The International Monetary Fund’s (IMF) evaluation report on stand-by arrangement provided to Greece contains a mix of observations on the failure of the bailout.
The report prepared by IMF staff team and released last month found some notable successes during the Stand-By Arrangement (SBA) program between May 2010 and March 2012. The report credited Greece for achieving strong fiscal consolidation and placing the pension system on a viable footing. The SBA program also enabled Greece to remain in the euro zone, besides containing the spill-over contagion not spreading to global economy.
The IMF report however observed a few notable failures. These include: inability to restore market confidence, the banking system losing 30 percent of its deposits and Greece economy experiencing much deeper recession accompanied by huge unemployment. Further other notable failures pointed in the IMF report include: abnormally large level of public debt and its subsequent restructuring, bank balance sheets experiencing collateral damage, structural reforms getting stalled and an inability to demonstrate productivity gains.
IMF Report: SBA Program Was Exceptional
According to the IMF report, Greece’s SBA-supported program was exceptional for a number of reasons. For instance, despite representing less than 30 percent of the financing, IMF access was €30 billion, or 3,212 percent of the quota, representing the largest Fund program ever compared to the quota.
The IMF report also provided a chronology of events to highlight the approach made to respond to the crisis. Initially the Greece authorities sought a European solution, followed by Greece agreeing to a fiscal consolidation plan with the EC. However with the markets expressing doubts whether these steps would be adequate, a request to an IMF program was made for which a total financing of €110 billion, including €30 billion commitment from IMF was worked out.
The report also contains a pictorial representation of chronology of events as below:
The IMF report also highlighted that the Greece funding program was the first ever program from IMF with a member of the euro area, considering euro’s status as a reserve currency.
The IMF report on the SBA also highlights the three pillars of the program viz.: drastic reduction of fiscal deficit, identifying structural reforms and preserving financial stability, in view of banks’ vulnerability to the downturn.
Some of the lessons learnt in this exercise, according to the IMF report include: the importance of spreading the burden of adjustment across different strata of society to generate support for the program, ownership of a program (as found by IMF in many of their earlier ex-post evaluations), IMF staff demonstrating a more skeptical approach while handling official data during regular surveillance, besides ascertaining ways to streamline the Troika process in the future.
The Troika process refers to the agreement reached among the IMF, the European Commission and the European Central Bank.