20th Jul 2018

Brazil refused to back more IMF money for Greece

  • The IMF released €1.7bn to Greece on Monday (Photo: International Monetary Fund/Cliff Owen)

Brazil's executive director at the IMF Wednesday (31 July) revealed he did not support a decision earlier this week for the fund to continue supporting Greece.

Paulo Nogueira Batista’s highly unusual comments came as the IMF the same day said that Greece is facing a €10.9bn gap in its government finances - €4.4bn for 2014 and €6.5bn for 2015.

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"Recent developments in Greece confirm some of our worst fears,'' he said.

“Implementation [of Greece's reform programme] has been unsatisfactory in almost all areas; growth and debt sustainability assumptions continue to be over-optimistic.”

His public criticism came after the IMF on Monday released €1.7bn to Athens, the latest in a series of the loans the country has been receiving from the IMF and the EU since 2010.

Batista pointed to an IMF report which while praising Greece “exceptional” progress in stabilising its economy also suggested a risk the funds will not be reimbursed.

The report noted that if European governments withdrew their support from Greece, "capacity to repay the Fund would likely be insufficient.”

The Brazilian economist said the statement was “one step short of openly contemplating the possibility of a default or payment delays by Greece on its liabilities to the IMF."

His comments underline the irritation among emerging countries that the IMF – where the EU and US together have majority voting rights – continues to bail out ailing European countries.

Meanwhile, the IMF 207-page report prodded euro countries about promised further debt relief to Greece.

If investor morale sinks “European partners should consider providing relief that would entail a faster reduction in debt than currently programmed,” it said.

The eurozone has promised to consider debt relief measure for Greece in 2014 in order to reduce its debt-to-GDP ratio targets by 2020.

“It’s not possible to speculate right now on what the actual amount will be, but it’s true our projection right now implies that there will be a need for some relief in order to get to 124 percent,” Poul Thomsen, the head of the IMF to Greece, said on a conference call Wednesday.

But debt relief is a political taboo in the eurozone at the moment where the issue is tied up with German domestic politics.

Chancellor Angela Merkel has made it clear she will not discuss the matter before elections in September.

"I expect that debt sustainability will continue to be a given," she said in a recent interview, adding: "I don't see that" when asked about the need for a new haircut on Greek debt.

But for Greece - where unemployment has risen to 27 percent and it is in its sixth year of recession - still more is expected.

The IMF criticised privatization efforts as being "painfully slow," and is waiting for more clarity on how Athens is expected to put 25,000 public sector employees on a redeployment scheme.

It noted that "much deeper public sector reforms" are likely to be needed if the country is to meet its targets.

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