IMF Won’t Disburse Greek Loan If Debt Not Sustainable

The International Monetary Fund won’t disburse its share of the Greek bailout if the country’s debt is not deemed sustainable or if other creditors don’t pledge to fill a financing gap in the aid package, a fund spokesman said.

IMF Managing Director Christine Lagarde last week warned that the level of Greek debt would have “to be addressed,” pushing European policy makers to consider writing off some of the aid to the country. While the fund is sticking to a target of 120 percent of gross domestic product by 2020, the Greek government forecast this week that the general government debt will climb to 179.3 percent of GDP in 2013.

For the loan “to move forward, we need two key elements -- we need the debt sustainability and the financing assurances and both of those things need to be in place,” IMF spokesman Gerry Rice told reporters in Washington yesterday. “As to how these requirements will be fulfilled in the context of the current review, we still have to discuss this with the Greek authorities and the European partners.”

Lagarde also said last week Greece faces a financing shortfall that the budget measures being currently discussed in Athens won’t suffice to plug, suggesting that an agreement on spending cuts alone won’t be enough to unblock the next tranche of the 130 billion-euro package ($169 billion).

Financing Gap

Since the IMF has indicated that any additional aid will have to come from Europe, bridging the financing gap and helping Greece meet the 120 percent debt target would fall on either the European Central Bank or other nations sharing the euro. Investors already took losses in a debt exchange this year.

While Greek Prime Minister Antonis Samaras said yesterday the ECB should consider rolling over Greek debt, the ECB has shown no desire to contribute. ECB President Mario Draghi yesterday rejected the suggestion the central bank would participate in any further restructuring of Greek government bonds.

“We have said several times that any restructuring of our holdings would qualify as monetary financing,” he said at a press conference in Ljubljana, Slovenia.

The IMF’s Rice also said yesterday he couldn’t give a date for the end of talks taking place in Athens between the government, the IMF, the ECB and the European Commission, even though “urgency is of the essence.”

Regarding Spain, Rice said that an IMF team will visit Madrid from Oct. 15 to Oct. 26 to monitor the country’s banking bailout and will submit its report to the government and the commission.

To contact the reporter on this story: Sandrine Rastello in Washington at srastello@bloomberg.net

To contact the editor responsible for this story: Chris Wellisz at cwellisz@bloomberg.net

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.