Asked why Greece should not opt for restructuring its debt, IMF Lipsky said debt restructuring would create more problems than it could potentially solve, with a default making things much worse. Greece is also updating its prudent debt management tools to ensure that risk is adequately managed.
The International Monetary Fund (IMF) approved on May 9 a €30 billion three-year loan for Greece as part of a joint European Union-IMF €110 billion financing package to help the country ride out its debt crisis, revive growth, and modernize the economy.
"Today's strong action by the IMF to support Greece will contribute to the broad international effort under way to help bring stability to the euro area and secure recovery in the global economy," said IMF Managing Director Dominique Strauss-Kahn.
“It sends an important and clear signal that the international community is willing to do whatever it takes to support Greece,” John Lipsky, First Deputy Managing Director, who chaired the meeting of the IMF’s Executive Board, said.
The program approved by the IMF’s Board makes about €5.5 billion immediately available to Greece from the Fund as part of joint financing with the European Union, for a combined €20.0 billion in immediate financial support. In 2010, total IMF financing will amount to about €10 billion and will be partnered with about €30.0 billion committed by the EU. The joint financing means that Greece will not have to tap international financial markets until 2012, Lipsky said, providing a breathing space for Greece to get its economy back on track.
“Today, the IMF has demonstrated its commitment to doing what it can to help Greece and its people,” Strauss-Kahn said. “The road ahead will be difficult, but the government has designed a credible program that is economically well-balanced, socially well-balanced—with protection for the most vulnerable groups—and achievable. Implementation is now the key.”
The IMF’s Executive Board met to approve the front-loaded package, under which enabling parliamentary measures have been approved up-front and financial support is fast-tracked, as European finance ministers worked in Brussels on measures to prevent fallout from the Greek crisis spreading to other parts of the European Union, and vowed to defend the euro.
Why not restructure debt?
Asked why Greece should not opt for restructuring its debt, Lipsky said debt restructuring would create more problems than it could potentially solve, with a default making things much worse.
• Restructuring debt would not help Greece’s capacity to grow. The type of fiscal and structural reforms being put in place under the Government’s program are designed to do that – to bring down costs, to make the labor market more flexible and to improve the business and investment climate.
• The web of economic and political inter-linkages—including that Greek bonds are held by a wide variety of private investors and public entities—severely complicates alternatives to the program the government has put in place. Any perceived positive near term effects of a debt restructuring need to be weighed against contagion effects.
• Most of the adjustment in Greece is needed to eliminate its large primary deficit (the deficit net of interest payments). This is the main issue for Greece, not the level of the debt.
But prudent debt management is part of the government’s strategy and it is updating its tools to ensure that risk is adequately managed.
© International Monetary Fund
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