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Greece Expects to Miss I.M.F. Payment, in Latest Distress Signal Missing I.M.F. Payment Puts Greece in Uncharted Territory
(about 3 hours 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 on Tuesday added 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 did Tuesday, when it failed to make a loan payment of about 1.5 billion euros, or $1.7 billion, to the fund.
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 Greek banks for the past several weeks. The International Monetary Fund does not use the term default. It instead places countries that miss their payments in so-called arrears. But the failure by Greece to meet its obligation to the fund will prompt other lenders to conclude that Greece has defaulted.
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. Those lenders include bond holders and the European Central Bank, which now may be less willing to continue emergency loans that have been propping up Greek banks for the past several months. .
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. Credit rating agencies will 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.
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. 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 found in arrears, Greece is barred from receiving any more money from the I.M.F. until it settles the debt. That is 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 I.M.F. confirmed that Greece had failed to make the payment, after a 6 p.m. Washington deadline came and went.
“We have informed our executive board that Greece is now in arrears and can only receive I.M.F. financing once the arrears are cleared,” said Gerry Rice, a spokesman for the fund. Mr. Rice said the I.M.F. board would consider Greece’s request, made Tuesday, to extend the loan payment deadline.
The development came as, separately, Greece’s European creditors rejected an eleventh-hour attempt by Athens to extend the country’s international bailout program.
It is the clearest signal yet of the 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.
Jacob Funk Kirkegaard, a senior fellow at the Peterson Institute for International Economics in Washington, said delinquency would put Greece in ignoble company.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.”“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 fund’s history. Sudan still owes about $1.4 billion from loans acquired in the 1980s, according to the fund. Greece is the first developed country to miss an I.M.F. payment. And the missed payment is the largest in fund’s history. Sudan still owes about $1.4 billion from loans acquired in the 1980s, according to the fund.
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.
The last loan tranche from a bailout fund of €1.8 billion “will no longer be available for Greece” and a further €10.9 billion leftover from a bank rescue fund “will be canceled,” leaders of the eurozone bailout fund said in a statement Tuesday.
The fund, based in Luxembourg and known as the European Stability Mechanism, oversees the European Financial Stability Facility that has managed the disbursement of €130.9 billion to Greece, representing the majority of the funds committed by the eurozone countries.
Klaus Regling, head of the bailout fund, said it was “regrettable” that the aid program for Greece could expire. He suggested that the new Greek government had squandered the gains that were made while the country had adhered to conditions set by the creditors.
“The many sacrifices which the Greek people had to make were paying off,” Mr. Regling said in a statement. Referring to Sunday’s planned referendum, he added, “This trend can continue if the Greek population decides to return to the path of reform within the euro area.”
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. A 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 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.
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. However, because Greece is in no position to pay any of its major creditors, the order may not matter much. By stiffing the I.M.F., Greece is also 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. But because Greece is in no position to pay any of its major creditors, 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. will 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 will 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 will 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 will 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.”