IMF mulling ‘approval in principle’ without funding for Greek programme, Rice says

The International Monetary Fund (IMF) is currently mulling the option of “approval in principle” for Greece’s programme with financing contingent on the necessary debt relief, IMF spokesman Gerry Rice confirmed on Thursday.

“That would possibly come into play if it proves impossible to reach agreement on financing and the debt relief measures before mid-July, when Greece will need further support from the European Stability Mechanism (ESM) to make some large repayments…there is this option that would enable the IMF to approve a financing arrangement based on the policies that have been agreed but – and this is very important – while making any actual IMF disbursements contingent on creditors agreeing to the debt relief that is necessary to ensure debt sustainability,” he said.

Rice said that the Fund considers such an approval in principle to be the second-best choice, since “the IMF’s primary objective remains the full package, of reforms plus debt relief,” that will allow the IMF to approve financing for Greece. For this to happen, however, in addition to the legislation of reforms there must also be sufficient clarification of the measures that will be adopted to relieve Greece’s debt that they “add up”, he said.

Rice said that the talks on Greece were continuing and that progress has been made. However, given Greece’s higher financing needs in July and in order to avoid “undesirable” situations of the sort that have occurred in the past, the IMF was prepared to consider “approval in principle” as it had done for certain countries during the 1980s, he added, though this option had not yet been presented to the IMF’s board.

The spokesman said that this solution would safeguard the progress made in Greece, taking into account the Greek people and the sacrifices they have made. It will also act as a catalyst for a comprehensive agreement with Greece’s creditors, where debt relief was a necessary component. Finally, it would avert any critical situations in July, given Greece’s high financing needs in that month.

The spokesman said that an “approval in principle” could pave the way for payment of the next installments of bailout loans by the European lenders. In order for the IMF to participate with its own funds, however, there has to first be an agreement on debt relief for Greece. Only in that case can the IMF board approve a financial contribution in the Greek programme, he said.

Rice expressed hope that such an agreement will be reached before the next Eurogroup taking place on June 15, which IMF Managing Director Christine Lagarde will be attending.