IMF Speaks of More Potential Financing for Greece

Less success in meeting original bailout terms would mean more new money needed

The Wall Street Journal

By IAN TALLEY

May 5, 2015 2:46 p.m. ET

The International Monetary Fund said Tuesday IMF officials didn’t push for large-scale debt relief in recent negotiations for emergency financing for Greece, but rather underscored that more financing would be needed if Athens failed to live up to its original bailout conditions.

“IMF European Department Director Poul Thomsen pointed to the trade-off that needs to be made in reaching agreement in the current discussions,” the IMF said in an emailed statement, referring to the negotiations held in Riga, Latvia, late last month.

In particular, Mr. Thomsen told negotiating parties that “the more distant the measures agreed and targets are from the original commitment in 2012, the higher would be the need for additional financing and debt relief to make the country’s debt sustainable.”

Under IMF rules, the fund can’t lend emergency financing unless there is sufficient cash to meet all of the country’s obligations over the next 12 months. Even before the current impasse between Greece and its creditors, the fund long said Athens would likely face a financing gap that Europe would need to fill.

In 2012 Greece’s European creditors agreed to provide any debt relief needed to reduce the country’s obligations to substantially below 110% of gross domestic product in 2022 if Athens met its bailout terms. Fund officials targeted those levels as necessary to ensure the country’s debt obligations didn’t overwhelm its finances.

The IMF says that debt-relief deal is still in play should Athens agree to bailout terms that meet the old bailout parameters.

“There’s an agreed framework in place for dealing with Greece’s debt in the current program and there’s been no discussion of a change in this framework,” IMF spokesman Gerry Rice told reporters last week.

If Greece and its creditors agree to loosen the previous requirements for budget belt-tightening and economic overhauls, ostensibly it would require more cash to fill the financing gap and bolder debt-relief efforts to ensure the country doesn’t drown under the weight of its debt obligations.

But neither Athens’s new antiausterity government or its European paymasters have shown much flexibility in negotiations, pushing the country closer to default and rattling investors.

Write to Ian Talley at ian.talley@wsj.com