorded
in confidential minutes.
Lagarde warned that risks "remain exceptionally high, and there
is no room for slippages."
"Full and timely implementation of the planned
adjustment--alongside broad-based public support and support from
Greece's European partners--will be critical to success," she
said.
Poul Thomsen, IMF's mission chief to Greece, said if Athens
falters the country risks creating "unsustainable debt
dynamics."
Thomsen said under its new loan program, the IMF is shifting its
focus away from budget belt-tightening and toward spurring growth,
particularly through labor reforms.
"This will require difficult structural reforms...and this will
undoubtedly be socially and politically challenging," he said.
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 with combined debt-restructuring costs and
official-sector lending under the new program of around EUR230
billion.
Lagarde highlighted Europe's "commitment to provide adequate
support to Greece during the life of the program and beyond until
it has regained market access," provided Greece fully complies with
the loan conditions. IMF insiders say the comments indicate the
fund has reached its likely lending limits for Greece.
According to one board member, the board is split over whether
the fund should provide any more cash to cover any possible future
financing gaps.
"Many board members are not prepared to give anymore money," the
person said. Another member said he thought it highly unlikely the
IMF would approve any more financing for Athens if there are
funding shortfalls.
Europeans sitting on the board want the fund to leave open the
possibility, but many others don't think the IMF should increase
its exposure to Greece, given both the amounts the IMF has lent to
Athens and the risk of default.
The fund is attempting to counter what many board members fear
is over-exposure to Greece. Compared with 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. The fund had already issued more than EUR20 billion
in credit to Greece under the previous program, but canceled the
remaining EUR10 billion in disbursements in favor of the new
package.
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 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
--Costas Paris in London, Matina Stevis in Brussels, and Sudeep
Reddy of the Wall Street Journal in Washington, D.C., contributed
to this article.