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Greece Expects to Miss I.M.F. Payment, in Latest Distress Signal Greece Expects to Miss I.M.F. Payment, in Latest Distress Signal
(35 minutes later)
FRANKFURT — Greece is expected late Tuesday to add its name to a roster that includes some of the world’s poorest and worst governed nations, including Iraq, Sudan, Somalia and Zimbabwe.FRANKFURT — Greece is expected late Tuesday to add its name to a roster that includes some of the world’s poorest and worst governed nations, including Iraq, Sudan, Somalia and Zimbabwe.
Those are a few of the countries that have missed payments to the International Monetary Fund — as Greece is likely to do Tuesday. The deadline for the loan payment of 1.6 billion euros, or $1.8 billion, is 6 p.m. Washington time.Those are a few of the countries that have missed payments to the International Monetary Fund — as Greece is likely to do Tuesday. The deadline for the loan payment of 1.6 billion euros, or $1.8 billion, is 6 p.m. Washington time.
Greece would not be technically in default — the I.M.F. will call it in “arrears” — but missing the payment would be yet another unmistakable warning that the country will probably be unable to meet its other obligations in coming weeks to its bond holders and to the European Central Bank. That might make the central bank less willing to continue emergency loans that have been propping up the Greek banking system for the past several weeks.Greece would not be technically in default — the I.M.F. will call it in “arrears” — but missing the payment would be yet another unmistakable warning that the country will probably be unable to meet its other obligations in coming weeks to its bond holders and to the European Central Bank. That might make the central bank less willing to continue emergency loans that have been propping up the Greek banking system for the past several weeks.
And it would be a further marker of political and financial dysfunction in Greece, which on Sunday announced that it would close its banks for at least a week to prevent panicked depositors from withdrawing their money.And it would be a further marker of political and financial dysfunction in Greece, which on Sunday announced that it would close its banks for at least a week to prevent panicked depositors from withdrawing their money.
Greece and its eurozone creditors were scrambling on Tuesday to see if there might be one last possibility to salvage the country’s overall bailout program, which would otherwise expire at midnight in Brussels. But missing the I.M.F. payment was already a foregone conclusion — one confirmed Tuesday morning by the Greek finance minister, Yanis Varoufakis.Greece and its eurozone creditors were scrambling on Tuesday to see if there might be one last possibility to salvage the country’s overall bailout program, which would otherwise expire at midnight in Brussels. But missing the I.M.F. payment was already a foregone conclusion — one confirmed Tuesday morning by the Greek finance minister, Yanis Varoufakis.
The I.M.F. was expected to comment only after the deadline passed on Tuesday. It was not clear when and in what form such a decision would be conveyed to I.M.F. officials. The I.M.F. was expected to comment only after the deadline passed on Tuesday.
Jacob Funk Kirkegaard, a senior fellow at the Peterson Institute for International Economics in Washington, said delinquency would put Greece in ignoble company. “They are joining countries we would normally regard as failed and failing states,” Mr. Kirkegaard said. “The symbolism is quite dramatic.”Jacob Funk Kirkegaard, a senior fellow at the Peterson Institute for International Economics in Washington, said delinquency would put Greece in ignoble company. “They are joining countries we would normally regard as failed and failing states,” Mr. Kirkegaard said. “The symbolism is quite dramatic.”
Greece would be the first developed country to miss an I.M.F. payment. And the missed payment would be the largest in I.M.F. history. Sudan still owes the I.M.F. about $1.4 billion from loans acquired in the 1980s, according to I.M.F. data.Greece would be the first developed country to miss an I.M.F. payment. And the missed payment would be the largest in I.M.F. history. Sudan still owes the I.M.F. about $1.4 billion from loans acquired in the 1980s, according to I.M.F. data.
Countries that have fallen behind more recently include Iraq, Bosnia and Afghanistan. All three later settled their obligations to the fund.Countries that have fallen behind more recently include Iraq, Bosnia and Afghanistan. All three later settled their obligations to the fund.
Unless there is a last-minute deal with creditors, Tuesday is also the last day that Greece is eligible for European Union aid totaling more than €16 billion from several different sources. Without an agreement with creditors on terms for future aid, Greece cannot get the money.Unless there is a last-minute deal with creditors, Tuesday is also the last day that Greece is eligible for European Union aid totaling more than €16 billion from several different sources. Without an agreement with creditors on terms for future aid, Greece cannot get the money.
