• Proposal contained in debt sustainability note for Greece
  • Greece’s banks will need more capital, according to document

The International Monetary Fund proposed that Greece shouldn’t make payments on its European bailout loans until 2040, underscoring key differences with euro-area lenders over the future of the Greek economy.

The Washington-based fund’s debt-restructuring proposal, contained in an IMF document obtained by Bloomberg News, goes much further than anything advanced by euro-area creditors who are locked in talks to trigger Greece’s next aid payout. Finance ministers from the currency union will meet on May 24 in Brussels to discuss the debt-relief options.

The IMF wants all payments on European loans granted to Greece since its first bailout in 2010 to be deferred until at least 2040 with maturities extended until 2080, according to the note. Interest payments on loans from the euro area’s crisis fund would be fixed at a maximum 1.5 percent until at least 2045. The IMF’s projections for the Greek economy rely on a baseline assumption that debt will rise to 293.8 percent of gross domestic product by 2060 without the proposed measures.

An IMF spokesman declined to comment on the debt analysis.

Greece’s creditors, including the euro area and the IMF, are struggling to put the finishing touches to their assessment of measures implemented under the terms of Greece’s third bailout, which would pave the way for a new aid payout. The IMF has made its participation in the program contingent upon debt relief, a prospect euro-area finance ministers began discussing last week. Germany leads a group of nations that want IMF participation in the Greek rescue, while also resisting the fund’s calls for a deeper debt restructuring.

“The details of the debt-relief package would need to be agreed upfront,” IMF staff wrote in the document, even as European governments want to delay most elements of a restructuring agreement through 2017. “The delivery will need to be comprised of an upfront component and a conditional component based on policy implementation.”

A debt sustainability analysis prepared by the European institutions didn’t go as far as the IMF proposal, seeking an interest-rate cap of 2 percent to be in place until 2050 and extending the maturity on the loans by an average of five years, according to copy of that document.

The IMF’s document also says that Greece will raise five billion euros from privatizations between 2015-2030, while the country’s banks are forecast to need an injection of capital.

Dutch Finance Minister Jeroen Dijsselbloem said in a Bloomberg TV interview on Friday that he’s hopeful the European Union will reach a deal with Greece at the meeting of his counterparts next week.

“We’re in a completely different situation than we were a year ago,” said Dijsselbloem, who also chairs the group of euro-area finance ministers. “Hopefully next Tuesday in the next Eurogroup meeting we’ll get that deal that I think Greece needs and deserves.”

The Wall Street Journal reported on the IMF’s debt proposal earlier this week.

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