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Greece: Ex Post Evaluation of Exceptional Access under the 2010 Stand-By Arrangement

Greece: Ex Post Evaluation of Exceptional Access under the 2010 Stand-By Arrangement

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Published by Yannis Koutsomitis
Greece: Ex Post Evaluation of Exceptional Access under the 2010 Stand-By
Greece: Ex Post Evaluation of Exceptional Access under the 2010 Stand-By

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Published by: Yannis Koutsomitis on Jun 05, 2013
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© 2013 International Monetary Fund
June 2013IMF Country Report No. 13/156May 20, 2013 January 29, 2001 January 29, 2001January 29, 2001 January 29, 2001
Greece: Ex Post Evaluation of Exceptional Access under the 2010 Stand-ByArrangement
This ex post evaluation of exceptional access under the 2010 stand-by arrangement on Greece was prepared by a staff team of the International Monetary Fund. It is based on the information availableat the time it was completed on May 20, 2013. The views expressed in this document are those of thestaff team and do not necessarily reflect the views of the government of Greece or the ExecutiveBoard of the IMF.The policy of publication of staff reports and other documents by the IMF allows for the deletion of market-sensitive information.
Copies of this report are available to the public fromInternational Monetary Fund
Publication Services700 19
Street, N.W.
Washington, D.C. 20431Telephone: (202) 623-7430
Telefax: (202) 623-7201E-mail:publications@imf.orgInternet: http://www.imf.orgPrice: $18.00 a copy
International Monetary FundWashington, D.C.
The primary objective of Greece’s May 2010 program supported by a Stand-ByArrangement (SBA) was to restore market confidence and lay the foundations forsound medium-term growth through strong and sustained fiscal consolidation anddeep structural reforms, while safeguarding financial sector stability and reducing therisk of international systemic spillovers. Greece was to stay in the euro area and anestimated 20-30 percent competitiveness gap would be addressed through wageadjustment and productivity gains.There were notable successes during the SBA-supported program (May 2010–March2012). Strong fiscal consolidation was achieved and the pension system was put on aviable footing. Greece remained in the euro area, which was its stated politicalpreference. Spillovers that might have had a severe effect on the global economy wererelatively well-contained, aided by multilateral efforts to build firewalls.However, there were also notable failures. Market confidence was not restored, thebanking system lost 30 percent of its deposits, and the economy encountered a much-deeper-than-expected recession with exceptionally high unemployment. Public debtremained too high and eventually had to be restructured, with collateral damage forbank balance sheets that were also weakened by the recession. Competitivenessimproved somewhat on the back of falling wages, but structural reforms stalled andproductivity gains proved elusive.Given the danger of contagion, the report judges the program to have been anecessity, even though the Fund had misgivings about debt sustainability. There was,however, a tension between the need to support Greece and the concern that debtwas not sustainable with high probability (a condition for exceptional access). Inresponse, the exceptional access criterion was amended to lower the bar for debtsustainability in systemic cases. The baseline still showed debt to be sustainable, as isrequired for all Fund programs. In the event, macro outcomes were far below theMay 20, 2013
baseline and while some of this was due to exogenous factors, the baseline macroprojections can also be criticized for being too optimistic.The report considers the broad thrust of policies under the program to have beenappropriate. Rapid fiscal adjustment was unavoidable given that the Greece had lostmarket access and official financing was as large as politically feasible. Competiveness-boosting measures were also essential, as were fiscal structural reforms to supportdeficit reduction. However, the depth of ownership of the program and the capacity toimplement structural reforms were overestimated.Greece’s SBA suggests the need to explore the case for refining the Fund’s lendingpolicies and framework to better accommodate the circumstances of monetary unions.A particular challenge is to find ways to translate promises of conditional assistancefrom partner countries into formal program agreements.There are also political economy lessons to be learned. Greece’s recent experiencedemonstrates the importance of spreading the burden of adjustment across differentstrata of society in order to build support for a program. The obstacles encountered inimplementing reforms also illustrate the critical importance of ownership of a program,a lesson that is common to the findings of many previous EPEs.Other lessons drawn concern the need to find ways to streamline the Troika process inthe future and for Fund staff to be more skeptical about official data during regularsurveillance. The detailed nature of the structural fiscal conditionality in the Greekprogram also bears scrutiny given the premium attached to parsimony in Fundconditionality.

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