IMF splits on fiscal targets for Greece

IMF LagardeThe most important asset of the International Monetary Fund (IMF) is credibility and now it is put to a serious test. The Washington-based organization calls for the reduction of Greece’s debt and rejects the emphatically propagandized by German Finance Minister Wolfgang Schauble way to put the economy through health savings. But a meeting of the IMF board is now clear that the fund does not reject longer necessary budget surplus of 3.5%. However, according to the fund surplus of 1.5% will be achieved more sustainable. But these lead to disunity.

Part of the directors of IMF have a different vision of Greek debt and fiscal targets from the official, according to the communique of the institution. Late last night the Fund discussed the sustainability of the Greek debt after the completion of the so called “Consultations under Art 4”.

The institution did not report, which members are a different position. The board of directors involved 24 people from the countries members of the institution. In the view of the IMF, despite significant progress in addressing macroeconomic imbalances made by Greece, its debt is unsustainable and its management additional measures are needed, including debt cuts. It must be consistent with the ability of Greece to generate a budget surplus and long-term economic growth.

The evaluation of the Fund in recent years is that the country has made important economic reforms, but had severe effects on the population – reducing income and high unemployment, which is identified as the reason for the delay of the necessary changes. The reforms, however, will help the country to return at the economic growth and sustainable debt management. The efforts are needed in relation to the improvement of public finances and removing obstacles to growth.

IMF, however, does not have a unified position on fiscal targets. Most members agree that this time Greece needs no further fiscal consolidation in the medium term and the country will perform target for a budget surplus of 1.5% of gross domestic product (GDP). The other part of the directors on the board are convinced that expected from European lenders target of 3.5% surplus in 2018 is achievable.

So far, IMF Director Christine Lagarde has repeatedly said that the target of 3.5% budget surplus is too ambitious aim, but European lenders to Greece are convinced that it is perfectly attainable. One of the biggest opponents of mitigation tasks in front of Athens is Germany, where in the Autumn will be held parliamentary elections.

Finally the recommendation of the institution in terms of fiscal targets for balanced policy by broadening the base of taxation of individuals and “rationalizing expenditure on pensions”. So the government can afford social support for vulnerable groups and lower taxes. IMF calls for more and more efforts to fight tax evasion and recommended better control of large taxpayers and measures against money laundering.

IMF boat is on same opinion in terms of measures to reduce bad loans and structural reforms to support competitiveness of the Greek economy. However, from communique is not clear the position of the Fund’s participation in the rescue program. The opinion in this direction was expected from other lenders.

Greece is currently negotiating with its creditors on implementation of the measures signed in the Summer of 2015 foir the third financial aim program. The talks were frozen pending the report of the IMF. Athens hopes to complete the second review under the program until February 20 and to enter into the incentive program of the European Central Bank (ECB) in early March.