–Reinvigoration of Structural Reforms Critical to Restore Growth

By Heather Scott

WASHINGTON (MNI) – The latest bailout program for Greece faces
“huge” risks in coming days as private creditors decide whether to
accept the terms of the debt swap, but if the government follows through
on its commitments to structural reforms the country will eventually see
a return to growth and market access, IMF officials said Wednesday.

In a lengthy and frank conference call with reporters, the
officials, who participated in the negotiations with Greece on a second
aid program, laid bare the potential risks and difficulties the country
faces, as well as the potential to pull the economy out of the steep
slide.

A critical first step is selling the debt swap to the universe of
private creditors, who one official said is divided between those who
mark to market and those who would have to take a loss on their books.

“The reality is that this is a complex deal. We cannot make
projections on participation,” he said “There are huge implementation
risks over the next few days and we have to be realistic: it’s not yet
in the bank.”

Another official stressed the importance of a renewed effort on
structural reforms in Greece — including labor reforms and
privatization of state enterprises — without which the program will
fail.

“There is no doubt it’s a painful program,” the official said. “It
will not work without a very determined reinvigoration of structural
reforms.”

But both officials noted that the euro zone leaders made a
commitment to support Greece “for as long as it takes to restore normal
access” as long as the nation follows through on its commitments.

So with this “strong European commitment and Greek commitment, it
will gradually restore market access,” the second official said, noting
that such access of course will start in shorter-dated maturities and at
higher spreads, but “investors will start coming back.”

But he warned that the Greek program “does not have too much wiggle
room, and does assume there is sustained implementation of policies.”

Still he said despite some opposition rhetoric in Greek political
parties, the is widespread support for remaining in the euro zone and
widespread support for the program “and do whatever it takes.”

The program also offer the chance to return to growth although the
process likely will be slow, they said.

The IMF projects Greek economy will still be in a deep recession,
but will “start bottoming out next year, under assumption of
reinvigoration of structural reforms,” which the official said is “key
to improvement of the investment climate.”

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

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