Greece and the International Monetary Fund

On May 3, 2010, Greek Government formally asks IMF for a Stand-By Arrangement agreement.[13] The SBA is approved 6 days later by the Executive Board of the IMF using the Emergency Financing Mechanism procedures. The SBA amount to SDR 26,4 billion with 4.8 billion immediately available. The program aim to improve competitiveness and investment transforming Greece into an export-led growth model. The fiscal adjustment aim to suppress domestic demand with wage and benefits cuts. It should also lead to a minor role of the state in the economy and to the creation of a Financial Stability Fund (FSF). The agreement is signed expecting a renovated market confidence and a rebound growth.[14][15]

On August 5, 2010, after a visit to Athens, the IMF, the ECB and the EC (known as the European Troika) express satisfaction with the government's on going implementation of the program. The Troika argues that the program "has made a strong start", with important implementation in the area of fiscal policy (the government "kept spending below budget limit at the state level"), financial sector (the FSF "will soon became operational") and structural reforms ("Parliament's approval of the landmark pension reform").[16]

On September 10, 2010, the Executive Board of the IMF completed the first review of Greece's performance under Stand-By Arrangement and allow the disbursement of SDR 2.16 billion.[17][18]

On November 23, 2010, the Troika express satisfaction with the Greek program but underlined the need for more reforms such has cuts of health spending and wages, privatizations and abolishment of trade barriers.[19]

On December 17, 2010 the second review under Stand-By Arrangement is completed and the executive board of the IMF approves a disbursement of SDR 2.16 defining impressive the fiscal adjustment implemented by the Greek government. Furthermore, Mr. Portugal, Deputy Managing Director and Acting Chair of the IMF, affirmed that "an arrangement for Greece under the Extended Fund Facility (...) will be brought forward for consideration by the IMF's Executive Board".[20]

On February 2011 the EC, ECB, and IMF, in the context of the Third Review Mission to Greece report that all the necessary reforms are being adopted [21] and express respect for the Greek people.[22]

The Third Review Under Stand-By Arrangement is completed on March 14, 2011 and it allows the Greek government to drawn SDR 3.6 billion.[23]

On June 3, 2011: the European Commission, the ECB, and IMF express positive views on the Greek privatization program, require fiscal structural reforms in order to reduce the deficits. Moreover, it is recognized the progress made with structural reforms in areas such as healthcare, labor market, liberalization of energy and transport.[24]

On July 8, 2011 the Fourth Review Under Stand-By Arrangement is completed and the IMF disburse SDR 2.9 billion.[25]

On October 11, 2011 the IMF affirm that "the recession will be deeper than was anticipated in June and a recovery is now expected only from 2013 onwards. There is no evidence yet of improvement in investor sentiment and the related increase in investments. (...) Overall, the authorities continue to make important progress".[26]

On December 5, 2011 the IMF Completes the Fifth Review Under Stand-By Arrangement for Greece and Approves SDR1.9 billion Billion Disbursement.[27]

On March 9, 2012, the Greek government notify the cancellation of the SBA arrangement and formally asks the IMF for an agreement under the Fund's Extended Fund Facility (EFF).[28]

The Greek government borrowed (and repaid) totally SDR 17,54 million out of the initially agreed SDR 26,43 million.[29]

On March 9, 2012 the Greek government formally asks the IMF for an agreement under the Fund's Extended Fund Facility (EFF) in order to achieve its goal in competitiveness and growth, to guarantee a sustainable fiscal deficit and a well-capitalized private banking sector.[28]

On the same day, Christine Lagarde, managing director of the IMF, declared her support to the agreement.[30]

The agreement is approved by the IMF on March 15, 2012 with an immediate disbursement of SDR 1.4 billion with an overall commitment of SDR 23.7853 billion (2,159% of the Greek quota).[31]

The undisbursed funds of the precedent SBA have also been cancelled together with the SBA itself. The program aim to a return to growth through improvement in competitiveness, reduction in the minimum wage, public spending and fighting tax evasion.[32]

After a political crisis due to the Greek election, the IMF Completes both First and Second Reviews Under Extended Fund Facility Arrangement and Approves €3.24 Billion Disbursement on Jenuary 16, 2013. Indeed, and an agreement is reached with the new government. Different policies were modified: such as the ones that concerned the fiscal adjustment path and the privatization targets. Furthermore, the government kept liberalizing the product markets and improving bank recapitalization.[33] Hence, the IMF affirmed that "Greece has made impressive progress under the new coalition government". Some examples of the results obtained by Greece is the drop of 15 percent of unit labor cost, the reduction by more than 20% of the minimum wage and the reforms that will reduce pension spending to about 14 percent of GDP. Moreover, the Greek government recapitalized important banks.[34]

Between May 31, 2013 and May 30, 2014, the IMF completed the third, fourth and fifth  Review Under Extended Fund Facility Arrangement allowing Greece to draw a total of €6,87 billion.[35][36][37]

