The International Monetary Fund has approved a €3.2-billion payment to Greece under a joint loan with the EU, giving policy makers time come out with a second rescue package and avert the first sovereign default in the euro region.
Greece's commitments for securing the loan are ''delivering important results,'' IMF managing director Christine Lagarde said in a statement today in Washington. Still, ''a durable fiscal adjustment is needed, lest the deficit get entrenched at an unsustainably high level, and productivity-enhancing reforms should be accelerated, lest growth fail to recover.''
The decision comes after last week's authorisation by European finance ministers to unblock €8.7 billion as discussions continued on how to include banks and insurers in a new package for Greece, which can't return to markets next year due to surging borrowing costs.
The option of involving the private sector had been criticised by the European Central Bank as it could trigger a partial default.
According to Lagarde, Greece's debt sustainability hinged critically on timely and vigorous implementation of the adjustment program, with no margin for slippage, and continued support from European partners and private sector involvement.
Greek parliamentary passage of new budget cuts last week extended euro-area governments political cover to release the funds.