With no deal yet, has the IMF compromised its credibility in its handling of Greece’s bailouts?
Vicky Pryce, chief economic adviser at CEBR, says Yes
Greece was the IMF’s biggest rescue ever. The austerity measures it imposed may have worked for developing countries that could devalue, but they were not appropriate for a developed country like Greece, a member of the Eurozone.
The IMF admitted in a 2013 study that it had bent the rules, which required it to satisfy itself that public debt was sustainable in the medium term before granting exceptional assistance, as it feared contagion. It is now recognised that the conditions imposed on Greece were too harsh and too fast and pushed the country into a dangerous decline, making the probability of repayment even lower.
At the same time, IMF forecasts for the impact of the measures on the Greek economy were wildly off track time and time again. When the first bailout was negotiated, the IMF forecasts were for a drop of just 5.5 per cent in Greek GDP. The actual decline till now has been 25 per cent – far above the normal and acceptable margin of error.
David Buik, a market commentator at Panmure Gordon, says No
The timeless negotiations between the IMF, EU, ECB and Greece are reminiscent of a Fred Karno slapstick comedy of the 1920s.
Assuming there is a fudged deal agreed before 30 June when Greece is due to repay €1.6bn to the IMF, Greece will still be staring into a vortex of despair. It owes another €6.7bn to the IMF in July and August. Even if it were to agree to further cuts in exchange for the remaining €7.2bn bailout facility, the money would be needed to fund the government’s obligations. Sadly, however, life is not a philanthropic society.
As much as Christine Lagarde would like to help Greece, she is obliged to remember the IMF’s function. It services 188 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, while promoting employment and sustainable economic growth.
Consequently, the IMF would lose all credibility by unfairly accommodating Greece’s acute problems.