The FINANCIAL — The Executive Board of the International Monetary Fund (IMF) on May 9 approved a three-year SDR 26.4 billion (€30 billion) Stand-By Arrangement for Greece in support of the authorities’ economic adjustment and transformation program.
This front-loaded program makes SDR 4.8 billion (about €5.5 billion) immediately available to Greece from the IMF as part of joint financing with the European Union, for a combined €20.0 billion in immediate financial support. In 2010, total IMF financing will amount to about €10 billion and will be partnered with about €30.0 billion committed by the EU.
"The Stand-By Arrangement, which is part of a cooperative package of financing with the European Union amounting to €110 billion (about US$145 billion) over three years, entails exceptional access to IMF resources, amounting to more than 3,200 percent of Greece’s quota, and was approved under the Fund's fast-track Emergency Financing Mechanism procedures," IMF said.
“The Greek government should be commended for committing to an historic course of action that will give this proud nation a chance of rising above its current troubles and securing a better future for the Greek people,” IMF Managing Director Dominique Strauss-Kahn stated. “Today, the IMF has demonstrated its commitment to doing what it can to help Greece and its people. The road ahead will be difficult, but the government has designed a credible program that is economically well-balanced, socially well-balanced—with protection for the most vulnerable groups—and achievable. Implementation is now the key. Together with our partners in the European Union, we are providing an unprecedented level of support to help Greece in this effort and—over time–to help restore growth, jobs, and higher living standards.
"Today's strong action by the IMF to support Greece will contribute to the broad international effort underway to help bring stability to the euro area and secure recovery in the global economy,” the Managing Director stated.
The Greek government has designed an ambitious policy package to address the economic crisis facing the nation. It is a multi-year program that rests on the twin pillars of substantial up-front efforts to correct Greece’s grave fiscal imbalances and to make the economy more competitive that in time will restore growth and jobs. The authorities’ program is designed with fairness in mind so that the burden will be shared across all levels of society and that the most vulnerable groups will be protected. Exceptional financial assistance from the international community will support the authorities’ efforts by providing sufficient financial resources to allow time for building a track record of policy implementation that will restore market confidence, foster growth and reduce Greece’s fiscal imbalances.
Following the Executive Board’s action on Greece, Mr. John Lipsky, First Deputy Managing Director and Acting Chair, said:
“The Greek economy has been shaken by adverse market sentiment in the past few months. These pressures reflect concerns about unsustainable public finances and weak competitiveness. Initial attempts to address these problems failed to restore market confidence, with adverse spillover to the banking sector.
“The Greek authorities have now developed a bold program with strong upfront policies to re-establish credibility and regain market confidence. The program focuses on: (i) restoring fiscal sustainability, (ii) boosting external competitiveness, and (iii) safeguarding financial sector stability. To allow time for Greece to implement these reforms and demonstrate a credible track record, as well as ease the burden of adjustments on the part of the Greek people, the international community has embarked on an unprecedented financial support package. The ambitious measures that the Greek authorities are strongly committed to undertaking under the program, including against the backdrop of the significant risk of spillover to other countries, merit an exceptional level of access to Fund resources.
“At the heart of the adjustment strategy is a fiscal consolidation to lower the deficit to well below 3 percent of GDP by 2014 and restore debt sustainability. The authorities have designed a large package of fiscal measures of 11 percent of GDP to achieve this target. The measures have been heavily frontloaded and fully identified. The package appropriately includes a fair distribution of the adjustment burden across society by protecting the most vulnerable and imposing a higher tax burden on the relatively affluent. It also includes measures to rationalize the public sector.
“While short-run output will necessarily contract as the economy adjusts, structural reforms should help to restore external competitiveness and, together with improved market confidence, set the economy on a recovery path. Strong implementation of reforms aimed at increasing the flexibility of the labor market, improving domestic competition, and streamlining public administration will be key.
“The recent European Central Bank’s decision to extend Greek bond eligibility for repurchase transactions of market debt instruments issued or guaranteed by the Greek government should help improve bank liquidity. Also, the establishment of a Financial Stability Fund will ensure that banks remain adequately capitalized during the downturn, preserving financial stability. Banking supervision and the legal frameworks will also be strengthened.
“The Greek authorities’ program is an appropriately ambitious response to the current circumstances and constraints, but considerable downside risks remain. The challenge ahead will be to implement the program rigorously, while securing the necessary public consensus for reforms.
“The misreporting of Greece’s 2008 fiscal and public debt data, which led to a breach of obligations under Article VIII, Section 5 of the Fund’s Articles of Agreement, is regrettable. The authorities have already taken remedial measures to address data deficiencies, and they are committed to taking additional corrective actions in consultation with the Fund, EU partners, and Eurostat. No further action is required by the Fund under its procedures for the breach of obligations. Going forward, strict compliance with reporting requirements to the Fund will be required.”