Don’t Blame Us for Greek Austerity, IMF Says as Loan Talks Drag

  • IMF willing to give new loan if Greece’s fiscal goals relaxed
  • Greece needs to reform taxes and pensions, IMF officials say

Customers withdraw cash from automated teller machines (ATM) operated by the National Bank of Greece SA in Thessaloniki, Greece, on Thursday, Dec. 1.

Photographer: Konstantinos Tsakalidis/Bloomberg

The IMF repeated its call for Greece to adopt credible budget goals, saying the nation’s current targets would require levels of fiscal austerity that would choke off growth.

In a blog post Monday, the Washington-based fund responded to suggestions it’s trying to impose more suffering on a Greek public exhausted by years of economic struggle and budget cuts. The International Monetary Fund is considering whether to give Greece a new loan to supplement the 86 billion euros ($91 billion) it’s receiving from euro-area countries.

Under Greece’s agreement with its euro-area creditors, the nation is targeting a primary budget surplus of 3.5 percent of gross domestic product by 2018. While that target could be met through “Herculean effort,” it would require “a degree of austerity that could prevent the nascent recovery from taking hold,” IMF chief economist Maurice Obstfeld and European department chief Poul Thomsen said in the blog.

The IMF would support a new loan for Greece with a surplus target of 1.5 percent of GDP, they wrote. The fund’s executive board, which represents its 189 member countries, has to approve any financing program.

“We have not changed our view that Greece does not need more austerity at this time,” Obstfeld and Thomsen said. “Claiming that it is the IMF who is calling for this turns the truth upside down,” they wrote, without citing specific accusations.

Greek Finance Minister Euclid Tsakalotos last week warned the IMF against putting excessive demands on the country. The IMF must decide whether the Greek recovery will happen with or without it, according to Economy Minister Dimitri Papadimitriou.

Radical Reform

Greece needs a “radical restructuring” of its public sector to post even a modest primary surplus and reach its long-term growth targets, the authors said. The Greek government hasn’t addressed the twin problems of a tax system that exempts more than half of households and an “extremely generous” pension system, according to the IMF.

Instead, the country has been cutting investment and discretionary spending, leaving infrastructure to decay and compromising basic services such as health care, the IMF officials said.

No amount of structural reforms will make Greece’s debt sustainable, unless the country’s European creditors step up with more debt relief, according to the fund. The IMF last week said short-term measures to cut Greece’s debt offered by euro-area countries weren’t sufficient.

“If Greece agrees with its European partners on ambitious fiscal targets, don’t criticize the IMF for being the ones insisting on austerity when we ask to see the measures required to make such targets credible,” Obstfeld and Thomsen said.

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