IMF releases EURO 2.2 billion in emergency funds to Greece

The IMF announced late Monday it released EURO 2.2 billion in rescue funds for Greece, paving the way for the country beleaguered to avoid debt default.The International Monetary Fund (IMF) board approval of the program allows the fund to immediately disburse financing to Athens, buying time for Europe to prevent a wider spread of the debt crisis into the rest of the euro zone."Greece has substantial achievements to its credit, including a large fiscal deficit reduction. However, the program is in a difficult phase, with structural reforms proceeding slowly, the economy weak, and the external environment deteriorating," IMF chief Christine Lagarde said later Monday in a statement. "This has warranted a substantial downward revision to the medium-term outlook." The tranche had been delayed as Greece had failed to meet many of its basic loan program conditions and as concerns increased about the ability of the Greek government to turn its economy around. The IMF and Europe last year agreed to a joint EUR110 billion, three-year loan program.Deteriorating economic conditions and the inability of Greece to move forward with key reforms forced new financing agreements that included private-sector writedowns on their Greek debt holdings. Political turmoil and opposition in Athens threatened the agreements and both Europe and the IMF withheld the latest loan tranches.But after assurances from the new Greek prime minister, Lucas Papademos, and his government, that Athens would abide by the terms of a previously-promised debt deal, Europe last week approved its own EUR8 billion tranche for Greece.Still, the IMF board overlooked the failure of Greece to live up to many of the conditions required by the fund in its loan program, an indication of how vital the Greek package is to stemming debt contagion into the rest of Europe.In particular, the IMF waived Athens' failure to meet targets for Greece's primary cash balance for the general government, privatization receipts, and external payments arrears. Several board members have long said they fear the Greek program won't make Athens healthy enough to pay back its debts, but rather simply burdens the country with more debt. Economists say the IMF believes that it must prevent a default in Greece, however, to restrain a complete meltdown in the euro zone.Lagarde said the new government in Athens should use its mandate to "steadfastly implement the program, which is the best way to help Greece manage the risks it now faces." "Adjustment efforts will have to be supported by a prompt implementation of underlying fiscal reforms, which are necessary to downsize the public sector and strengthen tax collection," she said.