IMF not convinced Athens' package of measures enough: Wikileaks conversation

By Thanos Tsiros

A gloomier climate for resumed negotiations between Athens and its institutional creditors is the most visible result of the weekend’s so-called “IMF-Gate”, as beyond whatever “Wikileaked” material, a first review of the Greek program is still a pressing matter this month.

A scheduled meeting for Monday, the first for this month and after Western Easter, will probably be rescheduled for Tuesday.

 If the leaked conversations of a teleconference between Poul Thomsen, the head of the IMF’s European department, and Delia Velculescu, the IMF mission chief for Greece, are taken at face value, then the following conclusions can be surmised:

• The IMF is not confident that Greece’s fiscal gaps over the 2016-18 periods can be covered by an additional 5.4 billion euros in measures, mostly tax hikes of all kinds and possibly “strategic” cuts in pensions. The Fund has lobbied for more measures and has hinted that it may withdraw from the Greek program if the “numbers don’t add up”.
• The IMF, as again inferred from the leaked conversation – which, however, the IMF does not officially acknowledge – does not believe a 3.5 percent primary budget surplus is possible amid the current Greek economic environment. The leaked conversation points to a more realistic target of 1.5 to 2.5 percent of GDP for 2018, regardless of whether the 3.5-percent figure is a third memorandum target.
• The IMF – apparently in contrast to European creditors – wants talks to begin as soon as possible on debt reduction for Greece, even within the month on the sidelines of the Fund’s annual spring meeting in Washington D.C. The IMF wants a specific timetable for negotiations, as well.

Moreover, the leaked teleconference between Thomsen and Velculescu points to more issues being discussed than the ones previously at the center of press speculation, such as possible cuts in public sector wages instead of the “traditional recipe” of tax hikes. The development, if proven true, comes after institutional creditors approved a minor increase in the state’s payroll to the tune of 150 million euros, on a yearly basis, late last year.

Additionally, changes in the way VAT remittances are levied appeared on the horizon. The IMF apparently wants the lower rate increased, and utility charges (power, water) switched to the highest rate, 23 percent.

Conversely, the Fund appears positive on the Greek side’s willingness to raise special consumption taxes on fuels.