Greeks escalate bailout divisions by lashing out at ‘misleading’ IMF report

7/2/2017

By Mehreen Khan and Shawn Donnan

Greece’s finance minister has lashed out at the International Monetary Fund’s “misleading” analysis of the country’s economic health and debt trajectory, intensifying a rift between Athens and the Fund over its involvement in the country’s three-year bailout programme.

Responding to the IMF’s 91-page healthcheck of the Greek economy, Syriza’s Euclid Tsakalotos said the analysis gave an unfair and “insufficient” account of reform efforts undertaken by the left-wing government since the summer of 2015.

Mr Tsakalotos said the “overly pessimistic” account led the Fund to a wrong-headed assessment of the country’s debt dynamics, which the report says could reach “explosive” proportions above 200 per cent of GDP without major debt relief or bolder spending cuts and reforms.

Syriza is resisting passing any further austerity measures through its parliament amid dwindling popular support. The left-wing government has also been able to boast better-than-expected public finances in 2016 – an outperformance Mr Tsakalotos says is evidence that it is able to meet its bailout targets of a 3.5 per cent of GDP budget surplus after 2018.

Greece’s questioning of the IMF’s findings follow similar criticism from the head of the eurozone’s finance ministers, Jeroen Dijsselbloem, who called on the Fund to be “honest” about its demands for the bailout, also dubbing the’Article IV’ report an “outdated” assessment of the Greek economy.

The report is likely to entrench differences between the IMF on the one hand and Athens and the EU on the other, ahead of a key decision from the Fund on whether it will provide fresh financing to its largest every debtor country later this month.

Poul Thomsen, the head of the IMF’s European department, defended the projections on Tuesday and warned EU creditor targets risked undermining a fragile economic recovery.

The IMF has long argued that budget targets set by its European partners are too severe and continue for too long. It also has warned Greece’s public debt is likely to continue ballooning and reach 275 per cent of GDP by 2060 unless Athens is given significant debt relief by Germany and other creditors.

Financial markets have also taken a grim view of proceedings, sending Greece’s short-term bond yields rocketing above 10 per cent earlier today.

Current figures from the Greek government suggest Athens will hit a primary budget surplus (which excludes debt repayments) of 2 per cent for 2016, on the back of rising tax collection, while the IMF has pencilled in deficit of -0.5 per cent.

“The argument that Greece cannot sustain high fiscal surpluses that surpass 1.5 percent of GDP is in contradiction to recent developments”, said Mr Tsakalotos in written comments at the end of the report.

“The results of the debt sustainability analysis are doubtful, since they rely neither on the most recent evidence of fiscal performance nor on the most upto-date evidence on the ability of the Greek economy to produce fiscal surpluses”, he said.

In a wide-ranging excoriation of the Fund’s findings, the Oxford-educated former Marxist economist also questioned the IMF’s recommendation the government should cut back on tax credits and highlighted “gaps” in the IMF’s assessment of Greece’s pension reforms.

Mr Tsakalotos also disputed the IMF’s downgrade of Greece’s long-term growth rate from 1.25 per cent to 1 per cent, despite the country’s efforts to revamp its economy through structural reforms. The findings were an “oxymoron”, he said.

“Both recommendations in the report and assumptions in the DSA analysis are not in line with the most recent, evidence-based and pragmatic analysis of the Greek economy”, he said.

His criticism were echoed by Greece’s central bank chief, Yannis Stournaras, who added the IMF economists did not give due account of the progress made in the country’s banking sector, “as well as on future financial developments, including banks’ further needs for recapitalisation”.

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