IMF Can Give Greece More Time to Repay Loan, Strauss-Kahn Says
By Sandrine Rastello and Rebecca Christie - Oct 11, 2010 2:03 AM GMT+0200 Mon Oct 11 00:03:33 GMT 20
The International Monetary Fund is prepared to give Greece more time to repay its loan to the institution if European nations, which provided the bulk of a joint 110 billion euro ($154 billion) package, decide to do so first, Managing Director
Dominique Strauss-Kahn said.
Greek officials are doing “exactly what they need to do” to rein in spending and meet the benchmarks set out as a condition of aid, Strauss-Kahn said in a television interview with Bloomberg HT yesterday. Whether Greece needs the extension depends on the state of the global economy, he said.
“If the Europeans decide to do something, we certainly will do the same thing,” Strauss-Kahn said. “We can do this and it may be useful, but it’s only a small part.”
Investors still demand a yield premium of 754 basis points to lend to Greece rather than Germany for 10 years, the most of any euro nation, though that’s down from a euro-era record of 973 basis points on May 7. The IMF expects the country’s borrowing needs to soar by a third in 2014.
“Greece has borrowed a lot, therefore there are really problems how to service all this debt in the context of a shrinking gross domestic product and very slim growth prospects,” said
Domenico Lombardi, a former IMF board member and a senior fellow at the Brookings Institution. Spreading the repayment schedule is about giving
“more breathing room for the Greek treasury.”
Strauss-Kahn’s comments followed remarks by European Central Bank executive board member
Lorenzo Bini Smaghi, who told a panel in Washington that the IMF had mechanisms to “prolong packages” for countries receiving assistance and is “thinking” about it for Greece, though nothing has been decided.
‘No Concrete Plan’
Simonetta Nardin, a spokeswoman for the fund, said the IMF had “no concrete plan” to alter the schedule of repayments because it’s likely “Greece will be able to fully cover its external financing need from the markets from 2012, as assumed when the program was approved” in May.
“We are aware that markets are concerned about the repayment schedule related to official supports,” she said in an e-mail. If such concerns were to linger, she said, the fund’s options include lengthening repayment periods, replacing shorter-term with longer-term loans, and agreeing to a new program when the current one comes to an end.
ECB governing council member Ewald Nowotny yesterday said stretching out payments did not constitute a restructuring, which was not under discussion. Strauss-Kahn also said there’s “no reason for default.”
Markets Battered
Greek markets have been battered since the end of last year when the newly elected government led by Prime Minister
George Papandreou said the budget deficit was twice as big as the previous administration indicated. The disclosure forced Greece to tap a loan facility in April from the European Union and IMF after being shut out of the debt market.
Greece’s gross borrowing needs will rise to 70.8 billion euros in 2014 from 53.2 billion euros the year before as repayments the EU and the fund increase, IMF documents shows.
Strauss-Kahn also said China should allow its currency, the yuan, to appreciate more quickly. He applauded Chinese leaders for beginning a process of reorienting their economy toward domestic consumption, which will lead to a stronger yuan over time.
“You can’t say that they haven’t listened” to IMF calls for action, he said. “They could go faster, but it’s difficult.”
Strauss-Kahn said he expected IMF member nations would reach an agreement over the next two weeks on how to change the fund’s governing structure to give emerging-market nations a bigger voice. He said European nations understand that “they need to make room” and accept a smaller presence on the IMF’s board.
“The designated victims are the Europeans,” Strauss-Kahn said. “The discussion is about the Europeans giving up two seats, which I think they are prepared to do.”
(Bloomberg)
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