When Did IMF Change Its Mind?

The Wall Street Journal

By  STEPHEN FIDLER

Cast your mind back to the spring meetings of the International Monetary Fund in Washington in April 2011. Nervousness about Greece’s debt travails was reaching fever pitch, and on April 16, we ran this story.

By Costas Paris and Ian Talley

WASHINGTON — The International Monetary Fund believes Greece’s debt is unsustainable and has told European government and central bank officials that Athens should consider restructuring by next year, three people familiar with the situation said Saturday.

“The IMF believes the debt situation in Greece is unsustainable,” one of those people, who has direct knowledge of the matter, told Dow Jones Newswires. “Senior (IMF) officials have told the parties involved that restructuring should be considered soon,” including the European Commission and euro-zone governments.

IMF spokesman William Murray denied the IMF was recommending a restructuring of all Greek debt including that held by private holders, but the IMF has said the fund has considered extending the loan repayment schedule for Athens, a form of restructuring.

As we reported, the IMF denied this highly sensitive article in a very comprehensive manner. Mr. Murray, whom we cited above, told Bloomberg News “there is absolutely no truth” to the story. Other senior officials made similar comments.

More than two years on, the IMF has gone in for some retrospection on its role in the bailout of Greece, as we were the first to report last week.

The IMF report says the question of restructuring Greece’s heavy debts was raised in 2010, but dismissed. Then, the IMF says it began to push privately for debt restructuring once Greece’s economic program went off track. When was that? The answer: early 2011.

Here’s the quote (from page 33) using the initials PSI, which means “private-sector involvement”–jargon for getting investors in Greek government bonds to take losses to reduce the government’s debt-repayment burden.

“Avoiding undue delays in debt restructuring. Upfront debt restructuring was not feasible at the outset. While the Fund began to push for PSI once the program went off track in early 2011, it took time for stakeholders to agree on a common and coherent strategy.”

It seems to be another example of the IMF admitting what it would not at the time. However, when asked this week whether the IMF intended to revisit its denial of the Journal story, Mr. Murray said no. He cited a published IMF staff report from July 2011 as evidence that the denial was factual.

The July 2011 staff report assumed (see page 66) that  PSI would be achieved by Greek institutions and euro-area banks agreeing to roll over maturing debt for a further five years at the same interest rate, reducing Greece’s need to find new finance by €33 billion.

It’s hard to read the PSI discussion in last week’s report and infer that rolling over €33 billion of government bonds  – which wouldn’t reduce Greece’s debt at all — is what its authors meant when they referred to the IMF starting its push for PSI in early 2011. At the very least, it suggests the IMF’s retrospective isn’t the last word on the subject.