The International Monetary Fund on Thursday approved in principle a $1.8 billion standby loan arrangement for Greece, making a conditional commitment to help underpin the country’s long-running bailout program for the first time in two years.
But the IMF’s approval-in-principle means the fund will not make any money available until after it receives “specific and credible assurances” from Greece’s European lenders to ensure the country’s debt sustainability.
The approval is also conditional on Greece keeping its economic reforms on track. The current bailout, Greece’s third since 2010, is now shouldered exclusively by European institutions.
A second Executive Board decision will be needed to make the IMF program fully effective, the IMF said. The arrangement will expire on Aug. 31, 2018, shortly after Greece’s European Stability Mechanism loan program ends.
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“The program provides both breathing space to mobilize support for the deeper structural reforms that Greece needs to prosper within the euro area and a framework for Greece’s European partners to deliver further debt relief to restore Greece’s debt sustainability,” IMF Managing Director Christine Lagarde said in a statement.
Lagarde had refused to join the latest bailout in 2015, arguing it would not be sustainable without debt relief and deeper spending and economic reforms in Greece.
But after two years of wrangling over debt relief, she agreed to support a conditional IMF participation in the bailout in June as part of a deal that unlocked 8.5 billion euros in loans
Delia Velculescu, IMF mission chief for Greece, told reporters on a conference call there was no deadline for European lenders to agree on debt relief over the next 13 months.
The program, which contains an overall central government debt ceiling for Greece, assumes that Greece’s primary fiscal surplus will reach 2.2% of gross domestic product in 2018.
“We think this is appropriate for Greece and we’re not expecting additional measures to underpin this target,” she said, adding the 2019 target of 3.5% required previously legislated reforms to kick in.
Lagarde has argued that the 3.5% target required by European lenders is too burdensome, and that the IMF wanted to see the surplus target quickly reduced to a more sustainable level of 1.5% of GDP.