IMF approved $1.8 bln conditional loan for Greece

The International Monetary Fund’s board on Thursday approved a $1.8 billion loan to Greece — but will only release the money if the country gets debt relief from its European creditors.

The IMF has praised Greece for taking steps to reduce its budget deficits, including expanding its tax base and cutting spending on pensions. But the lending agency is pressuring Greece’s eurozone lenders to provide enough relief to ensure the battered country can pay its bills.

The approval in principle means the loan “will become effective only after the Fund receives specific and credible assurances from Greece’s European partners to ensure debt sustainability, and provided that Greece’s economic program remains on track,” the IMF said in a statement

If an agreement on debt relief is reached, the IMF will join the eurozone lenders in an ongoing bailout.

IMF Managing Director Christine Lagarde said Greece and Europe will need to agree on a debt plan “soon.”

“As we have said many times, even with full program implementation, Greece will not be able to restore debt sustainability and needs further debt relief from its European partners,” Lagarde said.

Euro rules forbid an outright reduction of Greece’s public debt. But creditors can reduce interest rates or give the country more time to pay its public debt, which in Greece’s case is equal to a staggering 180 per cent of economic output, second in the world behind Japan.

Delia Velculescu, IMF mission chief for Greece, told reporters on a conference call there was no deadline for European lenders to agree on debt relief over the next 13 months.
The program, which contains an overall central government debt ceiling for Greece, assumes that Greece's primary fiscal surplus will reach 2.2% of gross domestic product in 2018.
"We think this is appropriate for Greece and we're not expecting additional measures to underpin this target," she said, adding the 2019 target of 3.5% required previously legislated reforms to kick in.

The IMF loan likely complicates the Greek government’s plans to issue bonds. The terms of the IMF loan would forbid Greece from increasing its debts. The IMF last month announced it would revive the seldom-used option of approving a loan “in principle,” in order to convince eurozone finance ministers to release desperately needed new funds to Greece.

Germany had refused to consider more debt relief unless the IMF participated in a loan program, creating an impasse that endured many months.

Greece lost market access to the bond market due to high interest rates in 2010 and briefly returned with a 2014 bond issue, only to seek a third successive bailout the following year.

Once a debt plan is in place for Greece, the IMF board will have to once again give its approval in order to release any funds. The precautionary standby loan will expire on August 31, 2018, shortly after the expiration of the European Stability Mechanism program.