(Updates with statement from IMF’s Lagarde starting in second paragraph.)
Dec. 5 (Bloomberg) -- The International Monetary Fund approved a payment of 2.2 billion euros ($3 billion) to Greece as part of a joint bailout with the European Union, as the region’s leaders prepare for another attempt at solving their sovereign debt crisis later this week.
“Greece has substantial achievements to its credit, including a large fiscal deficit reduction,” Christine Lagarde, IMF managing director, said in an e-mailed statement. “However, the program is in a difficult phase, with structural reforms proceeding slowly, the economy weak, and the external environment deteriorating.”
The decision follows last week’s authorization by euro-area finance ministers to disburse their share of the 110 billion- euro package. The focus now shifts to a second rescue package for Greece that may see holders of the country’s bonds lose 50 percent of their investment. The new aid plan, crafted at an October summit, also includes 130 billion euros in public funds for Greece.
European leaders are seeking to demonstrate unity on ending the region’s crisis as they head to a Dec. 8-9 summit in Brussels. German Chancellor Angela Merkel and French President Nicolas Sarkozy today pushed for a rewrite of the European Union’s governing rules to tighten economic cooperation, aiming to stop the crisis from spreading further.
Greece, which faces a fifth year of economic contraction in 2012, has said it needs the next international aid payment by mid-December. The combined IMF and European disbursements amount to 8 billion euros.
“Fiscal adjustment remains the most immediate challenge for the authorities,” Lagarde said.
Greek lawmakers will vote this week to approve the 2012 budget budget that sees the fiscal deficit narrowing to 5.4 percent of gross domestic product thanks to spending cuts and the debt swap that will reduce interest payments. That’s down from a projected 9 percent this year and from 10.6 percent in 2010.
The IMF and the EU had frozen loan payments last month after Socialist Premier George Papandreou announced a referendum on the second rescue plan. He later called off the vote, resigned and was succeeded by ex-central banker Lucas Papademos, whose interim government has the support of three parties to press ahead with budget cuts needed for continued aid.
Endorsement of Objectives
“The creation of a national unity government and the endorsement of program objectives and policies by major parties is an important step,” Lagarde said. “The new government should use its wider mandate to steadfastly implement the program, which is the best way to help Greece manage the risks it now faces.”
The IMF board waived several criteria attached to the loan that were not met, including receipts from assets sales and external payments arrears, according to the statement.
Lagarde said that a “near-universal participation” in the private sector’s debt exchange will be important to ensure continued support from the IMF.
--With assistance from Maria Petrakis in Athens. Editors: Paul Badertscher, Vince Golle
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