Daily BulletinDaily Bulletin

The Conversation

  • Written by The Conversation
imageIn trouble.EPA/Yannis Kolesidis

Greece is set to miss the deadline on its €1.6 billion loan repayment due to the IMF. The country’s stalemate with its international creditors and the decision to hold a referendum on its bailout offer means Greece will become the first advanced economy to default to the fund in its 71-year history.

Here are nine essential things to know about the default:

1. The long-term damage may yet be minimal. If Greece is only in arrears to the IMF for a short period of time, it may be shown leniency down the line. The IMF’s policy on overdue payments does distinguish between short-term and protracted arrears.

2. This is not yet a full-blown sovereign debt default by Greece. This is still a first for an EU member state, but the IMF is keen to maintain a distinction between a country being “in arrears” and a “default”. This important semantic distinction is also made by major credit rating agencies. It means the consequences for Greece may be temporary and small, if they are able to find a speedy resolution and make the payment.

3. Being in arrears to the IMF is not a new phenomenon. Since 1997, arrears owed to the IMF that were at least six months overdue have ranged from €1.5 billion to €3 billion in any given month. This is not a position any country wants to be in, however. It places Greece in the company of countries whose governments are widely seen as dysfunctional, or even “failed states”. The only countries with IMF repayments at least six months overdue in the past decade have been Somalia, Sudan, Zimbabwe and Liberia.

4. The IMF will not allow any country to access its resources while it remains in arrears. For the IMF to be involved in any future new support package, arrears payments will first need to be settled, without the possibility of rescheduling payments. This makes Greece even more dependent on EU funding to bring liquidity back to its banks – making the outcome of the July 5 referendum even more important.

5. The IMF may now treat Greece even more harshly. It is hard to overstate how seriously the IMF takes the issue of prompt repayment of loans. In the past, countries that have deliberately missed payments have had to make significant moves towards adopting IMF policy preferences in order to regain access to its financial resources. This could include things like meeting stricter spending targets and enacting fundamental tax and pension reforms to gain future access to funds.

6. Greece is the IMF’s biggest-ever debtor. This means the stakes for the IMF are higher here than in other countries. Greece’s €1.6 billion payment would be the largest payment ever missed to the IMF.

imageRelations between Syriza and the IMF will not be easy going forward.EPA/Julien Warnand

7. Future relations are going to be tricky. It is difficult to see how the IMF could work with the Syriza-led coalition government after this default. There is an intense political dimension to the stalemate with the country’s creditors. The IMF does not like countries playing hardball over loan conditions. It likes populist appeals and inflammatory rhetoric even less. And it is fundamentally opposed to giving favourable deals to governments that violate their obligations to the organisation.

8. Greece’s default is a disaster for the IMF’s credibility. There is no positive spin that can be put on this. The IMF relies on countries making their payment obligations no matter what. This is why so few countries in recent years have gone into protracted arrears with the IMF. Greece’s credibility is already in dire straits, but the IMF has much to lose from its largest debtor “behaving badly”.

The IMF is already under fire from developing countries where Greece is seen as receiving special treatment. Unless the IMF brings the hammer down on Greece now, future borrowers outside of Europe will also delay IMF loan repayments when it is inconvenient.

9. Expect a severe response. If no quick resolution is found after Greece’s referendum on its bailout, the IMF must react strongly to preserve its credibility with other debtors. In the short term, the IMF is likely to step back sharply from seeking a compromise position with Greece. The IMF will insist the government makes key policy changes and meets its scheduled repayments before bailout negotiations can resume.

In the longer term, if Greece remains in arrears, the IMF could take the extreme step of suspending the country’s membership. Even if Greece didn’t need access to IMF resources, being suspended from the organisation would be another first for an advanced economy, and would see Greece’s reputation in the international financial community plummet further. Countries that remain in protracted arrears, such as Zimbabwe, have to complete an informal “staff-monitored programme” of policy conditions without funding as part of the process of normalising relations with the IMF.

Taken together, these nine points highlight the dangerous waters that Greece, the IMF, and the EU have now entered. Regardless of the referendum result, it is difficult to see the IMF cooperating with the government in Greece in the near future. Either fresh elections or a monumental change in policy direction will have to occur for that to happen.

André Broome has previously received funding from the European Commission under the 7th Framework Programme..

Authors: The Conversation

Read more http://theconversation.com/nine-things-to-know-about-greeces-imf-debt-default-44097

'Death by irony': The mystery of the mouse that died of smoke inhalation, but went nowhere near a fire

arrow_forward

Students in Melbourne will go back to remote schooling. Here's what we learnt last time and how to make it better

arrow_forward

Where are the most disadvantaged parts of Australia? New research shows it's not just income that matters

arrow_forward

The Conversation
INTERWEBS DIGITAL AGENCY

Politics

Prime Minister Scott Morrison Interview with Ray Hadley, 2GB

RAY HADLEY: Prime Minister, Scott Morrison, supposed to be on holidays. He's not. He's online. Prime Minister, good morning.    PRIME MINISTER: G’day Ray. Certainly staying very close to every...

Scott Morrison - avatar Scott Morrison

Scott Morrison Covid 19 update

PRIME MINISTER: Good afternoon, everyone. Today I’m joined by Professor Paul Murphy - sorry, Professor Paul Kelly. I’ve got Brendan Murphy still on the brain. You are not far from us, Brendan. B...

Scott Morrison - avatar Scott Morrison

Prime Minister Interview with Ben Fordham, 2GB

FORDHAM: Thank you very much for talking to us. I know it's a difficult day for all of those Qantas workers. Look, they want to know in the short term, are you going to extend JobKeeper?   PRI...

Scott Morrison - avatar Scott Morrison

Business News

Fifth Dimension: Identified as one of the world’s leading strategic consultancies

Sydney based consulting company, Fifth Dimension, has been recognised for its ground breaking work, receiving a place in the GreenBook Research Industry Trends (GRIT) Top 25 Strategic Consultancie...

Tess Sanders Lazarus - avatar Tess Sanders Lazarus

Understanding Your NextGen EHR System and Features

NextGen EHR (Electronic Health Records) systems can be rather confusing. However, they can offer the most powerful features and provide some of the most powerful solutions for your business’s EHR ne...

Rebecca Stuart - avatar Rebecca Stuart

SEO In A Time of COVID-19: A Life-Saver

The coronavirus pandemic has brought about a lot of uncertainty for everyone across the world. It has had one of the most devastating impacts on the day-to-day lives of many including business o...

a Guest Writer - avatar a Guest Writer



News Company Media Core

Content & Technology Connecting Global Audiences

More Information - Less Opinion