Greek Prime Minister Antonis Samaras’ hope that international lenders will yet agree to cut Greece’s debt even if it makes them take losses is still alive, at least with International Monetary Fund Managing Director Christine Lagarde, who said Europe should find a way to help Greece meets its fiscal targets.
The IMF, along with the European Union and European Central Bank, make up the Troika putting up $325 billion in two bailouts and agreed in 2011 to let Greece impose 74 percent losses on private investors and small bondholders in the Diaspora but has resisted taking a hit as it would pass on the costs to taxpayers in the other 16 Eurozone countries.
According to the Associated Press, the IMF said in its quarterly review of Greece΄s progress earlier this week that the bailout program would fall short of the country΄s needs by a total of $14.59 billion by the end of 2015 and Eurozone countries need to plug the hole even if that means other countries will pay for decades of wild Greek overspending.
The international lending agency described the expected shortfall as a “test of European support” and said finance ministers from the 17 countries that use the euro have already started discussing how to fill the financing gap.
Greece will also need debt relief from Eurozone countries of about 4 percent of GDP in 2014-15, the IMF staff review said. It noted the risk that Greece will fall short of IMF forecasts to start recovering early next year, which could mean even bigger losses for Eurozone governments on their rescue loans.
“The European partners, the members of the euro group, have always indicated that they would consider any additional measures and assistance needed for Greece in order for that country to reach the debt threshold that had been agreed,” Lagarde told reporters. “The commitment is, in my view, what matters most,” she said, adding that Europe΄s help was contingent on Greece also living up to its obligations under the rescue program.
The austerity program mandated by international creditors calls for Greece to slash its debt from about 160 percent of Gross Domestic Product currently to 124 percent by 2020 and significantly below 110 percent by 2022.
Greece has been surviving on rescue loans from the IMF and other Eurozone countries since 2010, when it lost access to long-term debt markets. Austerity measures demanded in return for the Troika΄s bailout program have hammered the economy and sent unemployment surging to 27 percent. Annual economic output is around a fifth smaller than when it entered recession in 2008.
Lagarde said Greece now needs to take decisive steps to privatize state-owned enterprises and improve tax collection, among other structural reforms of its economy, if it wants to bolster the confidence of foreign investors and encourage them to return.
She described as “unfortunate” the public criticism of the IMF΄s handling of the Greek financial crisis from one of the 24 members of her decision-making executive board.
Paulo Nogueira Batista, who represents a bloc of 11 developing countries on the IMF board, said he had refused to back the IMF΄s latest bailout payment to Greece this week. Instead he abstained in the vote on that approved the next $2.29 billion payout.
In an unusual public statement, he said the IMF staff review itself had flagged a growing risk that Greece will not be able to sustain its debt payments to international creditors. And he called for a new IMF program for Greece, saying the current one is overly Draconian and holds out no hope of pulling Greece out of its deep, six-year-old recession.
Lagarde said she discussed Batista΄s comments by phone with Brazilian Finance Minister Guido Mantegay, and he indicated that Brazil was fully supportive of Greece, the Greek program and that if a vote could be retaken, Brazil would support that program. Mantega said separately that Batista had been called back to explain why he voted without consulting.
“It is most unfortunate that it happened in those circumstances, but I am very pleased that the position of Brazil could be rectified and clarified at the highest level,” Lagarde said.