Greece taps IMF reserves to pay €750m debt

Greece took the unusual step of raiding its holdings of the International Monetary Fund's de facto currency to make a €750m payment to the fund on Tuesday, in another sign of the country's increasingly desperate cash crunch.

The €750m payment to the IMF on Tuesday was the biggest Athens has made to the fund so far this year. But it is just the first in a series of major payments to the IMF and the European Central Bank due in the coming months that have raised the spectre of a Greek default and exit from the eurozone.

Athens drew €650m from its holdings of the IMF's Special Drawing Rights to make the loan payment and also give it room to disburse nearly €1bn on Wednesday to pay public sector salaries.

A Greek central bank official said Tuesday's withdrawal from its SDR holdings was unusual but not unprecedented. He also said there was no specific deadline for replenishing the account but that Greece would be expected to gradually replace the funds over the coming months.

Asked whether Greece's decision to tap its IMF funds was a cause for alarm, Valdis Dombrovskis, the European Commission vice-president in charge of eurozone policy, said: "It's for the experts to look into the issue before I can comment."

Like every IMF member, Greece is allocated a stock of the IMF's own notional currency - known as Special Drawing Rights - but they are rarely tapped. Greece's allocation of SDRs is normally worth about €985m, but the account stood at €700m at the end of March, the most recent data publicly available.

Although IMF members are allowed to use the account at their own discretion, it is highly unusual to use the funds to repay the IMF itself.

embers are required to pay a nominal interest rate to the IMF on the gap between their actual SDR holdings and their allocation, making this week's move by Athens the equivalent of taking out a low-interest loan from the fund to pay off another.

"It is actually a very sensible thing to do rather than default," said Ted Truman, a former US Treasury official who is an expert on the IMF's operations at the Peterson Institute for International Economics in Washington.

The SDR holdings amounted to a "rainy day fund", he said, "and it's a rainy day in Athens".

Greece's liquidity squeeze has worsened over the past three months under the new leftwing Syriza-led government, which has frozen an unpopular property tax and implemented a tax amnesty without consulting international lenders.

Deep spending cuts and raids on cash reserves held by state entities enabled the finance ministry to pay pensions and salaries at the same time as keeping up with monthly loan repayments to the IMF.

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Yanis Varoufakis, the finance minister, said after a meeting of eurozone finance ministers in Brussels on Tuesday: "The liquidity issue is a terribly urgent issue . . . From the perspective [of timing], we are talking about the next couple of weeks."

Greece has been trying to persuade its creditors to release €7.2bn in frozen bailout funds in exchange for its commitment to implement economic reforms. Talks are making progress, but differences remain on critical issues such as pension and labour market overhauls that the Syriza government says it has no mandate to negotiate.

"It's marginal at the moment whether the government will be able to cover the public sector payroll at the end of May even if it delays most other payments," said one Athens official with knowledge of the government's cash position.

Additional reporting by Peter Spiegel in Brussels

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