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Greece Ex Post Evaluation2 IMF 2011 2013

Greece Ex Post Evaluation2 IMF 2011 2013

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Published by Imogen Spedding
Greece-Ex-Post-Evaluation #2-IMF-2011-2013
Greece-Ex-Post-Evaluation #2-IMF-2011-2013

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Published by: Imogen Spedding on Jul 15, 2013
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© 2013 International Monetary Fund
January 2013IMF Country Report No. 13/20December 21, 2012 January 16, 2013 January 15, 2013
Greece: First and Second Reviews Under the Extended Arrangement Under theExtended Fund Facility, Request for Waiver of Applicability, Modification of Performance Criteria, and Rephasing of Access—Staff Report; Staff Supplement; PressRelease on the Executive Board Discussion; and Statement by the Executive Directorfor Greece.
In the context of the first and second reviews under the Extended Arrangement under the ExtendedFund Facility, request for waiver of applicability, modification of performance criteria, and rephasingof access, the following documents have been released and are included in this package:
The staff report for the first and second reviews under the Extended Arrangement under theExtended Fund Facility, request for waiver of applicability, modification of performancecriteria, and rephasing of access, prepared by a staff team of the IMF, following discussionsthat ended on October 16, 2012, with the officials of Greece on economic developments and policies. Based on information available at the time of these discussions, the staff report wascompleted on December 21, 2012. The views expressed in the staff report are those of thestaff team and do not necessarily reflect the views of the Executive Board of the IMF.
A staff supplement of January 15, 2013 updating information on recent developments.
A Press Release summarizing the views of the Executive Board as expressed during itsJanuary 16, 2013 discussion of the staff report that completed the request and/or review.
A statement by the Executive Director for Greece.The documents listed below have been or will be separately released.Letter of Intent sent to the IMF by the authorities of Greece*Memorandum of Economic and Financial Policies by the authorities of Greece*Technical Memorandum of Understanding*Letter of Intent to the European Commission and the European Central Bank*Memorandum of Understanding on Specific Economic Policy Conditionality**Also included in Staff ReportThe policy of publication of staff reports and other documents allows for the deletion of market-sensitiveinformation.
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.org
International Monetary FundWashington, D.C.
Extended Arrangement.
On March 15, 2012, the Executive Board approved a four-yearExtended Arrangement under the Extended Fund Facility in the amount equivalent toSDR 23.79 billion (2,159 percent of quota; €28 billion) with equally phased purchases of SDR 1.4 billion (about €1.65 billion). The first purchase was made at the time of approval of thearrangement; the second and third purchases in the amount equivalent to SDR 2.8 billion(€3.3 billion) are proposed to be released on the completion of the combined first and secondreviews. Euro area countries disbursed €73.9 billion shortly after program approval (of €144.6 billion committed) and about a further €34.3 billion in mid-December 2012.
Recent Developments.
The program ran off track due to a severe political crisis. The extendedelection period effectively put on hold the implementation of macro-structural reforms and theprivatization process and fiscal-institutional reforms also came to a halt. As a result, severalperformance criteria, indicative targets and structural benchmarks were not observed. Time wasrequired to restart reforms and bring the program back on track, and to reach understandingswith the authorities and Greece’s European partners on measures to place debt on a sustainabletrajectory. The delays have had macro repercussions. The program anticipated a weak economyin 2012, as Greece continued to adjust through recessionary rather than productivity-boostingchannels. GDP has now been undershooting program projections due to weaker confidence andtight liquidity conditions, alongside weakness in export markets. It is now projected to contractby 6 percent this year and 4¼ percent in 2013. The deeper recession has accelerated currentaccount adjustment, and internal devaluation is also now gaining pace. The fiscal positioncontinues to improve, although domestic spending arrears have increased.
Program policies.
Understandings have been reached with the new government on a fullyrecalibrated program. Program policies were modified to deal with stronger macroeconomicheadwinds and to better reflect observed implementation capacity. The fiscal adjustment pathhas been lengthened by two years to 2016 to give more time to reach the primary balancetarget. Privatization targets have also been adjusted downward to reflect weak market conditionsand the need to prepare assets. The authorities specified the adjustment measures necessary toDecember 21, 2012
close the fiscal gap through 2014. They have also taken measures to liberalize product markets,and to lower nonwage costs, to help stem rising unemployment and falling real wages. In thefinancial sector, the bank recapitalization process has advanced, and oversight and governancewill be strengthened. Fiscal institutional reforms to strengthen the tax administration and publicfinancial management have been put back on track, although are behind schedule. In all areas,key measures have been adopted as prior actions for the first and second reviews.
Program financing.
The new government also had to reach understandings with its Europeanpartners on a revised financing framework. The updated DSA showed that further debt relief wasneeded to ensure that Greece’s debt is sustainable. Greece’s European partners have recognizedthis and have, as a first step, agreed to lower the interest rate on the Greek Loan Facility and tolengthen maturities on all of their lending, and to transfer profits earned by the ECB on Greekdebt back to Greece. They also agreed to bring forward program financing to support a buybackof recently-restructured Greek government bonds, which was completed in December 2012.These measures are projected to bring debt to 128 percent of GDP by 2020. Thus Greece’spartners also committed to take further actions, once Greece has further advanced with its fiscaladjustment, to bring debt down to 124 percent of GDP by 2020 and substantially below110 percent of GDP in 2022. Finally, Greece’s European partners agreed to provide roughly€26 billion in additional financing for the period 2012–16, to help cover projected financing gaps.With the relief, a gap of €5½–9½ billion remains during 2015–16, but they also reiterated theircommitment to support Greece as necessary during and beyond the program, provided Greeceimplements the program. Timely delivery of Greece’s European partners’ undertakings on debtrelief and financing is crucial for program success.
See the Fund Relations Appendix

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