Last updated: June 20, 2013 11:16 pm

IMF to suspend aid payments to Greece unless bailout hole plugged

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People walk in front of the Greek Parliament in Athens©AFP

The International Monetary Fund is preparing to suspend aid payments to Greece by the end of next month unless eurozone leaders plug a €3bn-€4bn shortfall that has opened up in Greece’s €172bn rescue programme, according to officials involved in managing the bailout.

The gap emerged after eurozone central banks refused to roll over Greek bonds they hold, and comes amid signs that even the scaled-back privatisation plan Athens agreed to last year is falling behind schedule.

Officials involved in the Greek talks emphasised that, unlike previous slippages in the bailout, the fault did not lie with Athens but rather in other eurozone capitals. They also blamed privatisation delays on “outside pressures”.

Under IMF rules, governments must have at least 12 months of financing in place to receive IMF disbursements under any bailout programme. This latest shortfall means Greece’s financing needs are now only covered up to the end of July 2014.

Jeroen Dijsselbloem, the Dutch finance minister who chairs the committee of eurozone finance ministers, said at a meeting in Luxembourg on Thursday that the group had implored Yannis Stournaras, their Greek counterpart, to complete talks with the “troika” of international lenders by next month to avoid a crisis.

A quick deal with Athens would enable the IMF to distribute its next aid tranche before they are forced to cut Greece off at the end of July.

“We need to finish the review at the beginning of July,” said Mr Dijsselbloem, who added that negotiators would return to Athens at the start of next month “at the latest”.

But finalising the next payment quickly has been thrown into doubt by upheaval in Athens, where the coalition government is at risk of collapse over the decision by Antonis Samaras, prime minister, to shut down the state broadcaster.

“I love Greece but I’m very much looking forward to a eurogroup press conference where Greece is not going to be discussed and a summer where we don’t have any Greek crisis,” said Olli Rehn, the EU economic commissioner.

Even if the IMF were able to distribute aid in July, it would only delay the day of reckoning until the next disbursement later in the year. However, that is likely to fall after Germany’s parliamentary elections on September 22, avoiding a need for the Bundestag to address the issue during the campaign.

The shortfall would still force eurozone finance ministers to discuss “alternate sources” of funding, said an official, including the possibility of a fresh bailout programme by the end of the year.

An alternative short-term fix would be for Athens to delay repayment of government arrears, but this could hamper economic recovery in a country that has seen five years of deep recession. Greece could also issue more short-term debt, but this is something lenders have sought to curtail.

The IMF’s line on Greece has hardened in recent months. It recently admitted to mistakes in Greece’s first bailout while criticising the eurozone for failing to agree sooner to restructuring Greek debt.

The latest gap emerged after national central banks, which were urged by eurozone leaders to roll over €3.7bn in Greek bond holdings, refused to do so when the first redemptions came due last month. That forced bailout lenders to speed up aid payments that were originally to go for other purposes later in the programme.

According to three senior eurozone officials, the problem was nearly compounded when some central banks balked at passing on the profits they made on their Greek bond holdings back to Athens, which is to contribute €2.1bn to Greece this year. But the holdouts, including France, had backed down in recent days, officials said.

Greece this month failed to sell off Depa, the state-owned natural gas company, and other government assets were running into similar challenges, officials said.

The troubles in the Greek programme come as eurozone finance ministers on Thursday were forced to debate revising Cyprus’s €10bn bailout following a written request by the island’s president for changes in how the programme restructured the country’s two largest banks.

In a letter to the Financial Times, Christos Stylianides, a Cypriot government spokesman, said Nicosia remained committed to meeting the terms of the bailout agreement, but felt the need to raise issues that could prevent targets from being hit.

“The objective of the president’s intervention was to bring to the attention of our European partners important issues that are inhibiting the achievement of the objectives of the [bailout agreement],” Mr Stylianides wrote.

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