IMF seeks sound Greek debt solution

MANILA - Reuters

International Monetary Fund Managing Director Christine Lagarde gestures during a press briefing in Manila. EPA photo

An agreement among Greece’s creditors on how to reduce its large debt pile should be “rooted in reality and not in wishful thinking,” the head of the International Monetary Fund (IMF) said as she was heading into a tense meeting with European leaders.

Christine Lagarde, the IMF’s managing director, canceled the last leg of her visit to Asia, skipping a Southeast Asian summit in Cambodia, to return to Brussels for a meeting tomorrow of the Eurogroup on Greece.

As she left the Philippines, Lagarde told Reuters she would push for a permanent solution to Greece’s debts to avoid prolonged uncertainty and further damage to the Greek economy.

Lagarde’s objectives

To Lagarde, that means countries in the eurozone should send a strong signal they remain committed to Greece by agreeing to reduce the debt Athens owes them.

“I am always trying to be constructive but I am driven by two objectives,” she said in an interview, “to build and approve a program for Greece that is solid, that is convincing today, that will be sustainable tomorrow, that is rooted in reality and not in wishful thinking.

“The second objective is to maintain the integrity, credibility and quality of advice that we are giving, not for the Fund itself, which obviously is a concern of mine, but to lend that to the Europeans because that is what they are interested in,” she said late on Nov. 17.

Dispute over deadline

In an unusually public airing of disagreement that flared during a news conference in Brussels on Nov. 13, Jean-Claude Juncker, who chairs the Eurogroup of finance ministers, said the target of reducing Greece’s debt to 120 percent of gross domestic product by 2020 should be moved by two years to 2022.

Appearing surprised by Juncker’s statement, Lagarde disagreed, insisting the target of 2020 should remain.

The stand-off threatens to further delay the next 31.5 billion euro tranche of Greece’s bailout, pushing the country close to bankruptcy. Greece’s successive bailouts have already suffered setbacks from elections and resistance to reforms. “They might resent me ... but that is in their interest,” Lagarde said of the European creditors. “The two objectives are critical for me, both of them.”

Taking a hit on Greek debt is politically difficult for politicians like Angela Merkel, the German chancellor, facing an election in 2013. Greece is heading into its sixth year of depression that has wiped a fifth off its economic output and sent unemployment to a record high -- one in four Greeks are out of work.

IMF’s credibility

In Malaysia and the Philippines last week, where the IMF’s prescriptive policies were blamed for exacerbating the 1997/1998 Asian financial crisis, Lagarde was confronted with questions about how tough she was prepared to be with Europe and the United States.

While acknowledging the IMF’s mistakes in Asia, she said the Fund could use its surveillance to pressure countries to act. “I am not just concerned about the perception of the Fund’s credibility, I’m concerned about the real credibility of the Fund,” Lagarde said.