Financial Times
July 13, 2011
Wednesday’s report on Greece by the International Monetary Fund, which helped unlock its latest tranche of rescue lending, shows the fund in a familiar balancing act – on this occasion complicated by its junior role in the rescue programmes in western Europe.
When dealing with countries with huge debt burdens, the fund is constrained by its rules from lending into an unsustainable situation. Yet at the same time, not least because it has been reluctant to pull the plug and to bring down on its head the wrath of private investors, the IMF has often been loath to overrule a beleaguered government and to force a debt writedown.
In the past, as in the Argentine crisis, the IMF has erred on the side of allowing the indebted government to keep rolling the dice by borrowing more money from the fund and hoping that growth improves. Since then, however, the fund has adopted tougher rules to assess debt sustainability.
But since the IMF is providing only about a third of the money in the Greek rescue, the rest coming from Europe itself, it has largely been forced to stand by and watch as eurozone governments bicker with each other and the European Central Bank about the best way forward. While being careful to observe proprieties and not attempt to impose a solution, Wednesday’s report from the Fund steps up warnings against another short-term fix that would increase the long-term debt burden.
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