The International Monetary Fund (IMF) will not participate financially in Greece’s third bailout unless European creditors offer the country debt relief, said the Fund’s chief.
IMF Managing Director Christine Lagarde sent a letter to Eurozone Finance Ministers ahead of Monday’s Eurogroup where Greece’s bailout program review will be discussed. The letter was obtained by the Financial Times and its authenticity is confirmed by an IMF spokesperson.
“Program discussions between Greece and the institutions have made progress in recent weeks, but significant gaps remain to be bridged before an agreement can be reached that would include the IMF under one of our program facilities,” Lagarde wrote.
European creditors seem willing to close the bailout program review. However, the IMF has questioned Greece’s ability to meet the target of posting a 3.5% primary surplus of GDP in 2018.
Nevertheless, the IMF could support an effort to temporarily reach that goal, even though it is “higher than what we consider economically and socially sustainable in the long run,” Lagarde said.
The IMF doesn’t believe Greece can reach the 3.5% target by “hiking already high taxes levied on a narrow base, cutting excessively discretionary spending, and counting on one-off measures as has been proposed in recent weeks,” she said, adding that spending cuts proposed by Greece are not credible. Therefore, Lagarde proposes a more realistic target of a 1.5% primary surplus.
“For us to support Greece with a new IMF arrangement, it is essential that the financing and debt relief from Greece’s European partners are based on fiscal targets that are realistic because they are supported by credible measures to reach them,” Lagarde wrote. “We insist on such assurances in all our programs, and we cannot deviate from this basic principle in the case of Greece.”