Troika to return to Athens as IMF approves new loan, assesses program errors

The troika’s technical teams are due back in Athens on Tuesday to start their latest review of the Greek adjustment program and they arrive in the wake of the International Monetary Fund releasing a further loan tranche but also admitting that Greece’s first bailout was badly designed and administered.

The troika experts are due to look at several areas of the Greek program: assessing the size of the potential fiscal gap for 2015-16 ahead of a new midterm fiscal plan being drawn up in September, the bank recapitalization process and the resolution of failed lenders, the privatization process and whether the target will be reduced from 2.6 billion to 2 billion, the firing of civil servants and structural reforms that include changes to the energy market, which is one of the “prior actions” required before the next tranche of 3.3 billion euros is released.

Poul Thomsen, the head of the IMF’s representation in the troika, and the other top officials from the European Commission and the European Central Bank are not expected in Athens until June 11.

The IMF’s executive board met late on Friday to approve the disbursal of 1.74 billion euros to Greece as Managing Director Christine Lagarde gave a mixed appraisal of the country’s efforts, which noted that fiscal targets are being met but that some reforms are lagging.

“Greece is well under way to complete its ambitious fiscal adjustment plan, and is on track to meet its 2013 fiscal targets,” she said. “A critical priority is to tackle tax evasion by pressing forward rapidly with reform of the revenue administration to improve operational independence and make the burden of adjustment more equitable.”

“Efforts continue in earnest to address external imbalances and restore competitiveness, notably through far-reaching labor market reforms, which have increased wage flexibility,” the IMF head added. “Broader structural reforms to enhance productivity and improve the business environment need to be accelerated, including the liberalization of regulated professions and other product and service markets.”

Lagarde also doused the Greek government’s hopes for reducing some taxes, including value-added tax in the food service sector. «Pressures to reduce taxes using the space from any fiscal over-performance should be resisted,» she said.

During the three-hour meeting, three reports on Greece were reviewed, including one that IMF officials have been compiling over the last few months in an effort to assess the mistakes of the first Greek bailout, agreed in May 2010.

Kathimerini understands that the report identifies several major mistakes in the agreement, including a failure to implement an early debt restructuring and basing it on incorrect macroeconomic assumptions. The report also criticizes the IMF’s own analysts for mistakes and describes 2011 as being a “lost year.”