IMF contemplates returning to Greece… again

11 February 2016 by Bretton Woods Project

Greek protest against Troika, February 2016. Photo: laetitiablabla

In January, the IMF confirmed it has been in negotiations for a third loan since 2010 to the Greek government; the details of the Fund’s mission are yet to be confirmed. A third loan programme from the European Central Bank and European Commission was arranged in February 2015 and extended in August (see Observer Autumn 2015), however, the IMF was not part of this agreement.

The conditions of the IMF IMF
International Monetary Fund
Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.

When the Bretton Wood fixed rates system came to an end in 1971, the main function of the IMF became that of being both policeman and fireman for global capital: it acts as policeman when it enforces its Structural Adjustment Policies and as fireman when it steps in to help out governments in risk of defaulting on debt repayments.

As for the World Bank, a weighted voting system operates: depending on the amount paid as contribution by each member state. 85% of the votes is required to modify the IMF Charter (which means that the USA with 17,68% % of the votes has a de facto veto on any change).

The institution is dominated by five countries: the United States (16,74%), Japan (6,23%), Germany (5,81%), France (4,29%) and the UK (4,29%).
The other 183 member countries are divided into groups led by one country. The most important one (6,57% of the votes) is led by Belgium. The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries.
loan as outlined in July by newspaper International Business Times, includes a deepening of Greece’s privatisation programme, higher taxes on farmers and changes to the pension system, such as increasing the retirement age and employee contributions. Greece has a debt of €320 billion ($350 billion) and a debt to GDP GDP
Gross Domestic Product
Gross Domestic Product is an aggregate measure of total production within a given territory equal to the sum of the gross values added. The measure is notoriously incomplete; for example it does not take into account any activity that does not enter into a commercial exchange. The GDP takes into account both the production of goods and the production of services. Economic growth is defined as the variation of the GDP from one period to another.
ratio approaching 180 per cent. The Fund claimed Greece’s current pension system is “unaffordable” and is currently reviewing draft proposals for reform.

Gerry Rice, the Fund’s director of communications, said in January that the IMF was “ready to support Greece not only with advice, not only with technical assistance but also with financing.” Referring to a “both legs” approach, the Fund proposed debt relief and pension reform as necessary to “ensure stability”. In a January statement made at the World Economic Forum in Davos, Switzerland, IMF managing director Christine Lagarde said that “such a programme would require strong economic policies, not least pension reforms as well as significant debt relief from Greece’s European partners to ensure that debt is on a sustainable downward trajectory.”

“for us it’s a red line not to reduce pensions for a 12th consecutive time”

Greeks loathe returning to the Fund

Speaking to the Wall Street Journal in January, Greek labour minister Giorgos Katrougalos said “for us it’s a red line not to reduce pensions for a 12th consecutive time”. Greek pensions have been cut by 40 per cent since the 2010 loan package. He added “the best way to fill the gap is not by reducing but by increasing the economy. We must not burden the economy further with recession-bringing measures”.

Labour unrest from both the public and private sector is troubling a government with a parliamentary majority of just three seats. Unions have announced a general strike in February, following demonstrations and blockades in January with 10,000 mostly self-employed professionals and farmers who are at risk of losing more than three quarters of their annual earnings.

After a meeting with Lagarde in Davos, Greek prime minister Alexis Tsipras said, “we must all understand that, next to balanced budgets, we must also have growth … We need to be more realistic, and show more solidarity too.”

The IFC gets involved

In May 2015 the International Finance Corporation (IFC, the World Bank World Bank
The World Bank was founded as part of the new international monetary system set up at Bretton Woods in 1944. Its capital is provided by member states’ contributions and loans on the international money markets. It financed public and private projects in Third World and East European countries.

It consists of several closely associated institutions, among which :

1. The International Bank for Reconstruction and Development (IBRD, 189 members in 2017), which provides loans in productive sectors such as farming or energy ;

2. The International Development Association (IDA, 159 members in 1997), which provides less advanced countries with long-term loans (35-40 years) at very low interest (1%) ;

3. The International Finance Corporation (IFC), which provides both loan and equity finance for business ventures in developing countries.

As Third World Debt gets worse, the World Bank (along with the IMF) tends to adopt a macro-economic perspective. For instance, it enforces adjustment policies that are intended to balance heavily indebted countries’ payments. The World Bank advises those countries that have to undergo the IMF’s therapy on such matters as how to reduce budget deficits, round up savings, enduce foreign investors to settle within their borders, or free prices and exchange rates.

’s private sector arm) agreed to the Greek government’s request for reengagement with its financial sector, following from a request made in late 2014 but delayed due to uncertainty over Greece’s status in the eurozone.

In November, the IFC announced it was to invest in Greece. In December, €150 million ($164 million) worth of shares were acquired in Greece’s four main banks, which, according to a European Central Bank Central Bank The establishment which in a given State is in charge of issuing bank notes and controlling the volume of currency and credit. In France, it is the Banque de France which assumes this role under the auspices of the European Central Bank (see ECB) while in the UK it is the Bank of England.

stress test in October, face a €14.4 billion ($15.7 billion) shortfall. According to the IFC, Greece’s infrastructure, energy, logistics and credit sectors are the targets of their private sector investment opportunities. Dimitris Tsitsiragos, IFC vice president, said “the main goal is to re-establish confidence and trust about investing in Greece”, reported news agency Reuters in November.

The IFC invests primarily in developing countries, making this temporary engagement unusual, but not unique. It follows for example, investments in South Korea during the 1999 Asian financial crisis (see Update 63). Questions remain over the IFC’s ability to understand and measure the developmental impact of their investments (see Observer Winter 2014).




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