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Default looms as Athens says it won't pay IMF

According to the media reports, the Greek government won't pay a loan instalment to the International Monetary Fund due on Tuesday. Officials in Athens reportedly confirmed they don't have the money.

Greece won't repay the 1.6 billon euros ($1.78 billion) it owes to the International Monetary Fund (IMF) and which fall due on Tuesday, news agency Reuters reported a day before the deadline.

Quoting an unnamed official from the leftist government of Prime Minister Alexis Tsipras, Reuters said Athens confirmed it wouldn't have the money after talks with creditors to unlock 7.2 billion euros in frozen bailout funding collapsed at the weekend.

The reports were confirmed by German Finance Minister Wolfgang Schaeuble in an interview with national television network ARD late Monday.

Failure to repay the IMF loan by a June 30 deadline was a virtual formality after Greece's discussions with its creditors broke down and the government was forced to close banks amid massive capital flight.

IMF Managing Director Christine Lagarde said earlier this month the crisis lender would officially classify Greece "in arrears" if it failed to make the payment.

Default consequences

Greece has borrowed about 32 billion euros from the global crisis lender since 2010, some of which has already been repaid. It is committed to repay the IMF 5.4 billion euros this year.

If Athens does not make the payment on Tuesday it will immediately be cut off from access to the IMF's services and facilities, freezing the IMF portion of about half of Greece's finally bailout instalment worth 7.2 billion euros.

Lagarde then has 30 days to file a formal complaint with the IMF executive board, which represents its 188 member countries.

But because the missed payment is to an official lender and not the commercial funding market, credit rating agencies won't officially declare Greece "in default" on its debt, yet.

First, the IMF board has three months to consider Lagarde's complaint. Accepting it could deprive Greece of its right to use SDRs, the IMF currency.

If the situation persists over months, the board will make a declaration of noncooperation, which could lead to a suspension of the borrower's IMF voting and representation rights, further isolating the country within the Fund.

Within six months of the suspension of voting rights - or up to 24 months after the default - the board would have to begin procedures on expelling the country from the IMF.

However, expulsion would require support of a large majority of the Fund's members, who usually prefer to avoid extreme outcomes. Long in default on their IMF loans, Sudan, Somalia and Zimbabwe have kept their memberships. Only one country in IMF history has been kicked out: Czechoslovakia, during the Cold War in the 1950s.

uhe/pad (Reuters, AFP)

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