IMF payment put off as lenders wait for new proposals

Greece asked the International Monetary Fund on Thursday for the right to delay a 300-million-euro payment due on Friday, with lenders expecting Athens to send counterproposals to the demands presented to Prime Minister Alexis Tsipras late on Wednesday in Brussels.

The news of the Greek government’s request to bundle all four tranches totaling 1.6 billion euros due to the IMF this month into one payment by June 30 came ahead of a teleconference call expected to take place late on Thursday night between Tsipras, German Chancellor Angela Merkel and French President Francois Hollande.

Wednesday’s talks between Tsipras and Juncker, in which Eurogroup chief Jeroen Dijsselbloem also participated, failed to result in an agreement. The Greek prime minister indicated that he deems some of the creditors’ demands as unacceptable. He cited the request to scrap a benefit for low-income pensioners (EKAS) as one of the measures his government could not consider.

The proposals presented to Tsipras include demands for slashing spending on pensions by up to 0.5 percent of gross domestic product this year. Creditors also demanded Athens raise 1.8 billion euros, or 1 percent of GDP, by increasing value-added tax to 11 percent for items including drugs and 23 percent for items including electricity.

The Greek prime minister said that the idea of increasing VAT on electricity by 10 percentage points from its current rate of 13 percent was a nonstarter.

The proposal also calls for a hike in healthcare contributions and a cut in the fuel subsidy. The lenders further demanded Tsipras not make any unilateral moves to restore collective bargaining rights or raise minimum wage level to pre-crisis levels, as he had pledged before the January 25 elections.

The institutions are now expecting a set of counterproposals from Greece so that a new round of talks can take place.

There had been no official comment from the Greek government on Thursday regarding its decision to bundle repayments to the IMF. But, according to sources, the request was submitted to the Fund by the Bank of Greece. The aim of authorities, it appears, is to gain some time and reach an agreement with creditors that would loosen liquidity restrictions.

June 30, the day on which Greece’s extended bailout expires, now gains additional significance as Greece will then face a 1.6-billion-euro repayment to the IMF.

Sources indicated that even if Greece were not to honor its repayments to the IMF this month, it would still have insufficient funds to pay salaries and pensions through June.

Had Greece decided simply not to make the payment that had been due on Friday, that would have likely provoked upheaval in the markets and banks. Regrouping the repayments, however, amid indications that the two sides have converged in negotiations, was deemed to be a less disruptive move.

Confirming the Greek request on Thursday, IMF spokesman Gerry Rice referred to rules allowing debtor countries to regroup “multiple principal payments falling due in a calendar month.” Those rules were last invoked in the 1970s by Zambia.

Earlier in the day, IMF chief Christine Lagarde had said she was “confident” Greece will make Friday’s debt repayment. As regards the proposal made to Greece by its creditors during talks on Wednesday, she said it “clearly demonstrated significant flexibility on the part of the institutions.”