Greece became the first advanced economy to miss a payment on IMF debt, joining the historical ranks of delinquents from Cuba to Zimbabwe after the Mediterranean country’s bailout talks with creditors collapsed.
The IMF’s board has been informed that Greece is now in arrears, its spokesman Gerry Rice said, after a 2am Abu Dhabi-time deadline on Wednesday morning for Greece’s US$1.7 billion payment, coinciding with the expiration of the country’s European bailout. Greece’s request for an extension will go to the fund’s board “in due course”, Mr Rice said.
The European Central Bank must now consider the effect of any missed payment on the solvency of Greek banks when they discuss emergency assistance on Wednesday. The outcome may affect Greece’s euro-zone membership. Klaus Regling, the head of the main euro-zone bailout fund, has said the ECB has the option of demanding accelerated debt payments from Greece if it does not pay the IMF.
“A default on the IMF does not guarantee a Greek exit,” said David Stubbs, a global market strategist at JPMorgan Asset Management in London. If Greeks vote yes on an agreement with creditors in the July 5 referendum, “we think it’s still more likely than not that Greece will remain in the euro zone. But the probability of an exit from the single currency – accidental or otherwise – is now higher than it was.”
The missed payment by Greece is the largest in the history of the IMF, which was conceived during the Second World War to coordinate monetary policy and promote exchange-rate stability.
Countries that miss IMF payments are ineligible for further funds as long as they are in arrears. The lender’s procedures for dealing with overdue borrowers stretch over two years and culminate in potential expulsion from the fund’s membership.
The three major credit-rating companies have said failure to pay the Washington-based IMF would not constitute a default because that term is reserved for private-sector creditors, and the IMF avoids the word.
There is little chance that the fund will approve Greece’s request for an extension, said Andrea Montanino, a former IMF executive board member who heads the global economics programme at the Atlantic Council in Washington.
“People are just completely fed up,” Mr Montanino said. “Maybe the Europeans could support it, but the others will say no.”
The IMF managing director Christine Lagarde probably felt obliged to put the extension request before the board as a formality, he said.
While the missed payment is unlikely to change the way the IMF operates, it may raise questions about the IMF’s “super-senior” creditor status and make it difficult for other multilateral financial institutions such as the World Bank to retain their top credit ratings, said Jacob Funk Kirkegaard, senior fellow at the Peterson Institute for International Economics in Washington.
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