The International Monetary Fund’s executive board on Friday approved a disbursement of about 3.2 billion euros to help Greece pay debts due this month and return to positive economic growth in 2012.
In announcing the payment, part of a 110 billion euro IMF-European Union bailout package crafted for Greece last year, IMF Managing Director Christine Lagarde said debt-laden Greece has made progress but has much more work to do.
“The program is delivering important results: the fiscal deficit is being reduced, the economy is rebalancing, and competitiveness is gradually improving,» Lagarde said in a statement on her fourth day in her new role.
“However, with many important structural reforms still to be implemented, significant policy challenges remain. A durable fiscal adjustment is needed, lest the deficit get entrenched at an unsustainably high level, and productivity-enhancing reforms should be accelerated, lest growth fail to recover,» she said.
The IMF has warned the crisis in Greece could reach countries like the United States through money market funds, especially if the contagion spreads to European banks heavily exposed to Greek debt.
The global lender scheduled its meeting to consider the fifth loan disbursement for Greece after euro zone leaders agreed on Saturday to release their portion of the 12 billion euros due to be paid to Athens from the initial bailout.
The tranche approved on Friday brings IMF disbursements so far to Greece totaling about 17.4 billion euros.
So far, the program has failed to restore confidence in Greece’s finances and a new package is in the works to cover Athens’ funding needs through 2014, with European officials now trying to involve private sector creditors.
However, euro zone diplomats said on Friday that effort had stalled and there was little chance of reaching the 30 billion euros target figure.
Germany, the Netherlands and other northern euro zone states demand the private sector must bear a portion of the cost of a second package so the burden does not fall solely on the public sector and taxpayers.
“Greece’s debt sustainability hinges critically on timely and vigorous implementation of the adjustment program, with no margin for slippage, and continued support from European partners and private sector involvement,» Lagarde said.
To secure the latest IMF disbursement, Greece’s parliament had to approve deeply unpopular austerity measures to put the nation in a better position to carry its debts.
Lagarde said Greek authorities had made progress in the fiscal area by identifying measures required to reduce the general government deficit to less than 3 percent of gross domestic product by 2014.
She also lauded the government’s privatization strategy and noted that while the plan to sell 50 billion euros of state assets by 2015 is «very ambitious, the establishment of an independent privatization agency should help realize transparent and timely implementation.”
Still, even more effort is required, Lagarde said.
“To strengthen Greece’s competitiveness, structural reform implementation needs to be accelerated. This will help achieve synergies, such as between privatization and reducing administrative barriers to investment. The reform agenda should be expanded to address Greece’s high labor tax wedge and inefficient judicial system,» Lagarde added.
She also called for steps to preserve stability in Greece’s financial sector, including higher capital buffers for banks and an adequate support and resolution framework.
“Continued liquidity support from the ECB (European Central Bank) remains critical to manage liquidity needs,» she said.
A IMF spokeswoman confirmed Lagarde, who took over as IMF chief earlier this week, chaired the executive board meeting.
Some had suggested that she recuse herself since one week ago she had been involved as France’s finance minister in discussions on second bailout package for Greece.
“She is aware that she will be scrutinized, and rightly so, because of the obvious potential conflict of interest,”said Jacob Kirkegaard, a research fellow at the Peterson Institute in Washington, said ahead of the IMF board meeting.
Lagarde told reporters on Wednesday that the euro zone debt crisis was her top priority, although she declined to prejudge the IMF board discussions and its outcome. [Reuters]