Greece cleared to get next bailout installment
Tuesday, November 23, 2010
ATHENS, Greece (AP) — Greece will receive the next part of its 110 billion ($150 billion) bailout package, but still faces challenges in its reforms and must make an extra effort to meet next year’s deficit targets, the IMF, ECB and EU executive said Tuesday.
Representatives of the three bodies, dubbed the ’troika,’ said they were recommending that the country receives the third batch of loans, worth 9 billion. The country’s finances undergo an inspection before each quarterly disbursement of the funds from the International Monetary Fund and the other European Union countries using the euro as their currency.
Finance Minister George Papaconstantinou told a press conference he expected the money to be disbursed in December and January as planned, and pledged “targeted action” to address public sector waste and rampant tax evasion.
The troika officials said that while they were confident Greece would be able to return to international markets before the end of the three-year bailout, as it has said it aims to, several options were available to help the country if it found itself in difficulty.
Greece began receiving the loans, which run to 2013, in May. The rescue package was its only hope of staving off default after the debt-ridden country found itself essentially locked out of the international market by prohibitively high interest rates demanded for its bonds.
Athens must start repaying the loans in the first two years after the program ends.
“This means we are going to have a significant hump in debt service repayment as soon as the program ends,” said IMF mission chief for Greece Poul Thomsen.
“We are confident that Greece will be able to return to the market during the program period,” he said, but added that it was “admittedly a question” as to whether Greece would be able to tap the market for the full amounts needed to refinance its existing debt and repay the bailout loans.
“We are aware that this is an issue that raises some concern in the markets. We have various options for dealing with it,” Thomsen said.
One option would be to allow a longer repayment period for the rest of the rescue loan financing, or to give follow-up loans.
“If there proves to be a question we stand ready to exercise some of these options. But there has been no decision taken,” Thomsen said.
The Socialist government has repeatedly said it hopes Greece will return to the markets some time in 2011.
“Our overall assessment of the program is that the program is broadly on track,” said the European Commission’s Servaas Deroose. “Fiscal consolidation has been impressive and is progressing well. Nevertheless important challenges remain.”
The troika said Greece must make an “extra effort” to meet the target of reducing its deficit to 7.5 percent of gross domestic product in 2011, from the 15.4 percent it stood at last year. The 2009 deficit was revised upwards earlier this month, from the previous figure of 13.6 percent.
The troika said the government has also agreed to take new measures to broaden its tax base and eliminate wasteful spending, particularly in health care spending, loss-making state companies and tax administration, which has struggled to collect enough taxes.
While Greece is generally meeting the targets set out in its bailout agreement, it has done so by doing better than expected in state spending cuts, which have offset problems in revenue and other areas.
The IMF said this has to change.
“So far the government has been able to offset these shortfalls by underspending at a state level, that’s why the overall targets are still being met. That’s clearly not a sustainable strategy going forward,” Thomsen said. “We cannot keep on just cutting at a state level to offset the lack of control in other areas.”
Thomsen said long-term sustainability hinged on improving tax collection and comprehensive health spending reform — while maintaining an “efficient” health system. The changes were necessary both for economic reasons and to maintain “social fairness,” as much of the burden of the government’s austerity program has been borne by pensioners and wage earners so far, he said.
Reforms that must be taken include opening up closed professions, services and trades, privatizing state assents, cutting red tape and reforming collective wage agreements.
“So in conclusion the program is off to an impressive start but it is also at a crossroads. The sustainability of achievements to date will only be maintained if there is a very determined effort to move on structural reform,” Thomsen said.
Greek labor unions have fiercely opposed the austerity program, holding a string of strikes this year. Mounds of uncollected rubbish have piled up on the streets of Athens due to a five-day municipal workers, strike, while a 24-hour seamen’s strike Tuesday kept all ferries confined to port.
Associated Press Writers Nicholas Paphitis and Derek Gatopoulos contributed to this report