–Can Safely Say IMF Contribution To Greece To Be ‘Sizeable’

By Yali N’Diaye

WASHINGTON (MNI)- Should an oil supply shock occur in the Middle
East, it could have a “large” impact on the global economy in the
absence of increases in supply elsewhere, an International Monetary Fund
official said Thursday.

“The impact of an oil supply shock in the Middle East could be
large if not compensated by supply increases elsewhere,” IMF spokesman
Gerry Rice told reporters during a regular briefing.

“We have noted in some of our analyses previously, for example, if
this were to occur, that a halt of Iran’s exports to OECD economies
without being offset from other sources could trigger an initial oil
price increase of around 20% to 30% with other producers of emergency
stock releases likely providing some offset over time.”

Another source of uncertainty for growth is Greece and contagion
effects, which were again the center of attention of reporters
questioning Greece’s political will to implement the new program as
elections are looming.

Rice’s main message was that the signs of political commitment in
Greece have been encouraging and hopefully will continue to be after the
elections in April.

Greece recently reached an agreement with Eurozone countries and
the IMF’s spokesman said that the institution itself is likely to
provide a “sizeable” financial contribution, a topic that IMF Managing
Director Christine Lagarde is planning to take to the Board around
mid-March.

For now, he commented, “We can safely say that it will be a
sizeable contribution.” The decision will take many factors into
accounts, including rules, regulation on size, special access and
exposure as well as the risks in the program.

Declining to comment on a specific amount, Rice pointed out as a
sign of the IMF’s strong commitment to Greece, that the country is the
single largest exposure to any country in the IMF’s history. Greece also
has the single largest exceptional access.

What’s more, the IMF is proposing to move from a stand-by
arrangement (with an average length of five years) with Greece to an
extended fund facility (with an average 10-year length), the terms of
which would give Greece “much more breathing space.”

On that front, Rice said, the IMF’s current projection is that the
recession Greece is currently experiencing will bottom out “sometime
next year.”

“The medium-term path” for Greece is to return to a “realistic
growth path,” he said, without specifying. “Not dramatic, but a
realistic growth path.”

This, however, “is based on assumptions that all the pieces fall
into place,” he said, referring to a “rigorous” implementation of the
program, the political commitment from Greek authorities, the long-term
financial support.

If indeed “all play their part and all the pieces fall into place,
then this is a program that’s workable and that the debt sustainability
target” — debt-to-GDP ratio of 120% by 2020 — can be reached.

He said there have been “encouraging signs of political consensus
in Greece” over the recent weeks.

Going forward, he continued, “We are hopeful that these encouraging
signs will continue through the election and after.”

The goal, he repeated, is to give Greece time to implement reforms
and return to competitiveness and growth.

In other comments, Rice welcomed the measures taken by Spain to
reform its labor market. “We’re still evaluating (the reform) but it
certainly goes generally in the right direction,” he said, referring to
the labor market reform.

Overall, he said, the euro zone continues to cope with its debt
crisis and G20 countries have supported efforts to build a financial
firewall to protect against the risk of contagion.

In that context, the issue of increasing IMF’s resources will be
discussed at the upcoming G20 meeting in Mexico, Rice said.

Part of that firewall, he continued, is an increase in IMF
resources, which would complement resources that Europeans will put on
the table to cope with their debt crisis.

** Market News International Washington Bureau: 202-371-2121 **

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