The International Monetary Fund’s board of directors has expressed its concerns about the institution’s participation in a third Greek bailout. While no official statement has been made by fund officials, the credibility of the debtor nation has reached abysmal levels according to the criteria set out in the IMF’s protocol for supporting ailing economies.
The lack of reforms and the missed payment at the end of June have been haunting Greece’s prospects to qualify for a new tranche from the international lender of last resort. The event could lead to additional hurdles for the ratification of Greece’s third bailout package in the German parliament.
Any delays of the enactment of the program could lead to the return of turmoil to the European markets as uncertainty levels rise once more. The fresh €86 billion euros package has yet to be fully designed and the IMF’s involvement in the process has been of paramount importance to the European creditors of the country.
While technically there should be no hurdles for the IMF to provide its expertise, the disbursement of funds is under question. The events coincide with recent opinions voiced by IMF reports and documents that the Greek debt burden is unsustainable and a restructuring of some sort should be warranted.
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The former finance minster of Greece Yanis Varoufakis recently sparked some controversy after admitting to have built a parallel payments system under the radar to make a Grexit possible.
Allegations by local prosecutors have prompted parliament to strip Mr. Varoufakis of his immunity in order to prosecute him for treason due to the aforementioned plans.
Moving back to the IMF board discussion, Greece has apparently been lacking in two key areas for the fund to continue supporting it. The lack of institutional and political capacity to implement reforms and the unsustainability of the country’s debt in the medium term have prompted concerns.
The fund will only be able to revisit its position after the criteria are met, signifying that the recent speculation about some form of debt relief for Greece will most likely turn out to be correct. At the same time, the Greek government will be facing a tough couple of months during which it has to demonstrate to its creditors its ability to engage in sufficient reforms.