Greece became the first advanced economy to miss a payment on IMF debt, joining the historical ranks of deadbeats from Cuba to Zimbabwe after the Mediterranean nation’s bailout talks with creditors collapsed.
The International Monetary Fund’s board has been informed that Greece is now in arrears, spokesman Gerry Rice said in an e-mailed statement, after a 6 p.m. Washington deadline Tuesday for Greece’s $1.7 billion payment, coinciding with the expiration of the nation’s bailout from euro-area nations. The Greek government’s request earlier in the day for a repayment extension “will go to the IMF’s Executive Board in due course,” Rice said.
European Central Bank policy makers would have to consider the effect of any missed payment on the solvency of Greek banks when they discuss the level of liquidity assistance on Wednesday, with the outcome having potential implications for Greece’s membership in the euro. Klaus Regling, the head of the main euro-area bailout fund, has said it has the option of demanding accelerated debt payments from Greece if it doesn’t pay the IMF.
“A default on the IMF does not guarantee Grexit,” David Stubbs, global market strategist at JPMorgan Asset Management in London, said in a note to clients. If Greeks vote “yes” on an agreement with creditors in the July 5 referendum, “we think it’s still more likely than not that Greece will remain in the euro. But the probability of an exit from the single currency — accidental or otherwise — is now higher than it was.”
The three major credit-rating companies have said failure to pay the Washington-based IMF wouldn’t constitute a default because that term is reserved for private-sector creditors, and the IMF avoids the word.
The missed payment by Greece is the largest in the history of the IMF, which was conceived during World War II to coordinate monetary policy and promote exchange-rate stability. Nations that miss IMF payments are ineligible for further funds as long as they are in arrears. The lender’s procedures for dealing with overdue borrowers stretch over two years and culminate in potential expulsion from the fund’s membership.