Greece: Toward a Workable Program

poul-thomsen1By Poul M. Thomsen

Versions in عربي (Arabic), EspañolFrançais, and ελληνικά (Greek)

Having successfully pulled Greece from the brink last summer and subsequently stabilized the economy, the government of Alexis Tsipras is now discussing with its European partners and the IMF a comprehensive multi-year program that can secure a lasting recovery and make debt sustainable. While discussions continue, there have been some misperceptions about the International Monetary Fund’s views and role in the process. I thought it would be useful to clarify issues.

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Greece: Past Critiques and the Path Forward

IMG_0248By Olivier Blanchard

(Versions in DeutschEspañolFrançaisItalianoελληνικάРусский中文, 日本語عربي, and Português)

All eyes are on Greece, as the parties involved continue to strive for a lasting deal, spurring vigorous debate and some sharp criticisms, including of the IMF.

In this context, I thought some reflections on the main critiques could help clarify some key points of contention as well as shine a light on a possible way forward.

The main critiques, as I see them, fall under the following four categories:

  • The 2010 program only served to raise debt and demanded excessive fiscal adjustment.
  • The financing to Greece was used to repay foreign banks.
  • Growth-killing structural reforms, together with fiscal austerity, have led to an economic depression.
  • Creditors have learned nothing and keep repeating the same mistakes.

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Euro Muscles in Brussels: Christine Lagarde on Greece

by iMFdirect

The head of the IMF Christine Lagarde was clear during her press conference in Brussels yesterday—European leaders’ deal to help Greece and the euro area is a very constructive and comprehensive package of measures to resolve debt problems.

“What to me is critical—really a game-changing decision—is the leaders’ commitment and determination to provide support to countries until they have regained market access, provided that they successfully implement their programs.”

Watch the press conference:

The 17 heads of state of the eurozone have agreed to provide €109 billion in fresh financing for Greece. Together with voluntary contributions from the private sector and continued support from the IMF, this will close the financing gap in Greece’s budget and give the country the breathing room it needs to restore growth and competitiveness.

Greece has not yet requested a new program from the IMF, but Lagarde said it was the global lender’s intention to be an active participant in helping Greece restore growth, debt sustainability and return to financial markets.

The European leaders also agreed to make the terms of the European Financial Stability Facility more flexible, a measure called for by the IMF in its recent assessment of the euro area.

“This flexibility is a key element, in the view of the IMF,” said Lagarde.

Avoiding Another Year of Living Dangerously: Time to Secure Financial Stability

By José Viñals

In various guises, the “Year of Living Dangerously” has been used to describe the global financial crisis, the policy response to the crisis, and its aftermath.

But, we’ve slipped well beyond a year and the financial system is still flirting with danger. Durable financial stability has, so far, proven elusive.

Financial stability risks may have eased, reflecting improvements in the economic outlook and continuing accommodative policies. But those supportive policies—while necessary to restart the economy—have also masked serious, underlying financial vulnerabilities that need to be addressed as quickly as possible. Continue reading

Shifting Gears: Where the Rubber Meets the Fiscal Road

By Carlo Cottarelli

Undertaking a sizable fiscal adjustment is a lot like driving up a tall mountain: it’s hard work, it can take a long time, and you don’t want to run out of fuel partway up the incline. Countries are starting the climb, cutting back government deficits and debt levels, but according to our analysis often current plans aren’t enough to get countries where they need and want to go.

The plans in place are large by historical standards, which brings with it difficult choices, and particular risks and uncertainties. Let me fill you in on what these are. Continue reading

Bridges to Growth, Not Roads to Nowhere: Scaling Up Infrastructure Investment in Low-Income Countries

By Hugh Bredenkamp and Roger Nord

(Version in  Français )

For low-income countries, the absence of reliable infrastructure—roads, railways, ports, but also power supply—has become an increasingly binding constraint on growth. And we know that investment in infrastructure can raise productivity, boost growth, and help reduce poverty. But as straightforward as it sounds, getting investment decisions right is no easy feat.

For starters, low-income countries have massive investment needs. The World Bank has estimated that, in sub-Saharan Africa alone, the total financing need is around $93 billion per year. And one third of this still unfunded.

Even when financing is available, there’s a raft of other issues to tackle. What investments offer the biggest boost to growth? How much investment is needed and by whom? How to finance this investment without taking on too much debt? Continue reading

Financial System Fragilities – Achilles’ Heel of Economic Recovery

By José Viñals

It would be unfair for any assessment of global economic and financial stability not to acknowledge that tremendous progress has been made in repairing and strengthening the financial system since the onset of the global crisis.

Still, the key message from the IMF’s October 2010 Global Financial Stability Report (GFSR) is clear. Progress toward global financial stability has suffered a setback over the past six months—the financial system remains the Achilles’ heel of the economic recovery. Continue reading

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