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IMF approves loan to Greece

July 21, 2017

The International Monetary Fund has announced another financial boost for Greece in support of making the crisis-hit country's debt more sustainable, but continues to insist on a debt cut from the EU.

USA Sitz des Internationalen Währungsfonds (IWF) in Washington DC
Image: picture-alliance/Photoshot/Xinhua/B. Dandan

The International Monetary Fund late Thursday approved a one-year, $1.8-billion (1.54-billion-euro) loan program for Greece but said it would not release any funds until the eurozone agreed on a debt relief plan.

A second executive board decision was needed to make the arrangement effective, the crisis lender said in a statement, which would only be called after the IMF received "specific and credible" assurances from Greece's European partners to ensure debt sustainability.

IMF Managing Director Christine Lagarde said Greece and Europe would have to agree on such a debt plan soon. "As we have said many times, even with full program implementation, Greece will not be able to restore debt sustainability and needs further debt relief from its European partners," Lagarde added.

Breaking EU-IMF deadlock 

Delia Velculescu, IMF mission chief for Greece, told reporters the sides had agreed not to set a deadline to "avoid setting expectations that, if unfulfilled, could create deep market disruptions." But she said there had been "good progress" made in the talks between Athens and Brussels.

Facing an election in September, the government of German Chancellor Angela Merkel has repeatedly refused to consider more debt relief unless the IMF participates in a loan program.

Read more: France wants 'flexibility' for Greek debt

This created an impasse in EU-IMF talks for many months. Now, the unusual move to approve a loan with no immediate funds is a compromise response, but fund officials insist it is not bending the rules. The tactic has been used in 19 cases previously - all in the 1980s - for countries like Argentina, Brazil, Mexico and Yugoslavia.

Differences remain

The latest 8.5 billion euro disbursement from the eurozone loan program to Greece was approved last week, just in time for Athens to avert a default on a seven-billion euro debt payment.

Lagarde said the loan "provides both breathing space to mobilize support for the deeper structural reforms that Greece needs to prosper within the euro area, and a framework for Greece's European partners to deliver further debt relief to restore Greece's debt sustainability."

She also acknowledged that new economic reforms, adopted in Athens recently and broadening the tax base as well as reforming the pension system, could help the country achieve an "ambitious" primary budget target.

Athens hopes to achieve a budget surplus - excluding debt servicing - of 3.5 percent of gross domestic product (GDP) from 2019 to 2022, a target eurozone officials have insisted on.

However, after 2022, this target should be reduced to "a more sustainable level of 1.5 percent of GDP as soon as possible," to create fiscal space for better targeting social assistance, stimulating public investment, and lowering tax rates to support growth, she added.

Using the funds to protect vulnerable groups is considered  essential by the IMF to preserving the sustainability and fairness of Greece's adjustment effort.

"The Greeks are to blame."

uhe/tr (Reuters, AFP, dpa)