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What Would Happen if Greece Defaults on its Payment to the IMF

imf-go-homeMinister of Economy, Infrastructure, Shipping and Tourism Giorgos Stathakis said on CNN and The Financial Times that Greece will not make the repayment due to the International Monetary Fund on June 30 (today).
The default will put Greece on a par with a handful of underdeveloped countries who have failed to meet their obligations to the fund. Specifically, Haiti, Zimbabwe and the Afghanistan’s Taliban are countries that have defaulted on payments to the IMF, a Wall Street Journal report says.
If Greece defaults on its payment to the IMF, it will not be allowed a grace period, according to the fund’s rules. The managing director will immediately notify the board of directors.
Then, IMF staff will reach the Greek authorities and negotiate a plan for Greece to clear its arrears. The Greek government has two years to repay its debt or risks expulsion from the organization’s membership. But beyond that, the immediate sanctions the IMF can apply are relatively limited, according to the Wall Street Journal report.
However, what a nonpayment signals to other countries, investors and creditors is much more significant, the report says.
First of all, the European Central Bank stopped providing emergency liquidity to Greek banks, thus forcing the Greek government to impose capital controls.
Also, the default to the IMF activates clauses in Greek government bonds held by Eurozone governments that gives them the right to “accelerate” their repayment demands, thus forcing Athens to default on other creditors too. Unable to repay its debts and meet its domestic financial obligations such as pensions and public sector salaries, the Greek economy and financial system will collapse.
It is not very likely that European countries will accelerate their Greek bond holdings, the Wall Street Journal says, but it will give them more leverage in negotiations with Greece over the sovereign debt.
Greece has answered to that with a referendum scheduled on July 5, when citizens will be asked whether they agree with a deal that will include austerity measures or not. European officials say that the referendum question is in fact whether Greeks want to stay in the Eurozone or not.

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