Greece Completes Latest IMF Loan Repayment

Country drew on its holdings of an International Monetary Fund reserve currency

The Wall Street Journal

By MARCUS WALKER and  STELIOS BOURAS

Updated May 12, 2015 2:13 p.m. ET

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ATHENS—Greece drew on its holdings of an International Monetary Fund reserve currency to make a loan repayment of around €750 million ($837 million) to the IMF, an unusual move that buys the country a few more weeks to reach a deal with creditors on fresh financing.

Greece’s government used funds from the country’s reserve account at the IMF, which contains the fund’s own currency, called Special Drawing Rights or SDRs, to repay Tuesday’s maturing IMF loan, officials in Athens said.

The officials said the IMF consented to the use of the reserve funds for the repayment. An IMF spokeswoman declined to comment about Greece’s transaction on Tuesday.

The result of the move is that Greece was able to avoid drawing on its own, quickly dwindling cash reserves and to make ends meet through May.

But Greece will almost certainly be unable to pay its debts and other bills in June without a cash injection from creditors, requiring a politically thorny deal on economic policies, according to officials in Athens and elsewhere in Europe.

The Greek government faces a string of further IMF loan repayments in June, totaling around €1.5 billion. It must also pay pensions and public sector wages at the end of May and June.

Next Payments for Greece.

€1.40 billion on May 15, 2015

Owed to: Treasury bill holders

€302.9 million on June 5, 2015

Owed to: International Monetary Fund

€1.60 billion on June 12, 2015

Owed to: Treasury bill holders

European officials believe Greece can cover all its expenses in May, thanks to the use of its SDR reserves. But “June is impossible,” said a senior official from one of Greece’s eurozone creditor countries.

Even in May, Athens faces a financial shortfall of about €500 million to cover pensions and wages, but it could probably raise this amount by tapping more of the cash reserves of local and regional governments, according to a senior Greek official.

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The central government has already gathered about €600 million from local governments and other public-sector bodies, government spokesman Gabriel Sakellaridis said Tuesday.

Greece’s need for a cash injection in June puts pressure on its government to reach an agreement by the end of May with technocrats representing the country’s creditors—the rest of the eurozone and the IMF.

The technocrats, backed by eurozone finance ministers, are pressing Greece to agree to a comprehensive list of economic overhauls, ranging from pensions to labor law to sales taxes to privatizations.

Many of the changes the creditors want are anathema to Greece’s government, led by the left-wing Syriza party, which was elected in January on a promise to end five years of tough austerity measures under Greece’s bailout program.

An economic-policy deal by late May would allow the European Central Bank to offer Greece a financial lifeline—in the form of ECB permission for Greek banks to buy more short-term government debt.

That stopgap solution would buy time for eurozone finance ministers, and national parliaments in some countries including Germany, to approve the release of fresh money under Greece’s bailout plan in subsequent weeks.

A late-May deal with the creditors’ technocrats would probably require Greek Prime Minister Alexis Tsipras to make more politically painful concessions on sensitive issues such as pensions than he has shown a willingness to do.

The Greek government has been lobbying for the ECB to offer its financial lifeline as soon as possible, but officials at the central bank have signaled that they want a deal on policy overhauls to be within sight before they move.

The ECB extended a little extra help to Greece’s banks on Tuesday, however, increasing the amount of money that Greek lenders can borrow under an emergency liquidity program.

The ECB raised the amount that Greece’s central bank can lend the country’s commercial banks to €80 billion from €78.9 billion the previous week, according to a Greek official.

That money doesn’t help the government to make ends meet, but allows Greek banks to cope with a steady outflow of deposits amid the continuing uncertainty about whether Greece and its creditors will agree to terms for fresh bailout aid.

The SDRs that Greece used on Tuesday to repay the IMF are a national reserve asset that Greece, like other IMF members, has accumulated over decades.

Most of Greece’s SDR reserve stemmed from a 2009 operation in which the IMF effectively printed money and gave some to all its members. As a result of that move, Greece’s SDR holdings rose from 15.4 million SDRs at the end of 2008 to 694 million SDRs at the end of 2009.

“There is still a small amount of money left [in the SDR reserve] but the largest chunk has gone,” said a Greek official.

—Charles Forelle in London contributed to this article.

Write to Marcus Walker at marcus.walker@wsj.com and Stelios Bouras at stelios.bouras@wsj.com