Press Release No. 11/440

Press Release: IMF Executive Board Completes Fifth Review Under Stand-By Arrangement for Greece and Approves €2.2 Billion Disbursement

December 5, 2011

The Executive Board of the International Monetary Fund (IMF) today completed the fifth review of Greece’s economic performance under a program supported by a three-year Stand-By Arrangement (SBA) for Greece. The completion of the review enables the immediate disbursement of an amount equivalent to SDR1.9 billion (about €2.2 billion), bringing total Fund disbursements under the SBA to an amount equivalent to SDR 17.5 billion (about €20.3 billion).

In completing the review, the Executive Board also approved the modification of performance criteria as well as waivers of non-observance of performance criteria related to the primary cash balance for the general government, privatization receipts, and external payments arrears. The Board also approved waivers for the non-observance of the external payments arrears performance criterion following minor data revision after the approval of the arrangement.

The SBA, which was approved on May 9, 2010 (see Press Release No. 10/187), is part of a joint package of financing with Euro area member states amounting to €110 billion over three years. It entails exceptional access to IMF resources, amounting to about 2,400 percent of Greece’s new quota as a result of the 2008 quota reform.

Following the Executive Board’s discussion, Ms. Christine Lagarde, IMF Managing Director and Executive Board Chair, said:

“Greece has substantial achievements to its credit, including a large fiscal deficit reduction. However, the program is in a difficult phase, with structural reforms proceeding slowly, the economy weak, and the external environment deteriorating. This has warranted a substantial downward revision to the medium-term outlook.

“The creation of a national unity government and the endorsement of program objectives and policies by major parties is an important step. The new government should use its wider mandate to steadfastly implement the program, which is the best way to help Greece manage the risks it now faces.

“Fiscal adjustment remains the most immediate challenge for the authorities. The recent enactment of new measures will help correct implementation slippages. Adjustment efforts will have to be supported by a prompt implementation of underlying fiscal reforms, which are necessary to downsize the public sector and strengthen tax collection.

“Preserving financial sector stability is another key challenge. Plans to recapitalize banks are in place alongside a revised resolution framework that can help avoid disruptions to depositors and contain public sector costs. Viable banks should continue to have access to liquidity support.

“The government’s privatization plan can deliver higher investment, growth, and debt reduction. Preparations must move forward expeditiously, to give the Privatization Agency scope to meet the overall program target in a reasonable timeframe.

“Structural reforms must accelerate to help improve competitiveness via productivity growth. Plans are in place to reduce high labor taxes, and the authorities must also finalize the liberalization of closed professions and implementation of business environment reforms.

“Private sector involvement and prolonged support at low interest rates from European partners are crucial to reduce debt to a sustainable level. Near-universal participation in the proposed private debt exchange will be important to realize a sustainable debt position, meet financing needs, and ensure continued Fund support,” Ms. Lagarde said.