Greece Defaults on IMF Loan Payment

Greece’s last-minute overtures to international creditors for financial aid  were not enough to save it from becoming the first developed economy to default on a loan with the International Monetary Fund. The situation remains so uncertain that even the Sunday referendum, on whether to accept the aid, hangs in doubt, reports

The IMF confirmed that Greece had not made its scheduled €1.6 billion 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.

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

Fears of a Greek default have unnerved financial markets on concerns that it would ultimately lead to the country’s exit from the euro. The fate of Greece’s membership in the 19-nation currency bloc still hangs in the balance ahead of a referendum on 5 July, which Prime Minister Alexis Tsipras surprisingly proposed on 27 June, rejecting as “blackmail” the proposals of the lenders.

A one page letter from Greek Prime Minister Alexis Tsipras to the chairman of the Eurogroup of finance ministers of the eurozone 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, Tsipras 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.”