IMF backs second Greece bailout; warns of high risks

Berlin: IMF has backed the second 130 billion euro financial bailout for Greece by pledging a contribution of 28 billion euros, but said that the programme to keep the debt-ridden nation funded until 2014 carried exceptionally high risks.

The International Monetary Fund Managing Director Christine Lagarde has called upon the Greek government to fully implement the structural reforms and austerity measures agreed with the European Union and the IMF in return for the assistance.

[caption id=“attachment_246545” align=“alignleft” width=“380” caption=“IMF Managing Director Christine Lagarde has called upon the Greek government to fully implement the structural reforms and austerity measures agreed with the European Union and the IMF in return for the assistance. Saul Loeb/AFP”]  [/caption]

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Greece’s European partners have committed to providing adequate support, during and beyond the programme period, for as long as it takes for the country to regain market access, provided the policies that have been agreed are implemented in full, Lagarde said.

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 in a statement after the IMF board of directors on Thursday approved its share of the rescue package.

“Risks to the program remain exceptionally high, and there is no room for slippages” the IMF chief said.

The IMF officially announced its contribution a day after the eurozone nations formally approved the second bailout package and ordered the release of the first instalment of 39.4 billion euros.

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Eurozone finance ministers said they were satisfied with the steps taken by the Greek government so far to implement the agreed reforms and spending cuts.

The IMF’s contribution will come from the Extended Fund Facility, which is designed for countries undertaking reforms to address deep-rooted structural weakness, the fund said.

It will be disbursed in equal tranches over a four-year period. The first tranche of 1.65 billion euros will be released immediately.

Meanwhile, German newspaper Frankfurt Allgemeine Zeitung reported that the actual amount earmarked for Greece over the next three years will be 172.7 billion euros.

In addition to 130 billion euro fresh funds envisaged in the second package, Greece will also receive 34 billion euros left unutilised in the first 110 billion-euro bailout offered by the EU and the IMF in May, 2010.

The IMF’s contribution of 8.3 billion euros will become due only after the European programme expires at the end of 2014, the paper said.

Lagarde appreciated the tremendous efforts taken by Greece in the past years to implement wide-ranging painful measures in the midst of a deep economic recession and a difficult social environment. The fiscal deficit has been reduced markedly and competitiveness has gradually improved.

Talking about the problems confronting Greece, Lagarde said, “…the challenges confronting Greece remain significant, with a large competitiveness gap, a high level of public debt, and an undercapitalised banking system.”

The new programme supported by the IMF will enable Greece to address these challenges while remaining in the eurozone.

The programme focuses on restoring competitiveness and growth, fiscal sustainability and financial stability, she said.

Lagarde appreciated the deal reached last week between the Greek government and its private creditors on a substantial write-down of its privately-held debt, which will dramatically reduce the country’s medium-term financing needs.

The IMF has maintained that Greece must reduce its debt-to-GDP ratio to 120 percent by 2020 if its debt is to become sustainable in the medium term.

The debt exchange, which saw private sector agreeing to write down 75 percent of their Greek holdings, is the largest and steepest debt reduction agreement in history, she said.

However, the IMF chief expressed fears that even with the debt write-down, Greece’s debt will remain very high for some time.

PTI