The European Central Bank, which has kept Greek banks on life support during the debt negotiations, is allowed to finance only solvent banks. Because Greece’s banks and the government are tightly linked, it would be hard to consider Greek banks solvent when their government is not paying its bills — which is perhaps the biggest implication of the missed I.M.F. payment.The European Central Bank, which has kept Greek banks on life support during the debt negotiations, is allowed to finance only solvent banks. Because Greece’s banks and the government are tightly linked, it would be hard to consider Greek banks solvent when their government is not paying its bills — which is perhaps the biggest implication of the missed I.M.F. payment.
By declaring Greece in arrears, the I.M.F. would avoid using the term “default.” Credit rating agencies also would not consider Greece to be in default based on missing the I.M.F. payment, for the technical reason that the I.M.F. is not considered a commercial borrower.By declaring Greece in arrears, the I.M.F. would avoid using the term “default.” Credit rating agencies also would not consider Greece to be in default based on missing the I.M.F. payment, for the technical reason that the I.M.F. is not considered a commercial borrower.
But the ratings agency Standard & Poor’s said in a statement Tuesday that it would designate Greece as being in default if the country cannot make payments to private creditors, like €2 billion in Greek Treasury bills that are due on July 10.But the ratings agency Standard & Poor’s said in a statement Tuesday that it would designate Greece as being in default if the country cannot make payments to private creditors, like €2 billion in Greek Treasury bills that are due on July 10.
And once it has been found to be in arrears, Greece would be barred from receiving any more money from the I.M.F. until it settles the debt. That would be a big problem, because the I.M.F. has been a crucial partner with the European Union in dealing with Greece, providing not only money but financial and economic expertise. The last-minute bailout proposal that the government of Prime Minister Alexis Tsipras made on Tuesday to its European creditors was said to exclude the I.M.F.’s involvement.And once it has been found to be in arrears, Greece would be barred from receiving any more money from the I.M.F. until it settles the debt. That would be a big problem, because the I.M.F. has been a crucial partner with the European Union in dealing with Greece, providing not only money but financial and economic expertise. The last-minute bailout proposal that the government of Prime Minister Alexis Tsipras made on Tuesday to its European creditors was said to exclude the I.M.F.’s involvement.
But as Mr. Kirkegaard pointed out, countries like Germany are unlikely to approve more aid for Greece without I.M.F. participation.But as Mr. Kirkegaard pointed out, countries like Germany are unlikely to approve more aid for Greece without I.M.F. participation.
By stiffing the I.M.F., Greece would also be challenging the fund’s status as the most preferred lender — a hierarchy of creditors in which private bondholders should theoretically lose their money before the I.M.F. does. Greece might be upending that concept. Since Greece is currently in no position to pay any of its major creditors, though, the order may not matter much.By stiffing the I.M.F., Greece would also be challenging the fund’s status as the most preferred lender — a hierarchy of creditors in which private bondholders should theoretically lose their money before the I.M.F. does. Greece might be upending that concept. Since Greece is currently in no position to pay any of its major creditors, though, the order may not matter much.
According to Greece’s agreements with other eurozone countries, failure to pay the I.M.F. would also allow members of the currency bloc to demand faster repayment of the €131 billion they lent to Greece.According to Greece’s agreements with other eurozone countries, failure to pay the I.M.F. would also allow members of the currency bloc to demand faster repayment of the €131 billion they lent to Greece.
The other eurozone creditors would probably not take that step immediately, analysts said. But failure to make the I.M.F. payment would oblige Klaus P. Regling, chief executive of the eurozone’s bailout fund, to advise the eurozone countries of their options, according to people familiar with the way that fund is managed.The other eurozone creditors would probably not take that step immediately, analysts said. But failure to make the I.M.F. payment would oblige Klaus P. Regling, chief executive of the eurozone’s bailout fund, to advise the eurozone countries of their options, according to people familiar with the way that fund is managed.
Greece’s deeply troubled relationship with the rest of Europe would become even more fraught.Greece’s deeply troubled relationship with the rest of Europe would become even more fraught.
And Greece would be even further away from the accord it needs to restore the flow of aid and repair its economy, Mark Zandi, chief economist at Moody’s Analytics, said. “They’re going deeper and deeper into the rabbit hole.”And Greece would be even further away from the accord it needs to restore the flow of aid and repair its economy, Mark Zandi, chief economist at Moody’s Analytics, said. “They’re going deeper and deeper into the rabbit hole.”