International Monetary Fund Managing Director Christine Lagarde said she is confident euro-area nations will deliver on their pledge to help Greece lower its public debt to the level agreed on in a joint bailout package.
“I stand on the three-times repeated commitments by the euro partners to consider further measures and assistance to make sure that the Greek debt is reduced substantially” by 2020 and 2022, Lagarde told reporters in Washington today. “I have no reason to believe the Europeans would not themselves deliver on their undertaking vis-a-vis Greece and vis-a-vis third parties.”
The IMF and euro-area nations over the past week have unblocked the latest aid tranche to replenish Greece’s coffers through the German elections in September.
The Mediterranean country’s financial fate has become entwined with German politics, with Chancellor Angela Merkel campaigning for a third term on the promise Germany won’t write off any of the loans made to Greece since the debt crisis broke out almost four years ago.
IMF staff in a report published yesterday said there are about 11 billion euros ($14.5 billion) in financing needed for Greece by the end of 2015 that have not yet been indentified under its joint package with Europe. The report also reminded European officials of their commitment to reduce Greece’s debt burden to a target of 124 percent of gross domestic product by 2020, which they said may require agreeing to relief measures as early as next year.
European finance ministers agreed last year to cut the rates on bailout loans and suspend interest payments for a decade, while giving Greece more time to repay and engineering a Greek bond buyback. German Finance Minister Wolfgang Schaeuble last month opened the possibility of building on those measures while discarding a straight write-off.
“What channel it will take, what tools will be needed, what methodology will be applied is something that will have to be discussed by the euro partners, and with the euro partners, but the commitment is in my view what matters most,” Lagarde said.
Lagarde, who last week dropped a proposal to back Argentina in the country’s legal battle over its defaulted debt because of last-minute opposition by the U.S., said the fund hasn’t changed its mind about the potential implications of the case.
“We’re worried for financial stability at large and for the way in which debt can be restructured in a predictable way,” she said.
Argentina bonds tumbled the most in five months after the announcement, which came three days after Lagarde said she’d recommend that the IMF board file its first-ever friend-of-the-court brief to the U.S. Supreme Court in support of Argentina’s request for a review of a lower court ruling. The case involves holdout creditors from the nation’s $95 billion default in 2001.
Separately, Lagarde said the IMF will carry on working with Argentina, which it censured over the quality of its economic data earlier this year.
“We’ll do everything we can to help,” she said. “But it’s a question of having reliable, comparable numbers and statistics, which is the rule of the game in the membership.”
Lagarde, an advocate of getting more women in top management jobs, had kind words for Janet Yellen, the current Federal Reserve Vice Chairman who is seen as a possible candidate to succeed Chairman Ben S. Bernanke.
“She’s my friend, I’ll say no more,” Lagarde said when asked whether she supported Yellen for the job. “And she is a very competent woman.”
The IMF in a report released separately today sought to gauge the impact that a normalization of the Fed’s monetary policy would have on the rest of the world. Depending on the strength of the U.S. economy and the reaction of long-term interest rates, the outcomes range from positive for all to costing several percentage points of growth to the U.S. and the global economy, according to the findings.
The Fed yesterday said persistently low inflation could hamper the economic expansion and pledged to keep buying $85 billion in bonds every month, a policy called quantitative easing, or QE.
“The spillovers from an earlier exit from QE because U.S. growth is picking up faster than anticipated should in principle be manageable for all except for the borrowers with the highest vulnerabilities,” according to the IMF report. “But, as developments in recent weeks have shown, even with a stronger recovery the process could be bumpy, with U.S. interest rates rising earlier and more sharply than desired.”
The Fed needs to communicate clearly to be well understood by markets, the report concluded.