IMF departure gets on the table

The message that Finance Minister Gikas Hardouvelis is sending to Germany and Greece’s other creditors in an interview to be published on Thursday in German newspaper Handelsblatt is that the country is able to refinance its requirements by itself.

Just a few days before a meeting between the Greek and German heads of government, Antonis Samaras and Angela Merkel, Hardouvelis argued that Greece does not need a third bailout package, noting that the country is able to borrow from markets at a cost below that of the loans from the International Monetary Fund.

Hardouvelis is in effect putting up for public discussion the possibility of the International Monetary Fund’s immediate departure from the Greek program, even though the IMF’s participation expires in the first quarter of 2016. The Greek minister stated that the country does not need another bailout and “in the meantime we can be refinanced by the markets on acceptable terms, at lower interest rates than the IMF is charging us.”

The IMF interest rate for Greece, which is a floating rate, currently ranges between 4 and 4.5 percent. If global rates rise above their current historic lows, the cost of borrowing from the IMF will increase further. Greece secured a 4.75 percent interest rate on the sale of its five-year bond in April, while the three-year bond in July came with a rate of 3.5 percent.

In the secondary market the yields have dropped further, to 4.27 percent for the five-year paper and 3.37 percent for the three-year debt, which is why Greece will proceed with the issue of more new bonds this year. Hardouvelis reiterated to Handelsblatt that the Finance Ministry will issue a seven-year bond and new, 18-month treasury bills by the end of the year.

The possible replacement of the IMF loans with borrowing from the markets will have an impact on the budget: Besides any political shift that the departure of the Fund from the Greek program will entail, the cheaper borrowing from the international markets will translate into lower expenditure on interest.

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