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IMF Weighs Greek Loan That Would Release Funds After Debt Relief

  • Fund prefers to see debt relief up front, spokesman says
  • Conditional loan would avoid possible ‘destabilizing’ outcome

The International Monetary Fund is considering a conditional loan for Greece that would defer the release of the money until the nation’s European creditors agree to provide debt relief, the fund’s spokesman said.

The IMF would still prefer that Greece’s euro-zone partners agree to debt relief before the fund presents a loan proposal to its executive board, spokesman Gerry Rice told reporters Thursday in Washington. Any loan would have to be approved by the IMF’s 24-member board, which represents the institution’s 189 member countries.

Typically, countries that borrow from the IMF have to show their debt burden is sustainable. While the IMF has expressed support for Greece’s proposed reforms, the fund believes its debt is unsustainable unless euro-area countries agree to ease its repayment terms under a European bailout program.

If a debt-relief deal isn’t reached soon, the fund may consider a loan program that would be “approved in principle,” Rice said. The loan funds wouldn’t be released until Greece’s European creditors provide enough relief to make the nation’s debt sustainable.

“We would still be insisting on reforms and debt relief before the IMF would disburse any of its funds,” he said. “So this is not a backing down or a walking away in any respect.”

A conditional loan would bring Greece one step closer to receiving more funding from the IMF, while bolstering the credibility of the euro-zone bailout.

Financial Stress

A conditional loan would help avert a “destabilizing situation” next month, when Greece may find it difficult to make payments under its 86 billion-euro ($96 billion) bailout from the euro zone. “It’s good to avoid that financial stress on Greece,” Rice said.

It’s unusual for the IMF to approve a loan “in principle” to a developed nation. The fund provided a series of such loans to developing countries in the 1980s, including to Brazil, Argentina, Mexico and Sudan.

The IMF is hoping for an agreement on a Greek program next week, said Rice. Discussions on debt relief measures for Greece will be in focus during a Eurogroup meeting in Luxembourg on June 15 that IMF Managing Director Christine Lagarde plans to attend, he said.

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