IMF Greece’s report: new austerity measures & haircuts, bold political intervention

Posted by in Economy

New austerity measures, new haircuts, grim predictions for the near future, debt unsustainability but also bold intervention in the internal political affairs of the country recorded in the latest Greek program review released by the International Monetary Fund on Friday.

Greece is recovering but debt is not sustainable, International Monetary Fund said in its latest review of the loan program of the debt-ridden country. Greece would need new financial support from its European partners, loan interest rates should come down close to zero and additional “haircut” were necessary to make debt sustainable.

“Recent debt relief measures haven’t fully restored the country’s debt sustainability and some combination of cutting debt principal and further reducing interest rates on outstanding loans would be necessary.”

 “Additional debt relief would require about 3% of Greece’s gross domestic product a year—about €6 billion ($8 billion)—in fiscal transfers between 2013 and 2020.
 
“Alternatively, it would require a debt principal reduction of about 25% on EFSF loans, government loans and the European Central Bank’s government bondholdings.”

The bond payback last March saved, savings from lower interest rates and longer repayment periods on existing loans will cut debt by a total 16% of economic output by 2020, but all this “was not enough to restore debt sustainability.”

Greece has salvaged its economic recovery program following months of political uncertainty but still faces “enormous” challenges and will need new financial support from fellow eurozone states, the International Monetary Fund said Friday.

 The IMF said the main threats to Greece’s recovery were poor tax collection, insufficient implementation of some long-term reforms, and enduring political uncertainty. It added that Athens should even consider replacing current managers with “foreign experts” to revive its troubled privatization program.

The IMF issued its views in a 260-page report after it approved this week a long-delayed $4.3 billion loan installment to Greece.

 Greece’s main lender said that despite the improvements, it still expects Greece to face a financing shortfall of between €5.5 billion and €9.5 billion ($7.3 billion and 12.7 billion) in the years 2015-16.

How to close these fiscal black holes? The IMF proposes the easy way – as usual:

Extension of the (emergency) “solidarity tax” until 2016, continuation of welfare reforms (cutting further social welfare allowances)  but also lay-offs in the public sector and further cuts in wages and pensions.

IMF’s prediction for the unemployment are 26.6% in 2013 (from 24.4% in 2012 ?) and slow decrease for th future. The IMF estimates that unemployment would be below 20% in 2017 and 11.3% in 2020. We don’t need to mention here what we think about the IMF’s predictions and estimations…

Political intervention

In an unprecedented political intervention, the IMF bold attempts to influence the political situation in Greece writing:

“The latest opinion polls show dwindling support for the coalition parties and growing support for [leftist opposition] Syriza and other anti-program parties. This could go beyond implementation delays, and lead to a political crisis, triggering debt default and/or euro exit.”

 Prompt was the answer of SYRIZA, that angrily commented:

 “It’s not the first time the IMF has intervened in the internal affairs of a country in such an undignified manner,” party lawmaker Efklidis Tsakalotos said. “It has learned nothing from the failures and social disasters that has caused around the world.”

sources: WJS, AP, newsit, left.gr