Greece defaults on IMF payments

Greece's Finance Minister Yanis Varoufakis
Greece's Finance Minister Yanis Varoufakis
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Greece’s last-minute overtures to international creditors for financial aid on Tuesday were not enough to save the country from becoming the first developed economy to default on a loan with the International Monetary Fund.

The IMF confirmed that Greece had not made its scheduled 1.6bn euro loan repayment to the fund. As a result, IMF Managing Director Christine Lagarde will report to the global lender’s board that Greece is “in arrears,” the official euphemism for default.

Fears of a Greek default have unnerved financial markets on concerns that it would ultimately lead to the country’s exit from the euro common currency. The fate of Greece’s membership in the 19-nation currency bloc still hangs in the balance ahead of a referendum on Sunday when Greek citizens will vote on whether to accept the austerity terms of continued international aid.

An opinion poll published on Wednesday in the Efimerida ton Syntatkton newspaper, said 54 per cent of Greeks plan to oppose the bailout proposal against 33 per cent in favour.

However a breakdown of the results compared with a poll taken before the decision on Sunday to close Greek banks showed the gap between the “yes” and “no” votes narrowing slightly.

IMF spokesman Gerry Rice said Greece can now only receive further funding from the global lender once the arrears are cleared. He confirmed that Greece asked for a last-minute repayment extension earlier on Tuesday, which the fund’s board will consider “in due course.”

The left-wing Greek government’s 11th-hour bid for an extension of its international bailout and a two-year funding and debt restructuring program offered no concessions to creditors’ demands for economic reforms.

A one-page letter from Greek Finance Minister Yanis Varoufakis to the chairman of the Eurogroup of finance ministers of the euro zone said Greece was “fully committed to service its external debt in a manner that secures the viability of the Greek economy, growth and social cohesion.”

But it made no mention of the conditions set by Greece’s three lenders - the European Commission, the European Central Bank and the IMF - for releasing frozen aid to avert defaulting on the IMF repayment. Instead, Mr Varoufakis cited legal grounds for requesting a two-year loan of an unmentioned amount.

“The loan will be used exclusively to meet the debt service payments of Greece’s external and internal debt obligations,” he wrote. It was not clear whether that includes payment arrears to Greek government suppliers, civil servants and others.

The letter went on to say, “Until this loan is agreed and in force, Greece requests for the programme to be extended by the Eurogroup for a short period of time in order to ensure a technical default is not triggered.”

Before the payment deadline, Varoufakis indicated on a call with European counterparts that Athens might scrap the upcoming referendum if a deal was reached, according to euro zone sources.

But the latest Greek proposals came too late to prevent Greece’s existing aid package - with locked-up funds it needs to pay wages, salaries and debt - from expiring at midnight.

Now, Greece will lose access to a 1.8 billion euro loan tranche and 10.9 billion euros for recapitalising banks.