The International Monetary Fund approved a 30 billion euro rescue loan Sunday to help bailout an indebted Greece. The loan is to be spread out over a three-year period, and would be a part of a larger EU rescue package amounting to 110 billion euros.
REUTERS - The International Monetary Fund on Sunday unanimously approved a 30 billion euro ($40 billion) rescue loan for debt-stricken Greece, with 5.5 billion euros being provided immediately to stem a crisis that threatens other euro zone members.
The IMF's three-year loan program is part of a European-led 110 billion euro ($147 billion) financing plan for Greece aimed at averting the euro zone's first sovereign debt default.
Total IMF funding for Greece will amount to about 10 billion euros this year. The European Union will put up another 30 billion euros.
Worries that Greece's problems could spread to other countries have undermined financial markets, which have proven unusually volatile in recent days. Analysts have identified Portugal, Spain and Ireland as countries that could follow in Greece's footsteps and be forced to seek help.
IMF First Deputy Managing Director John Lipsky said the IMF was not in talks about aid with either Spain nor Portugal but acknowledged that the current market turmoil went beyond concerns about Greece.
"It is clear from the developments of the past few days that there is broader stress in financial markets beyond Greece," he told a conference call for reporters.
The combined EU/IMF Greek bailout package is the biggest in history by far. In return for the aid, Greece has had to commit to a painful package of spending cuts and revenue increases that has led to deadly rioting in Athens.
"Today's strong action by the IMF to support Greece will contribute to the broad international effort underway to help bring stability to the euro area and secure recovery in the global economy," IMF Managing Director Dominique Strauss-Kahn said in a statement.
An IMF board source told Reuters the unprecedented size of the aid assembled for Greece reflected concerns that the crisis could become a global one. Greece has a debt burden of more than 115 percent of gross domestic product and needed assistance to make debt payments falling due on May 19.
"While short-run output will necessarily contract as the economy adjusts, structural reforms should help to restore external competitiveness and, together with improved market confidence, set the economy on a recovery path," said Lipsky, the IMF's No. 2 official.
In Brussels, European finance ministers pressed for agreement on stabilization measures to stop Greece's debt crisis from spreading to other countries, promising to do whatever was needed to defend the euro from the "wolfpack" of financial markets.
The euro gained 1 percent against the dollar in early Asia-Pacific trading, advancing further from 14-month lows.
The European Commission will propose to ministers a mechanism intended to provide a multibillion-euro safety net for other euro zone countries in case of crises.
Lipsky said he expected an announcement on EU plans before markets open on Monday. "I'm sure where appropriate the IMF will be providing support and cooperation in that effort," he added.
The IMF forecast that Greece's economy will contract by 4 percent this year and 2.6 percent in 2011, although the IMF mission chief to Greece, Poul Thomsen, said there were surprising signs of demand resilience in Greece.
The Fund said unemployment in Greece could peak at nearly 15 percent by 2012, while inflation is likely to remain below the euro zone average.
Thomsen said financial markets should be more reassured about Greece meeting a May 19 financing deadline since the approval of both portions of IMF and EU funding.
"I'm sure this will have an immediate impact on markets but we also recognize that this is an ambitious program and it will take time before markets really become convinced about the authorities' determination to implement these (austerity) policies," Thomsen added.