On February 14, 2015, after the Greek elections, Christine Lagarde explains in a letter to the President of the Eurogroup  the problems with the intentions expressed by the new government. Lagarde point out that the Greek government is not willing to reform properly the VAT policy and the pension system as well as to implement the policies agreed by the former government in areas such as privatizations and labor market.[38]

On June 30, 2015 Greece does not repay SDR 1.2 billion to the IMF[39] it is the first time that a developed country missed an IMF payment.[40] Another repayment, amounting to SDR 360 million,  is missed on July 13.[41] On July 14, 2015 the IMF publish a study on Greece's public debt claiming that it is highly unsustainable and it is should peak at 200 percent of GDP in the following years.[42] Greece finally repays all of its arrears to the IMF (SDR 1.6 bilion) on July 20, 2015.[43] 

During technical discussions between the Greek government and the IMF staff occurred between July 30 and August 12, 2015, it is agreed a new Memorandum of Understanding. Christine Lagarde explains that it has the aim "to restore fiscal sustainability, financial sector stability, and sustainable growth".[44][45]

The EFF arrangement is officially cancelled during the month of January. Overall, the Greek government drawn SDR 10.2 billion instead of SDR 23.7 initially agreed. Moreover, the IMF did only five instead of initially agreed 16 program reviews.[46]

On May 2, 2017 the IMF communicates to "have reached a preliminary agreement with the Greek authorities on a policy package to support the recovery in Greece".[47] On July 7, 2017 the Greek government formally request an approval in principle for a SBA to the IMF. The SBA should last for 13 month and 12 days and it is requested to amount to SDR 1.3 billion (55% of the Greek quota). The Greek government explains that the program will be active as soon as Greece's European partners will guarantee debt relief.[48][49] 

On July 20, 2017, the IMF approves on principle the SBA for 1.3 billion, waiting for assurances about Greece's debt sustainability. The Greek economic program aim to a macroeconomic stabilization through reforms including higher taxes for middle classes and pension's cuts aiming to a 3.5% of GDP or surplus until 2022. The Greek government also promised to relax capital controls and to preserve the labor market reforms going further: liberalize Sunday trade and facilitate investment. Overall, the program is expected to create a steady-rate growth of 1%. Notwithstanding this, the IMF clearly states that "Greece's debt remains unsustainable".[50]

Despite its approval in principle, the new SBA has never been definitively approved and on June 21, 2018 Christine Lagarde said that "time has clearly run out to enter into a Stand-By Arrangement".[51]

The IMF published on June 5, 2013 its report concerning the evaluation of Greece's SBA.[52]

The IMF argued that the SBA led to good outcome regarding the Greek financial sector. Also, a better long-term sustainability was achieved because of the cuts in wage and pensions and the VAT increase. Moreover, the Greek government reduced significantly the fiscal deficit and the unit labor cost.[52]

Despite this, the IMF expressed disappointment concerning the privatizations' outcome and the flexibility obtained regarding the labor market. The Greek State continued to spend more than the average EU countries for wages. Furthermore, the IMF admitted that the crisis was worse than expected: in 2012 Greek had a GDP contraction of 17% respect of 2009 instead of the foregone 5,5%, furthermore the unemployment rate was 25% instead of the IMF predicted 15%. The IMF also underestimated the importance of the deflation. Indeed, the IMF argued that the reforms implemented "failed to boost growth".[52]

Greece totally met 32 out of 45 structural conditionality.[52]

On February 7, 2017 the IMF published a report concerning the evaluation of Greece's EFF.[53]

The IMF argued that the implementation of the program had been hindered by the political instability of Greece and that every kind of program would have failed in such circumstances. At the same time admitted that the political opposition could have not been an exogenous fact but the consequence of "protracted recession and the rapidly falling living standards".[53]

The IMF argued that important reform had been accomplished regarding the public financial management and the revenue administration. Furthermore, the Greek government implemented important structural reforms regarding the minimum wage, barriers to competition, privatization an collective bargaining.[53]

Moreover, the result had been obtained concerning the external current account due to the diminution of imports and of the unit labor cost: from a deficit of 3% in 2011 to a surplus of 0,5% in 2013. Even the bank system had been further consolidated. Finally, in 2012, the debt decreased to 160% of GDP from 172%.[53]

On the other hand, the IMF underlined that the objective regarding the composition of fiscal adjustment had not been bet with a raise of primary and pensions expenditure. Moreover, the exports underperformed. The IMF also pointed out that Greece's governance indicators worsened during the program and that the debt has been declared unsustainable in 2015.[53]

Overall, all targets concerning growth, debt sustainability and competitiveness had not been met: growth was less than expected and unemployment higher and the recession deeper Nominal GDP in 2013 and 2015 was 12 and 20% lower than the initial estimates that "may have been too optimistic".[53]

Greek government met 61 out of 97 total structural conditionality, 1 was waived and 16 were outstanding at review completion.[53]

The first Post-Program Monitoring was finished on 12 March 2019 and the IMF concluded that "recovery in Greece is accelerating and broadening" with a projected growth of 2.4% of GDP thanks to the export market, private consumption and investment. The country is able to repay is debt but the IMF advocate for more reforms in order to obtain higher productivity and labor market flexibility.[50]