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July 9, 2011

IMF approves €3.2 billion tranche payment

Christine Lagarde has just assumed the role to head the IMF (June 29) after leaving her post as French Finance Minister, and one of her first duties has been to sign off on the next payment from the IMF for its part of the €110 billion Greek bailout package. The IMF had just completed its fourth review of Greek performance under the agreed-upon austerity program between the IMF/eurozone/ECB and the Papandreou government - there had been some question if the IMF would release the money until the Hellenic Parliament vote on June 29th and 30th which made the next implementations of the plan possible, in particular privatization and public sector employment contraction. It seemed clear the IMF would not provide the funds if the vote had gone negative.

Legarde, who is the Managing Director and Executive Board Chair of the IMF said in an IMF press release dated July 8, 2011:

"The program is delivering important results: the fiscal deficit is being reduced, the economy is rebalancing, and competitiveness is gradually improving. However, with many important structural reforms still to be implemented, significant policy challenges remain. A durable fiscal adjustment is needed, lest the deficit get entrenched at an unsustainably high level, and productivity-enhancing reforms should be accelerated, lest growth fail to recover.

“The authorities have made progress in the fiscal area. A new medium-term strategy was approved, defining the measures required to reduce the general government deficit below 3 percent of GDP by 2014. The strategy confronts difficult issues, including the generous terms of public sector employment, the possibility to close inefficient public entities, and tax evasion. Steadfast and timely implementation will be crucial, together with complementary institutional reforms improving revenue administration and public financial management.

“The government’s privatization strategy is a critical step toward boosting investment and growth and reducing Greece’s high debt burden. While the target of selling €50 billion of state assets by 2015 is very ambitious, the establishment of an independent privatization agency should help realize transparent and timely implementation.

“To strengthen Greece’s competitiveness, structural reform implementation needs to be accelerated. This will help achieve synergies, such as between privatization and reducing administrative barriers to investment. The reform agenda should be expanded to address Greece’s high labor tax wedge and inefficient judicial system.

“To preserve financial sector stability, banks’ capital buffers need to be raised, and an adequate support and resolution framework should be put in place. Continued liquidity support from the ECB remains critical to manage liquidity needs.

“Greece’s debt sustainability hinges critically on timely and vigorous implementation of the adjustment program, with no margin for slippage, and continued support from European partners and private sector involvement,” Ms. Lagarde said."

The complete IMF press release is at their web site here.

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