What Happens If Greece Doesn’t Pay Its Debt to the IMF?



imfIn March, the Greek government will have to overcome a great obstacle in paying the scheduled installments to the International Monetary Fund (IMF). While Greek ministers were thinking of postponing the repayment installments, it appears extremely unlikely that the IMF will agree to such a suggestion.

According to Greek newspaper “Kathimerini” if Greece does not pay its installments to the IMF then this will constitute the country bankrupt, a fact that will impact a large portion of Greece’s other loans.

Failure to pay the IMF installments in time may cause a series of reactions, which will have a negative impact on Greece and its economy. When the IMF gives out a loan then it is the first to be repaid. If a country fails to pay its obligation, then it may be considered bankrupt.

In this case Greece would face two major consequences. Firstly, according to market executives, due to cross-terms the European Stability Mechanism (EFSF) could theoretically demand the repayment of loans that it has provided to the country.

Greece has borrowed 142 billion euro from the EFSF. It is clear that the country could not repay such a large amount. However, the fact that Greece will not be considered reliable (due to its bankrupt status), may affect the reliability of Greek banks, which have received significant loans from ELA (Emergency Liquidity Assistance).

The second major consequence would be that Greece’s bankrupt status would influence investors negatively, leading to a loss of confidence in the Greek economy.