IMF OKs tranche as troika arrives

The International Monetary Fund gave on Monday the green light for the release of the sixth tranche of loans to Greece and attention has now shifted to the talks set to begin tomorrow in Athens between IMF and eurozone representatives about the impact of the Greek bond haircut.

The IMF announced yesterday the immediate disboursement of its 2.2-billion-euro share of loans to Athens, six days after a similar decision by the eurozone for 5.8 billion euros. This money is essential for the Greek state to be able to pay for its everyday needs over the next few weeks.

The focus now however has moved to the consequences banks will suffer from the 50 percent cut to the value of Greek bonds, the PSI+ plan, with Finance Minister Evangelos Venizelos suggesting that Greek lenders will need no less than 40 billion euros for their recapitalization.

The technical teams of the country?s creditors – the IMF, the European Union and the European Central Bank, collectively known as the troika – have arrived in Greece aiming primarily at establishing what the final impact of PSI+ will be on banks by taking into account the provisional results of the monitoring of local lenders? finances by BlackRock Solutions.

Experts believe the 30 billion euros set aside for the recapitalization of banks will not be enough, with Venizelos putting the figure required at 40 billion. The exact amount will be determined and approved by the troika during this month?s visit.

In particular, the IMF and eurozone mission will focus on two dimensions of the issue of Greek banks. The first is how their recapitalization will take place, determining details such as the precise amount each bank requires and the schedule of their recapitalization. The first tranche Greece will get from the second bailout package will be used to bolster the lenders? capital and this will have to be done before the bond swap in the context of PSI+ begins, to avoid problems.

The second is who will manage the banks. The law provides that common shares will be issued that the state will acquire through the Credit Stability Fund (CSF). The troika insists on the application of this provision, stressing that since banks will get such a sizable assistance, the CSF should have a strong say in their management. At the same time there is pressure for the issue of privileged shares to ensure that the banks? control remains in private hands.

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