IMF lowered standards to bail out Greece

06 Jun 2013


The International Monetary Fund (IMF) yesterday said that it had lowered its normal standards for debt sustainability to bail out Greece and that its projections for the country's economy might have been somewhat optimistic.

The IMF was one of the three international lenders that in 2010 took steps to keep the euro zone country from defaulting on its debt and averting the country's exit from the common currency bloc. The IMF pledged around €30 billion (£25.3 billion pounds) to Greece at the time, out of a total package of €110 billion.

Some IMF board members and others had criticised the fund for giving Greece so much money as against the size of its economy, accusing the lender of being overly swayed by its European members.

The IMF had insisted at the time that Greece's debt levels were sustainable so long as its projections for the economy were accurate.

In a report that recalled the bailout, the Fund for the first time said it lowered its bar for Greece, which could cast doubts over the impartiality of the lender.

According to the IMF, its support for Greece in 2010 was necessary to prevent the nation's problems from spreading to the rest of the euro zone and the global economy.

Greece's public debt remained a risk to its recovery that could require faster European relief, the IMF said.

Even as the Mediterranean nation was meeting key targets under its second international bailout, including budget cuts and changes to labour laws, concern about its debt levels ''hang over the program,'' the staff wrote in a report released yesterday. Another paper cited ''notable failures'' in the fund's first loan to Greece in 2010.

''If investors are not persuaded that the policy for dealing with the debt problem is credible, investments and growth will be unlikely to recover as programmed,'' the staff wrote in the report. ''Should debt sustainability concerns prove to be weighing on investor sentiments even with the framework for debt relief now in place, and strong programme implementation by the Greek authorities notwithstanding, a more front-loaded approach debt relief would need to be considered.''

According commentators, the reports reflected the tougher approach the IMF had taken over the past year with Europe over the level of debt it deemed sustainable as it drew lessons from the first Greek bailout. In the self-evaluation, also released yesterday, Fund staff said it would have been better for Greece to restructure debt held by investors as early as 2010, a plan the IMF chose not to push because of opposition from Europeans.

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