IMF managing director Christine Lagarde sits for an interview at IMF headquarters in Washington on Wednesday. Lagarde avoided any pointed criticism of Prime Minister Alexis Tsipras but still hinted at frustrations as she noted that Greece’s economy had been on the road to recovery before the current left-wing Syriza party came to power.


Reuters/Washington



The International Monetary Fund warned yesterday that Greece would need an extension of its European Union loans and a potentially a large debt writeoff if it grows more slowly than expected and economic reforms are not implemented.
The IMF warning in a preliminary draft of its latest debt sustainability report came as Greece readies for a Sunday referendum on an international bailout deal that Prime Minister Alexis Tsipras has urged voters to reject.
The Washington-based institution, which is part of a “troika” that includes the European Commission and European Central Bank that is overseeing the bailout, said that even if Greek policies came back on track, loans made by Europe “will need to be extended significantly” and that the country would need further concessional financing.
The report was made based on assessments last week, before Greek banks have been closed and the country had defaulted on an IMF repayment.
“We cannot go to our board to complete this review unless we have a comprehensive program,” said a senior IMF official in a conference call, adding that debt relief from creditors would be essential.
The IMF said Greece would need an additional €36bn ($39.89bn) in European funding from total additional financing needs of €50bn due to policy slippages and the latest proposals from Athens.
Even under the most optimistic current IMF projection and with concessional financing through 2018, it said Greece’s debt to gross domestic product ratio was seen at 150% in 2020 and 140% in 2022.
“Using the thresholds agreed in November 2012, a haircut that yields a reduction in debt of over 30% of GDP would be required to meet the November 2012 debt targets,” the Fund said.
The Fund believes that given the fragile debt dynamics of Greece, one option would be to extend the grace period to 20 years and the amortization period to 40 years on existing EU loans and to provide new official sector loans to cover financing needs falling due on similar terms at least through 2018.
The IMF official told the conference call that the debt analysis had been shared with both Greece and the European Commission, although European forecasts of financing needs were lower than those of the Fund.
Under an IMF projection where real economic growth was lower, at just 1%, Greece’s debt would remain above 100% of GDP for the next three decades, it said, even with a lengthening of maturities and new loans on concessional terms.
“A lower medium-term primary surplus of 2.5% of GDP and lower real GDP growth of 1% per year would require not only concessional financing with fixed interest rates through 2020 to cover gaps as well as doubling of grace and maturities on existing debt but also a significant haircut of debt,” it said, “for instance, full write-off of the stock outstanding in the GLF facility ($53.1bn) or any other similar operation.”
In an interview with Reuters on Wednesday, IMF managing director Christine Lagarde avoided any pointed criticism of Tsipras but still hinted at frustrations as she noted that Greece’s economy had been on the road to recovery before the current left-wing Syriza party came to power. Lagarde was asked which should come first, commitments to reform by Athens or relief on its debts from euro zone governments.
“Given where we are, my suspicion is it would be much preferable to see a deliberate move towards reforms (and) for that to be followed through by the other side of the balance,” Lagarde said.  “We do not have a choice as to who represents a country,” Lagarde said when asked about the trustworthiness of the Greeks. “And we take all governments, duly elected ... as the legitimate partner in the negotiations.”
“We have received so many ‘latest’ offers, which themselves have been validated, invalidated, changed, amended, over the course of the last few days, that it’s quite uncertain exactly where the latest proposal stands,” she said.
“I think there is a democratic process that is underway, and that should result in hopefully more clarity, less uncertainty as to what is the determination of the Greek people, and what is the authority of the government,” she said about the referendum.
Long lines at cash machines this week provided a stark visual symbol of the pressure on Tsipras, who came to power in January vowing to end austerity and protect the poor.
Lagarde said Greece had made progress on many difficult reforms and had started to return to growth before Syriza came to power.
“What I find really concerning is the fact that after those years, as growth was beginning to pick up, as the country was beginning to generate a surplus, then suddenly there is this massive backtracking, which puts us backwards,” she said.



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