Additional involvement of the IMF in the assistance package for Greece should be fully funded and an agreement with the private bond holders should meet the target set by IMF regarding the debt of Greece, announced on Thursday an IMF spokesman, Gerry Rice. Meanwhile, the Institute for International Finance (IIF), which leads the group of private investors with exposure to Greek bonds, warned Thursday that “the time required for negotiations are exhausted because some key issues remain unresolved”.
Charles Dallara, IIF chief, met today in Athens with Greek Prime Minister Lucas Papademos and Finance Minister Evangelos Venizelos to discuss the voluntary involvement of private sector in debt restructuring of Greece. Discussions will continue on Friday. Gerry Rice said that the IMF still aims to drop Greece’s debt to 120% of GDP by 2020, from the peak level of 142% of GDP in 2013. Other IMF loans to Greece will be granted on this basis, which means that any agreement with the Greek government bond holders should result in reducing the debt of Greece to 120% of GDP by 2020.
IMF chief economist said recently that, because of slower than expected growth in the euro area, the Greek government bond holders could be forced to accept higher losses. IMF considers that any objective other than the Greek debt drop to 120% of GDP by 2020 is unsustainable in long term and may also require more public funds in Europe to cover the financing gap of Greece. “We must wait and see details of the agreement and the final conclusion, based on its objectives are met as Greek debt and then the combination of private sector involvement and any official funding may be required”, said Rice.
Sources close to negotiations on the so-called private sector involvement have recently stated that banks and private investment funds are likely to voluntarily quit accepting 55-60% of their claims on Greek debt, more than originally approved in October – 50%. International Monetary Fund and Greece argued that the October agreement should not only be maintained, but should be tightened, while bondholders and ECB officials have proposed giving up the idea. Those who oppose the plan that requires private lenders to write off 50% of the Greek bonds have argued that the precedent set by involving the private sector, even if voluntary, deeply affected the markets, who fear that in other countries, such as Italy, this scheme could apply.
Together with new loans and other measures, Greece’s debt would return to 120% of GDP by 2020, from the peak level of 142% of GDP in 2013. Starting January 2012, Greek banks will exchange the bonds they hold some value which will be reduced by half. This is the removal of 100 billion euros in Greece’s debt, currently at 350 billion euros.
