BRUSSELS (April 12): International Monetary Fund chief Christine Lagarde said on Wednesday Greece was heading in the right direction on reforms, but talks on its bailout review and the IMF’s potential role in it were “only halfway through”.
Last week, euro zone finance ministers agreed on the key elements of reforms that Greece needs to implement in exchange for a new loan under its €86 billion bailout programme, the third since 2010.
The loan is needed to pay debt due in July, but talks continue and the IMF has not yet decided whether to join the bailout. The fund’s participation is seen as a condition for Germany to unblock new funds to Greece.
“What I have seen in the last couple of weeks is heading in the right direction,” Lagarde told a conference in Brussels, but “we are only halfway through in the discussions.”
She reiterated Greece’s debt — now 178 percent of gross domestic product — will need to be restructured to guarantee the stability of the country’s finances.
The scope of any restructuring “will be decided at the end of the programme,” but “the modalities have to be decided upfront,” Lagarde said.
Germany, the largest European Union economy, opposes debt relief, believing that agreed reforms are enough to sustain financial stability. But Berlin still wants the IMF to join the bailout, now provided by euro zone governments alone, to make it more effective and less expensive for euro zone countries.
Talks between Greece and its lenders are continuing and no date is fixed yet for negotiators to return to Athens. The Greek government believes talks may resume in Athens after the IMF spring meetings on April 21-23.
“We are still elaborating under what terms we could possibly give some lending to the country. We are not there yet,” Lagarde said, adding any IMF loan to Greece would have to abide by strict conditions and no special treatment can be expected for Athens.
The IMF wants pension costs to be cut and the threshold for tax exemptions to be lowered. Athens has accepted the reforms, worth 2 percent of its gross domestic product, but it wants to link their application to a reduction of its public debt burden.
Lagarde said the additional belt-tightening measures could be implemented “as soon as the conditions of growth are consolidated.”
Source: The Edge Markets