IMF approves latest bailout payments to Greece and Portugal

17 Jan 13
The International Monetary Fund has released the latest tranche of Greece’s bailout funds, saying the country’s economic adjustment programme is moving in the ‘right direction’.

By Nick Mann | 17 January 2013

The International Monetary Fund has released the latest tranche of Greece’s bailout funds, saying the country’s economic adjustment programme is moving in the ‘right direction’.

The €3.4bn payment was approved by the IMF’s executive board last night as it concluded both its first and second reviews of Greece’s economic performance under the financing arrangements for 2012–2016. The IMF and eurozone countries are together funding the €172bn bailout deal agreed in March 2012.

In a statement following the decision, IMF managing director Christine Lagarde, said: ‘The programme is moving in the right direction, with strong fiscal adjustment and notable labour-cost competitiveness gains.’

In particular, the fiscal effort had been ‘impressive by any measure’, she added. ‘The frontloaded adjustment will help bring spending back towards pre-euro levels, and has been designed to protect the most vulnerable.’

‘Looking ahead, Greece needs to radically overhaul its tax administration to bolster tax collections, fight tax evasion, and shrink the public sector, in particular through targeted redundancies.’

‘Much more’ needs to be done to achieve the reforms needed to boost the country’s productivity and to lower prices, she added. ‘Ambitious reductions in barriers to competition are crucial. It will also be important for the government to deliver its privatisation plans and to take appropriate steps to strengthen the governance of the process, if necessary.’

Lagarde noted that while Greece had been given more time to adjust its economy – including a longer timeframe to reduce its debt – the IMF’s strategy for the country remained focused on restoring growth, competitiveness and debt sustainability.

‘Forceful structural reforms and broad-based domestic support will be needed to meet challenges, alongside long-term support from Greece’s European partners,’ she explained.

The IMF noted that eurozone countries had given Greece more leeway on loan repayments and were also considering taking other measures that would help the country to reduce its debt to ‘substantially’ below 110% of gross domestic product by 2022. Greece’s debt-to-GDP ratio is forecast to reach as much as 189% this year.

The IMF executive board also approved a €838.8m payout to Portugal yesterday, the latest tranche in a €78bn, three-year bailout package agreed in 2011.

Nemat Shafik, IMF deputy managing director, said Portugal’s policy and reform effort had been ‘impressive’ and highlighted the ‘considerable progress’ made in both its fiscal and external adjustment.

‘Nonetheless, the near-term outlook is uncertain, and sizable medium-term economic challenges remain,’ she said. ‘In light of this, the authorities need to sustain efforts to make the tradeable sector more competitive, boost long-term growth, and further advance fiscal consolidation.’

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