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Last updated: July 31, 2013 2:54 pm
Brazil’s representative to the International Monetary Fund’s executive board abstained from approving the fund’s new €1.8bn contribution to Greece this week and issued a stinging criticism, arguing that Athens might be unable to repay its rescue loans.
Paulo Nogueira Batista, who represents 11 Central and South American countries on the IMF board, said Greece’s political and economic difficulties “confirm some of our worst fears”, adding the fund’s own economists were making “over-optimistic” assumptions about economic growth and the sustainability of its debt.
“Never-ending economic depression and severe unemployment levels have led to political discord,” wrote Mr Batista. “The widespread perception that the hardship brought on by draconian adjustment policies is not paying off in any way has further undermined public support for the adjustment and reform programme.”
Developing countries have long been uncomfortable about the outsized fund resources being devoted to the eurozone crisis, with Brazil voicing concern that an organisation aimed at helping poorer countries is being used to shore up some of the world’s largest economies.
But Mr Batista’s abstention and harsh statement – which included his assessment that the IMF’s Greece staff was “one step short of openly contemplating the possibility of a default or payment delays by Greece on its liabilities to the IMF” – is one of the toughest stands taken since the Greek bailout began three years ago.
It came as the IMF itself issued a report calling on eurozone countries to provide €11bn more funding for the Greek bailout and consider big writedowns of their bailout loans to Athens in order to reduce debt to more reasonable levels.
“This abstention undermines the belief that IMF disagreement between the Europeans and emerging markets over Greece are a thing of the past,” said Mujtaba Rahman, head Europe analyst at the Eurasia Group risk consultancy. “Ahead of difficult negotiations on a third bailout and debt writedowns this fall, this signal of disarray from within the IMF could not have come at a worse time.”
The warnings come amid a national election campaign in Germany where tolerance for more Greek aid and debt relief is waning and opposition parties have attempted to make Chancellor Angela Merkel’s handling of the bailout a campaign issue.
German officials pointed to recent findings by international monitors, which include the IMF, that the bailout was hitting its fiscal targets, arguing that it was therefore not appropriate to discuss new Greek assistance.
Greece struggles on with drastic austerity as eurozone leaders continue to argue over how to help the country cope with its debt mountain
In an interview, Mr Batista said that while he had abstained in the past, he was now convinced that Greece’s second €172bn bailout suffered from the same rosy assumptions that hobbled the first rescue, which was later harshly criticised by the IMF itself. “The second programme suffers from many of the same problems as the first,” he said.
Mr Batista’s abstention will have no direct impact on Greece’s aid; the Brazil-led group represents only 2.6 per cent of IMF board votes, which are dominated by European and US members. The board approved the payment on Monday, just two days before an end-of-month deadline.
But it will raise the pressure on IMF officials to take an increasingly tough stand with eurozone leaders, who are reluctant to accept losses on their existing bailout loans.
Brazil’s belligerence has grown since 2009 when, after decades of relying on the IMF to bail it out of a series of financial crises, it became a net creditor of the fund when it provided $10bn in financing to help developed countries hit by the financial crisis.
Since then, Guido Mantega, Brazil’s finance minister, has emerged as one of the most outspoken critics of the IMF, calling for greater representation of developing countries on the board.
Brazil’s new confidence as a global economic power has also led the country to put increasing pressure on the IMF on issues ranging from the acceptance of capital controls in global markets to even its methodology for calculating debt.
Last week, it emerged that Brazil had asked the IMF to change the way it measures nations’ gross debt, which it said unfairly inflated its own liabilities.
Additional reporting by Joseph Leahy and Samantha Pearson in São Paulo and Quentin Peel in Berlin
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