IMF review of Greek economy to clarify Fund's role vis-a-vis bailout program

By T. Tsiros

An IMF delegation has remained in Athens following last week’s day-to-day negotiations between the Greek government and institutional creditors, of which the IMF is one of four parties, in order to compose a review of the Greek economy.

The IMF’s review, the first of its kind since 2013, is linked with the Fund’s charter, and specifically a provision in Article IV, which states that the IMF must “… oversee the compliance of each member with its obligations.”

Later in the day, IMF representative for Greece Delia Velculescu was received by Greek Finance Minister Euclid Tsakalotos for a meeting that lasted one and a half hours, and focused directly on the pending IMF report.

Besides the state of the Greek economy, the IMF’s report will include an extensive review of the labor market in the country, something confirmed by IMF spokesman Gerry Rice, a sector for which the Fund’s representatives have repeatedly pressed consecutive Greek governments to move towards a greater liberalization, in order to cut business costs and boost the country’s lagging competitiveness.

Speaking during a regular briefing last week, Rice nevertheless said the current review is unrelated to the negotiation conducted within the framework of the third Greek bailout, in which the Washington-based Fund is joined by the EU Commission, the ECB and the SSM, although only the three European institutions currently fund the Greek state. The four are known collectively as the “quartet”, having added the SSM and thus graduating from the “troika”.

The added significance of the coming review is the fact that it will be used by the IMF’s board of directors in November to judge the “sustainability” of the Greek debt, and by extension, if the Fund will remain as one of the four institutional creditors in the ongoing bailout program.

As such, the coming three-month period should clarify three main questions in relations between the IMF and Greece, and between the IMF and European institutions, namely:

• What, if any, specific measures for Greek debt relief will be taken, and when
• If a “correction” will be made for the primary budget surplus targets, as a percentage of GDP, which a Greek government must post after 2018. Current targets are fixed through 2018.
• If the IMF will participate in the current program with funding, and not merely in a consultative capacity.