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Greece may face gap of 11 billion euros, says IMF

August 1, 2013, Paris, The New York Times:
Protestors march during an anti-austerity rally outside the Finance Ministry in Athens on Thursday. REUTERS

The International Monetary Fund has warned in a report that a persistent recession and the government’s failure to accelerate overhauls may create an 11 billion-euro hole in Greece’s finances over the next two years.

The concerns come as Greece received 4 billion euros ($5.3 billion) in aid late Wednesday from its so-called troika of creditors: the IMF, the European Commission and the European Central Bank.

The latest financing gap may require Greece’s European creditors to consider giving it debt relief and more money so that it can meet the requirements of its current 172 billion-euro bailout programme, which came on top of a 110 billion-euro bailout program given in 2010, the IMF said. The Fund also cautioned that investment and growth were unlikely to resume in Greece if investors were not convinced that Greece’s creditors had a credible policy to deal with its debt crisis.

That set off alarm bells in some corners of the IMF. Earlier this week, Paulo Nogueira Batista, who represents Brazil and 10 other countries on the IMF board, abstained from voting for an additional aid installment to Athens. On Wednesday, he said the IMF's latest report showed that “awareness of the risks of the program going off track seems to be increasing.” He added: “One cannot but notice an undertone of despair in staff’s repeated calls on the Greek and the euro-area authorities to stand by their commitments.”

Greece must show it has at least a year’s worth of money in its coffers to fund government operations and repay its loans before the IMF will continue its own lending to the country.

The idea that Greece may need greater debt relief has been met with opposition in Germany, where Chancellor Angela Merkel is facing an election in September. She has told her party members that Germany would not take losses on any of the loans it has made to Athens. On Wednesday, a spokesman for the German Finance Ministry said it did not believe further debt relief for Greece was necessary.

In the report, the IMF said that while the country was close to achieving a primary surplus — a measure of the economy without counting debt payments — the outlook for a recovery after six years of recession was fraught. The IMF said Greece’s economy could return to growth as early as next year. But given that output has fallen 25 per cent since its peak in 2007, while unemployment has surged to 27 per cent and youth joblessness tops 57 per cent, those forecasts come with a question mark.

Since Greece adopted an austerity plan as a condition for receiving international aid, the country has faced political and economic instability that seems unlikely to fade soon. The IMF cautioned that political stability remained a risk, especially after Prime Minister Antonis Samaras’s fragile three-party governing coalition was destabilized earlier this year when he sought to lay off 2,600 people by shuttering Greece’s state broadcaster in order to comply with creditors’ demands for a slimmer government.
Greece’s creditors want it to find at least 12,000 civil service jobs to cut through next year. An additional 25,000 government workers have been placed in a so-called mobility program in which they will receive reduced wages or eventually be laid off.

Progress has been made in some areas, the IMF said. Greek banks have largely been recapitalized, and the Greek authorities are on track to create “a leaner, cost-efficient, competitive and well capitalized banking sector,” the IMF said.

A simpler tax system has also been introduced, the IMF added, although the government needed to continue to crack down on tax evasion and increase tax collection.

IMF continued to criticize Greece for failing to put in place reforms more quickly, especially in the public sector. With wages having sunk sharply, and swaths of people out of work, the government is continually trying to balance the need to execute more socially painful reforms with the imperative of keeping the promises it made to its creditors in exchange for its international bailout.


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