Representatives of leading emerging market countries at the International Monetary Fund have warned the fund?s management against pouring more large sums of money into another Greek bail-out with uncertain prospects, the Financial Times has reported.
The officials said that — several days after a new financing plan from the euro zone authorities — its details were unclear and a proposed reduction in private sector holdings of Greek debt appeared to be inadequate.
Interviews with the Financial Times, along with private conversations with other representatives from non-European economies, reveal several governments unwilling to risk financial contagion by curtailing IMF lending to Greece, but alarmed at the risks the fund was taking.
Concern among shareholder countries on the fund?s executive board poses a challenge to Christine Lagarde, the IMF?s new managing director, who soon must decide how much more money she recommends is lent to Athens.
Paulo Nogueira Batista, who represents Brazil and eight other countries on the IMF?s executive board, said the Greek government?s austerity plan was too tough and the restructuring of Greek debt held by European banks was too small.
?Greece is not having an easy time,? he told the FT. ?The mostly European private creditors of Greece have had an easy time.?
He said Ms Lagarde, the former French finance minister who took over as managing director three weeks ago, would have an ideal opportunity to dispel suspicions of bias towards European bondholders. ?This is the first big decision that she is taking as head of the fund,? Mr Batista said. ?The community of fund-watchers around the world will be looking to see if she can transcend her European origins.?
Arvind Virmani, the Indian executive director on the board, said the plan dealt with short-term cashflows but left Greece with a large and precarious sovereign debt stock, threatening further defaults.
?I am not convinced [the plan] addresses the basic problem of liquidity versus solvency,? he said, adding the fund had dodged the question for more than a year.
The eurozone summit last Thursday adopted a plan from the Institute of International Finance, a global association of banks and finance houses, for a voluntary private debt swap that the institute said would reduce the net present value of tendered bonds by 21 per cent. The IIF said the plan depended on more IMF lending.
However, with that restructuring likely to leave Greece with a ratio of debt to gross domestic product of more than 100 per cent, many investors have doubted it would be enough to prevent contagion to countries such as Italy and Spain.
In the first IMF-eurozone bail-out for Greece, launched in May last year, the fund supplied ?30bn out of a total of ?110bn ? by far the largest loan ever, relative to the size of the borrower?s IMF shareholding. The new plan envisages a total of ?109bn in fresh official financing, and European officials in negotiations have pushed for the fund to maintain its share.
However, Mr Batista said: ?If we keep the 3/11ths formula, there will be an additional ?30bn from the fund. This is clearly much too much.?
Mr Virmani said the IMF was too generous towards European borrowers in trouble. ?History suggests that if this were happening to a poor country or developing country, the rich countries would have voted against [the loan],? he said.
Mr Virmani said emerging market countries should use the opportunity to insist on tougher IMF lending rules to ensure fairness.
Ms Lagarde said last Thursday the IMF would continue to be involved in the Greek rescue and praised eurozone authorities for what she said was decisive action. But she declined to say how much the fund might extend before an official request was received from Athens.
Investors have been sceptical that the Greek plan will stop financial contagion in the eurozone, with risk premiums on Italian and Spanish debt widening this week after narrowing immediately after last week?s announcement.