IMF Warned Greece on Debt Levels

Πηγή: WSJ
By IAN TALLEY And COSTAS PARIS

Dec 30 2011

WASHINGTON—The International Monetary Fund recently told the Greek government that a worsening economic outlook suggests the beleaguered nation may be unable to reduce its debt to sustainable levels even with a planned 50% write down in privately-held Greek government bonds, according to two officials familiar with the conversations.

"A 50% haircut may no longer be enough" to bring Greece's debt to sustainable levels given the new IMF economic forecasts, said one of the officials.

An official at the IMF confirmed staff are working on starker economic assessment than outlined last month in its loan-program review for the country. Some IMF officials think "the debt sustainability analysis is not valid anymore" under the new economic forecasts, the official said. For Greece's debt to be sustainable now "requires either a deeper haircut or additional loans from Europe," he said.

The comments underscore the fragility of Greece's finances and speculation in markets that it is heading towards a default on its debt.

An IMF spokeswoman declined to comment. The IMF says it isn't involved in negotiations between the government and creditors on the extent of private sector participation, except as an observer. But in order for the IMF to continue lending money, its staff must conclude that a borrowing country will be able to return its debt back to sustainable levels.

Last week, IMF chief Christine Lagarde said the IMF would likely lower its outlook estimate for the global economy in 2012, pointing to the euro zone debt crisis as the primary cause. Growth is a key factor in determining whether a country can escape from a heavy debt burden.

The fund said in a report prepared last month that if a 50% write-down was universally subscribed by private holders, Greece's debt could reach a long-term sustainable level of around 120 percent of gross domestic product. Then, it expected for Greece's economy to contract by 5.5% this year and 3% next year. It warned, however, that "Results remain sensitive to growth outcomes ... and even small deviations from the macro and program targets would not bode well for debt sustainability."

A "low-growth case would produce an unsustainable outcome," the IMF said then.

Private creditors are hoping to soon conclude negotiations with Greek officials on the details of a planned debt-reduction program. In late October, euro-zone governments called on Greece to secure a 50% writedown on the debt held by private creditors as a condition for payouts under the existing €130 billion ($168.49 billion) bailout package to continue. The debt deal was also seen as essential for any potential expansion of the program.