IMF Says Reducing Greek Debt Alone Not Enough to Revive Economy
January 25, 2012, 3:05 AM ESTBy Sandrine Rastello and Maria Petrakis
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Jan. 24 (Bloomberg) -- The International Monetary Fund said a plan for bondholders to shoulder some of the cost of a second bailout for Greece won’t revive the country’s economy without measures to bolster the country’s competitiveness.
‘It’s important to understand what problems Greece is facing: the public debt problem and the competitiveness problem,’’ Olivier Blanchard, the fund’s chief economist, said today at a news conference in Washington. “In order to get out of the hole it has to solve both problems.”
European finance ministers at their meeting in Brussels yesterday told Greek officials to go back to the negotiating table with bondholders, saying the country should exchange existing securities for new ones at lower interest rates than what creditors are offering. At the same time, they said Greece’s commitment to fiscal and structural reforms needed to be strengthened if the country is to receive 130 billion euros ($169 billion) in public funds under a second package.
“It was decided that the banks, private lenders, would also take losses,” IMF Managing Director Christine Lagarde told France 2 television today in Paris. “Now we have to know how much. The time has come to get serious.”
Lagarde said she has no doubt that political will existed for an agreement, though it had to be coordinated and required an effort “on the part of everyone, notably the banks.”
The IMF “has made it clear” that it thinks Greek debt as a percentage of gross domestic product shouldn’t exceed 120 percent by 2020, Blanchard said, adding that it’s the result the debt swap negotiations needed to achieve.
The Washington-based IMF today cut its forecast for global growth today and warned that the European debt crisis threatens to derail the world economy. Blanchard said there remained a risk that the European crisis could intensify, plunging the world into another recession.
--With assistance by Mark Deen in Paris. Editors: Carlos Torres, Gail DeGeorge
To contact the reporter on this story: Sandrine Rastello in Washington at srastello@bloomberg.net; Maria Petrakis in Athens at mpetrakis@bloomberg.net;
To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net; Stephen Foxwell at sfoxwell@bloomberg.net;
