November 02, 2011
The Washington Post is concerned that the referendum in Greece on the austerity plans will make it difficult for the IMF to approve the next tranche of a loan that will be needed for Greece to make a set of debt payments in December. It told readers:
“Papandreou’s announcement could put the IMF in a difficult position. The agency is due to approve the latest disbursement of money to Greece under an earlier loan agreement. But IMF rules allow such disbursements only under programs that are on track.”
This certainly will not be a problem for the IMF. Since the beginning of the financial crisis all sorts of rules have been suspended in all sorts of different contexts. For example, when the crisis was at its peak in September of 2008 the FDIC suspended mark to market accounting, allowing banks to keep mortgages on their books at full value even when it was almost certain that they would take large losses on them. Citigroup was given guarantees on $300 billion in assets by the Fed and Treasury at a point where it was not even clear what assets were being guaranteed (i.e. they could after the fact put bad assets into the pool).
If the IMF wants to support Greek debt, which it probably will since a default would likely lead to major bank defaults, then it will have no problem getting around its rules. There is no legal body to which such a move can be contested.
This piece also neglected an important aspect to the decision to hold a referendum. The referendum will likely lead the troika dictating bailout terms (the IMF, the European Central Bank, and the European Union) to make further concessions. Their current plan implies more than a decade of austerity where Greece will not return to its pre-crisis level of per capita income until after 2020, even if the economy grows in line with projections.
(Since Greece’s pension system has been one point of contention in the austerity plans designed by the troika, it is worth noting that IMF economists are often able to retire in their early fifties with six-figure pensions.)
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