Negotiations between Greece and private holders of its debt need to be resolved quickly to assure Greece can pay its bills and prevent failure of an approximately EUR200 billion bailout program, the International Monetary Fund warned Wednesday.
“To ensure the success of the authorities’ program amidst what remains a fragile situation, it is important that these discussions are brought to an early conclusion, and that creditors take timely decisions about their participation in the debt-exchange operation,” said Antonio Borges, head of the IMF’s European Department, in an email.
The Greek government and private creditors are negotiating the terms of a bond-exchange program as part of a European deal to keep the Greek economy afloat. Officials fear that failure of the Greek program could tip an already precarious sovereign-debt crisis into a far more damaging phase, potentially engulfing Italy and Spain, two of the euro zone’s largest economies, and fueling a global recession.
Borges said high participation in the debt-exchange program, tentatively scheduled in the coming weeks, “will be necessary to help resolve Greece’s financing challenge.”
“Greece can realize the cash-flow relief that is a necessary step towards a sustainable debt and debt-service profile over the medium term” with “expeditious implementation of the improved financial terms of the official sector support and the successful involvement of the private sector,” Borges said.
Charles Dallara, head of the Institute of International Finance, the banking trade group spearheading Greek financing negotiations for the private sector, said last week that he was assuming a 90% participation rate for private holders of Greek sovereign debt. But he said at that time, some of the biggest private bondholders hadn’t yet promised to participate.
The new European bailout program for Greece, which plans an additional estimated EUR109 billion on top of the already-promised EUR110 billion, would be essentially void without the private-sector involvement.
The IMF board, meanwhile, has been increasingly concerned with the sustainability of Greece’s debt. So far it’s unclear whether private-sector participation will relieve those concerns, though given the potential global economic implications, the fund is widely expected to contribute to the new package. The exact size of IMF contributions may depend on the success of the private-sector debt exchange.
There are no current plans for the IMF board to meet, with directors on recess for three weeks. Still, directors could agree to a new IMF funding program in the interim to help provide some measure of assurance to markets skittish with uncertainty over the fate of the euro zone.
(source: Dow Jones)
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