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Lagarde Conditions Greece Bailout

Lagarde Conditions Greece BailoutLagarde Conditions Greece Bailout

The International Monetary Fund won’t join a European bailout of Greece until differences on the nation’s budget plan are resolved between the fund and European creditors, IMF Managing Director Christine Lagarde said.

“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 said in a letter to eurozone finance ministers. An IMF spokesman confirmed the authenticity of the letter, which was first reported by the Financial Times, Bloomberg reported.

Eurozone governments are reviewing whether to release the second installment of an €86-billion ($98 billion) bailout for Greece. The IMF has said it would be open to offering Greece a new loan, which would be separate from the European bailout. However, it has questioned Greece’s ability to meet the target of posting a fiscal surplus before interest payments of 3.5% of gross domestic product within two years, as stipulated under the European program.

Lagarde said she wanted to clarify “unfounded allegations that the IMF is being inflexible” by calling for unnecessary new budget cuts that are delaying the talks. She said the IMF is close to agreeing with Greece on a package of fiscal measures equivalent to 2.5% of GDP that would help the country reach a surplus of 1.5% of output by 2018.

If the Europeans hold Greece to the original 3.5% target, 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 Washington-based fund 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 cuts to discretionary spending proposed by Greece aren’t credible.

It’s also unrealistic to assume Greece can maintain a surplus of 3.5% for decades to come, according to Lagarde’s letter. Instead, the IMF proposes it adopt a target of 1.5% of GDP.

Financialtribune.com