The International Monetary Fund’s long-held debt-reduction target for Greece is non-negotiable, a fund official said Thursday, adding that the IMF’s European bailout partners must take “other actions” to cut the beleaguered country’s debt profile.
“Critical to us is Greece’s debt sustainability,” spokesman William Murray said when asked where the fund’s red line has been drawn. “That means that by 2020, we want to see Greece’s debt at 120% of its gross domestic product,” he said.
“Clearly there have to be other actions taken to make sure that we reach a sustainable debt position in Greece,” Mr, Murray added, referring to Europe. “You have to lower Greece’s debt-to-GDP ratio in a significant way,” he said.
Economists say Greece’s debt is expected to top out above 190% of GDP and can’t be cut to the IMF target without Europe taking losses on the Greek debt it holds. After Athens committed to another tough round of austerity measures last week, the IMF outlined a number of debt-reduction scenarios for its European partners in the Greek loan program.
A downward spiral of Greek economic prospects has ballooned its credit obligations, making axing the country’s debt levels an increasingly daunting political challenge. Zsolt Darvas, a research fellow at the Brussels-based Bruegel institute, calculates that the only financing solution for Greece that avoids a euro zone exit and gives the debt- stricken country a sliver of economic hope is for the European Union and the IMF to slash lending rates to zero and extend the maturities on all official loans.
Mr. Murray said the IMF has already extended the maturities and lowered the interest rates for some of its loans to Greece, and can’t do more, including offer concessional, zero-interest rate loans like it does for poor countries.
“Greece is inherently a wealthy country…and would not qualify for concessional loans,” he said.
Europe, meanwhile, is opposed to restructuring its Greek debt portfolio.
Still, Mr. Murray said talks aren’t at an impasse.
IMF Managing Director Christine Lagarde is cutting an Asia trip short to attend a the Nov. 20 meeting of the Euro Group.
“That’s the clearest example I can give you that talks are not deadlocked,” Mr. Murray said.
“It’s in Greece’s interest, Europe’s interest and the world’s interest” that Europe help put Greece debt in a position that won’t bankrupt the country, he said. “We want a real fix, not a short term fix, a quick fix isn’t going to work right now.”
(source: Dow Jones)
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