The International Monetary Fund recently told the Greek government that a worsening economic outlook suggests the beleaguered nation may be unable to reduce its debt to sustainable levels even with a planned 50% write down in privately-held Greek government bonds, according to two officials familiar with the conversations.
“A 50% haircut may no longer be enough” to bring Greece’s debt to sustainable levels given the new IMF economic forecasts, said one of the officials.
An official at the IMF confirmed staff are working on starker economic assessment than outlined last month in its loan-program review for the country. Some IMF officials think “the debt sustainability analysis is not valid anymore” under the new economic forecasts, the official said. For Greece’s debt to be sustainable now “requires either a deeper haircut or additional loans from Europe,” he said.
The comments underscore the fragility of Greece’s finances and speculation in markets that it is heading towards a default on its debt.
An IMF spokeswoman declined to comment. The IMF says it isn’t involved in negotiations between the government and creditors on the extent of private sector participation, except as an observer. But in order for the IMF to continue lending money, its staff must conclude that a borrowing country will be able to return its debt back to sustainable levels.
(source: Dow Jones)
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