IMF knocks Greek debt rescheduling hopes

Greek officials have made an informal approach to the International Monetary Fund to delay repayments of loans to the international lender, highlighting the parlous state of Greek finances, but were told that no rescheduling was possible.

According to officials briefed on the talks by both sides, Athens was persuaded not to make a specific request for a delay to the Fund, which is owed almost €1bn in two separate payments due in May.

Although Athens was rebuffed, the discussions, which occurred in private earlier this month, are a sign that the Greek government is finding it increasingly difficult to scrape together enough money to continue to pay wages and pensions while meeting its debt payments to external lenders.

Yields on Greek bonds soared on Thursday following the news, with yields on three-year paper rising 134 basis points to 25.10 per cent, the highest since the country's restructuring. Its 10-year yields climbed 45 basis points to 12.18 per cent.

Officials representing Greece's creditors are unsure whether Athens will be able to make the payments in May. Even if they do, they are certain that the matter will come to a head by June, before much larger payments on bonds held by the ECB start coming due.

IMF officials have repeatedly said that a rescheduling of repayments can only come as part of a completely renegotiated new bailout programme. Were it to miss a payment, Greece would become the first developed economy to go into arrears at the Fund, something only counties like Zaire and Zimbabwe have done in the past.

Greece informally raised the precedent of delaying IMF payments by at least one other developing country a generation ago in the 1980s. But IMF officials stuck to their guns saying that none of the underlying problems had been solved by payment delays.

"Payment delays have not been granted by the board of the IMF in 30 years," said IMF managing director Christine Lagarde, when asked about whether Greece could delay payments at a press conference in Washington.

One source briefed on the approach said the proposal was to "reshuffle the repayment schedule for the IMF loan over the coming months," allowing the new Greek government led by Alexis Tsipras to have the money to pay bills for pensions and public sector salaries while negotiating with European creditors over payment of the next tranche of bailout loans.

The government, which must repay more than €9bn to the IMF this year relating to its first bailout in 2010, is locked in a two-month-long stand-off with its bailout creditors to release some of the remaining €7.2bn in its current €172bn bailout in order to make those payments.

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Even if negotiations go well and start again in earnest, EU officials are privately sceptical that the technical work allowing the release of the money will be complete by the eurogroup meeting of 11 May, the day before the IMF payment is due.

EU finance ministers now openly talk about the possibility that no deal is possible, which could lead to a Greek default and potentially an exit from the euro.

Olivier Blanchard, IMF chief economist, also highlighted the increasing possibility of a Greek exit from the eurozone, saying this week that for the rest of the eurozone a Greek exit "would not be smooth sailing, but it could probably be done".

The heightened brinkmanship is alarming the US. Jack Lew, US Treasury Secretary said on Wednesday that no one should imagine they could predict the consequences of a Greek exit from the euro. "It would not be a good thing in a world economy just recovering from a deep recession to have that kind of uncertainty introduced," he added.

In downgrading Greek debt further into junk status earlier this week, the Standard & Poor's rating agency said Athens was likely to be unable to service its debts if a deal is not struck by mid-May.

Eurozone officials continue to raise concern that Athens is seeking a political agreement at ministerial level without engaging more extensively with bailout monitors from the IMF, European Central Bank and European Commission, which must reach a staff-level agreement with Greek authorities before finance ministers can sign off on a deal.

The government will struggle to meet the bill for pensions and public sector salaries at the end of the month and almost certainly will not have enough cash to make both the IMF and domestic payments in May.

With additional reporting by Eric Platt in London

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