IMF urges Greece to move quickly on budget cuts

Associated Press
Updated 7/13/2011 11:55 AM

WASHINGTON -- Greece's government must move quickly and decisively to bring its huge public debt under control, the International Monetary Fund said Wednesday.

The lending organization praised Greek officials for adopting plans to cut its budget deficits to less than 3 percent of its economy by 2014. Still, Greece has little room for error as it implements the plans.

"It is essential that the authorities implement their fiscal and privatization agenda in a timely and determined manner," the IMF said in a staff report. "The debt dynamics show little scope for deviation."

The report also acknowledged widespread skepticism in financial markets that the $155 billion in aid provided by the IMF and European Union last year will be enough to enable Greece to avoid default.

That has sent interest rates on Greek debt soaring and made it difficult for the country to raise new debt in the private markets.

Greece's finance minister on Tuesday said the country wants the European Union to conclude a second rescue deal by the end of August, in order to cover its financing needs next year.

Poul Thomsen, the director of the IMF's mission to Greece, said Greece is facing "admittedly ambitious" targets for budget cuts. They include a target of a 6.5 percent budget surplus, before interest payments, by 2015.

That is "at the very high end of the range of international experience," the report said.

The report recommended that Greece should receive the next installment of aid from the fund. The IMF's executive board approved the release of the $4.2 billion installment last Friday.

Greece's economy is contracting, making it harder for it to reduce its budget deficit as a percentage of its economy, even with steep cuts.

The IMF report said Greece's economy will likely shrink by 3.75 percent this year, up from an earlier forecast of a 3 percent contraction.

As a result, its public debt will likely peak at 172 percent of gross domestic product in 2012, above the fund's estimate of 159 percent in March.

The IMF's report also expresses support for voluntary steps by banks and other private sector holders of Greek debt to reduce its debt burden. Those steps could include accepting longer repayment periods, though credit rating agencies have said such steps would constitute default.