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Tokyo (AFP) Oct 11, 2012
The International Monetary Fund is happy for debt-battered Greece to have an extra two years to bring its runaway deficit in line with the demands of global creditors, the Fund's chief said Thursday.
Christine Lagarde told a news conference in Tokyo that too much austerity too quickly could cause difficulties, particularly if a number of economies were chasing targets.
She said Athens needed more time to tame its budget overrun to agreed levels, adding weight to the idea of a new 2016 deadline favoured by the Greek government.
"Instead of frontloading heavily it is sometimes better -- given the circumstances and the fact that many countries at the same time go through that same set of policies with the view of reducing their deficits -- it is sometimes better to have a bit more time," she said.
"This is what we've advocated for Portugal, this is what we've advocated for Spain and this is what we are advocating for Greece.
"I have said repeatedly that an additional two years was necessary for the country to actually face the fiscal consolidation program."
Greece is going through a painful round of austerity and spending cuts imposed on the country in return for promised loans and debt relief worth a total of about 347 billion euros ($448 billion) since 2010.
The belt-tightening has forced Greece into its fifth year of recession, with its economy forecast to contract by 3.8 percent in 2013.
New figures on Thursday revealed one in four people is unemployed and many of those that do have jobs have seen their pay slashed.
The IMF says Greece's public debt is expected to stand at 170.7 percent of GDP this year, one of the worst fiscal pictures in the world, and a figure expected to rise to nearly 182 percent in 2013.
Greece has agreed with its creditors -- the so-called Troika of the European Union, the European Central Bank and the IMF -- that it will reduce its public deficit to 2.1 percent of GDP by 2014. It presently stands at more than three times that figure.
Athens is trying to persuade the Troika that it is doing all it can to slash costs by 13.5 billion euros ($17.4 billion) over the next two years, with a 31.5 billion-euro installment from its bailout packages riding on that.
Once the austerity package is finalised later this month, Athens hopes to secure an extra two years to apply the relevant cuts, betting that its economy will have picked up steam by then.
The IMF has previously said there are some "good arguments" for pushing back the deadline, but Thursday's comments in Tokyo marked the first time Lagarde had been so explicit.
However, allowing Athens more time to get its house in order still leaves the problem of how to fund the overdraft.
At the end of September, Lagarde said Greece was facing a "financing gap", but has so far appeared reluctant for the IMF to further increase what is already the largest loan in its history.
Private creditors, who have already taken a more-than 100 billion euro haircut, are also seen as being unlikely to want to step into the breach.
And politicians from Europe's funding powerhouses face electoral resistance to any move to boost their contributions to supporting Greece via the EU.
Greek Premier Antonis Samaras said Friday his country could not take more bitter medicine and warned that if the next aid tranche did not arrive soon, state coffers would be empty by November.
The comments from Lagarde, who was in the Japanese capital for the IMF and World Bank's annual meetings, come after the Washington-based Fund on Tuesday cut its global economic growth estimate for this year and 2013.
The world economy was on track to grow 3.3 percent in 2012, the IMF said, down from its July estimate of 3.5 percent, while expanding just 3.6 percent next year, also lower than a July estimate of 3.9 percent.
"The good news is that the global economy is growing," Lagarde said.
"It's growing in most regions of the world. But it's not growing as it should and it's certainly not growing as it should to create jobs around the world."
Asked about the absence of two of China's top economic figures, who are staying away from the meetings amid a row between Tokyo and Beijing over the sovereignty of uninhabited islands, Lagarde said it was their loss.
"We have a lot of substantive issues to discuss, great debates, great seminars organised," she said. "I think they lose out by not attending the meeting."
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