Last Update: 13:38
The International Monetary Fund has explained its position regarding management of sovereign debt, including the Greek debt.
In a piece on the management of sovereign debt, Sean Hagan, General Counsel and Director of the Legal Department, Maurice Obstfeld, Economic Counsellor and Director of Research and Poul Thomsen, Director of European Department stressed that in order for the IMF to provide funding to a Member State, the following parameters must be met:
If the debt is too high and not sustainable, a restructuring in advance is needed. In countries that borrow from the markets a debt haircut from its biggest creditors is recommended.
In indebted countries participating in a monetary union, such as Greece, the best method is individual interventions which would reduce the annual debt service cost.
Along with debt restructuring there should be realistic forecasts for growth prospects, but also a realistic timeline of primary surpluses.
What’s next for Greece after Monday’s Eurogroup
On Monday the Greek side agreed to some of the IMF conditions in order for its negotiating team to return to Athens and resume talks on the bailout program review.
For the past two months, Thomsen was insisting that Greece should reduce the tax-free threshold for low incomes and further pension cuts. Athens has conceded in principle and the actual figures remain to be seen after the negotiations.
The IMF demand that remains is restructuring the Greek debt. Even though European institutions are reluctant to accept further debt relief measures, negotiations will show which side would make the most concessions before the final agreement.