Press Release: IMF Reaches Staff-level Agreement with Greece on €30 Billion Stand-By Arrangement
May 2, 2010Press Release No. 10/176
May 2, 2010
Mr. Dominique Strauss-Kahn, Managing Director of the International Monetary Fund (IMF) issued the following statement today on Greece:
“The Greek government has designed an ambitious policy package to address the economic crisis facing the nation. It is a multi-year program which begins with substantial up-front efforts to correct Greece's grave fiscal imbalances, make the economy more competitive and—over time—restore growth and jobs. We believe these efforts, along with the government’s firm commitment to implement them, will get the economy back on track and restore market confidence.
“Fiscal policy and pro-growth measures are the two main pillars of the government’s program. A combination of spending cuts and revenue increases amounting to 11 percent of GDP—on top of the measures already taken earlier this year—are designed to achieve a turnaround in the public debt-to-GDP ratio beginning in 2013 and will reduce the fiscal deficit to below 3 percent of GDP by 2014. Measures for 2010 involve a reduction of public sector wages and pension outlays —which are unavoidable given that those two elements alone constitute some 75 percent of total (non-interest) public spending in Greece.
“Pro-growth measures will be aimed at modernizing the economy and boosting its competitiveness so that it can emerge from the crisis as quickly as possible. Steps include strengthening income and labor markets policies; better managing and investing in state enterprises and improving the business environment. Reforms to fight waste and corruption—eliminating non-transparent procurement practices, for example--are also being undertaken.
“In addition, the government is taking decisive steps to strengthen and safeguard the financial system. A Financial Stability Fund—fully financed under the program—will ensure a sound level of bank equity.
“The authorities’ program is designed with fairness in mind. There will be a more progressive tax scale for all sources of income; a clampdown on tax evasion and a step up in prosecution of the worst offenders; and stronger enforcement and audit of high-wealth individuals.
“In addition, there will be protection for the most vulnerable groups. The reductions in wages and pensions are designed largely to exempt those living on the minimum. Social expenditures also will be revised to strengthen the safety net for the most vulnerable people.
“Finally, there will be a significant reduction in military expenditures during the program period.
“To support Greece’s effort to get its economy back on track the Euro Area members have pledged a total of €80 billion (about US$105 billion) in bilateral loans. An IMF staff mission, in consultation with representatives from the European Commission and the European Central Bank, also reached agreement today with the Greek authorities to support this program with a three-year SDR 26 billion (about €30 billion; or US$40 billion) Stand-By Arrangement. Our joint commitment will bring total financing to €110 billion (about US$145 billion). We have also activated the Fund’s fast-track procedures for consideration of Greece’s Stand-By Arrangement, and I expect the arrangement will go to the Executive Board for approval within the week.
“We believe these strong measures by the Greek government, along with the significant risks of spillover to other countries, merit an exceptional level of access to IMF resources—equivalent to 3200 percent of Greece’s quota in the Fund. This represents the largest access granted to a member country and it indicates the Fund’s high level of support for the program and for Greece.
“The success of Greece’s recovery program will depend, first and foremost, on the commitment of its government and people. While the initial implementation period will be difficult, we are confident that the economy will emerge more dynamic and robust from this crisis—and able to deliver the growth, jobs and prosperity that the country needs for the future.
“Our collective effort will contribute to the stability of the euro, will benefit all of Europe and will help to promote global financial stability and a secure recovery in the global economy.”
Greece, which became a member of the IMF on December 27, 1945, currently has an IMF quota amounting to SDR 823 million.
For additional information on the IMF and Greece, see: http://www.imf.org/external/country/GRC/index.htm