Greece Is Placed in ‘Arrears,’ as the I.M.F. Spells ‘Default’
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Version 0 of 1. When borrowers — whether they are countries, companies or individuals — do not pay their debts on time, they are in default. For practical purposes, then, Greece — which on Tuesday failed to make a scheduled debt repayment of about 1.5 billion euros, or $1.7 billion, to the International Monetary Fund — has defaulted. The I.M.F., however, does not use term default. It instead places countries that miss their payments in what it calls arrears. Semantics aside, missing the payment might lead to a situation in which other large Greek debts are classified as being in default. A default, even when it is not called one, is an event that can have serious repercussions for a country’s economy and relations with other nations. Defaults can roil financial markets, create uncertainty for other lenders, and generally crimp economic activity. European governments have lent around €131 billion to Greece since 2010 through a fund called the European Financial Stability Facility. The terms of the loans say that a failure to pay the I.M.F. can be an “event of default.” But the terms stress that the European fund is not obliged to treat it as a default. In other words, it is up to Europe’s leaders, who will most likely hold off on declaring a default. In sovereign debt crises, the actions of ratings agencies are also crucial. They usually state that a country has defaulted when it has missed a payment on bonds issued to commercial investors. The I.M.F. loan to Greece does not fit into that category of debt because the I.M.F. is an international agency. Standard & Poor’s, however, on Monday sounded a warning in a news release about Greece. “Absent unanticipated favorable changes in Greece’s circumstances, a commercial default is inevitable within the next six months,” the ratings agency wrote. |