IMF Board Approves €28 Billion Loan for Greece

IMF approves €28 billion in new financing for Greece

Private sector debt writedown important step toward restoring debt sustainability

Restoring growth through improved competitiveness will be key

The IMF’s 24-member Executive Board agreed March 15 that the new loan will be made under the Extended Fund Facility, which is designed for countries undertaking reforms to address deep-seated structural weaknesses.

Approval of the new program will lead to the immediate disbursement of about €1.65 billion ($2.2 billion). The previous 3-year Stand-By Arrangement that was approved in May 2010 has been cancelled by the Greek authorities, which means that any undisbursed funds have also been cancelled and will not automatically become part of the new program.

“Greece has made tremendous efforts to implement wide-ranging painful measures over the past two years, in the midst of a deep economic recession and a difficult social environment. The fiscal deficit has been reduced markedly and competitiveness has gradually improved. However, the challenges confronting Greece remain significant, with a large competitiveness gap, a high level of public debt, and an undercapitalized banking system,” IMF Managing Director Christine Lagarde said.

“The new Fund-supported program will enable Greece to address these challenges while remaining in the Eurozone. The program focuses on restoring competitiveness and growth, fiscal sustainability, and financial stability,” she added.

A key ingredient in the government’s revamped economic strategy was the successful conclusion on March 9 of a substantial write-down of Greece’s bonded debt, which will dramatically reduce the country’s medium-term financing needs. The IMF has maintained that Greece must reduce its debt-to-GDP ratio to 120 percent by 2020 if its debt is to become sustainable in the medium term. The debt exchange, which saw private sector investors agreeing to write down 75 percent of their Greek bond holdings, is the largest and steepest debt reduction agreement in history.

Official sector support for the second Greek program entails €130 billion (about US$170 billion) in new financing, in addition to the remainder of the financing support for the first program of €34 billion (about US$44 billion). The IMF contribution of €28 billion will be disbursed in equal tranches over a four-year period.

Putting growth at the center of the agenda

The main goal of Greece’s economic program is to support a...