Whom to Blame for Sovereign Debt Restructurings: Borrowers, Creditors, International Institutions, or Catastrophes Athanasios Orphanides MIT
Fifth Annual Sovereign Debt Restructuring Conference February 25, 2022
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The role of the IMF
“The IMF should eschew the temptation to use currency crises as an opportunity to force fundamental structural and institutional reforms on countries, however useful they may be in the long term, unless they are absolutely necessary to revive access to international funds. It should strongly resist the pressure from the United States, Japan, and other major countries to make their trade and investment agenda part of the IMF funding conditions.” (Martin Feldstein, 1998, Foreign Affairs)
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Greece: IMF program vs outcome: Deficit to GDP ratio 0
0
-2
-2
2010
Percent of GDP
-4
-4
-6
-6
2015 -8
-8
-10
-10
-12
-12
-14
-14
-16
-16 1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
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Greece: IMF program vs outcome: Debt to GDP ratio 180
180
2015
Percent of GDP
160
160
140
140
2010
120
120
100
100
80
80 1998
2000
2002
2004
2006
2008
2015 series includes effect of 2012 restructuring.
2010
2012
2014
2016
4
Greece: IMF program vs outcome: Unemployment 30
30
2015 25
20
20
15
15
Percent
25
2010 10
10
5
5 1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
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Greece: IMF program vs outcome: Real GDP 260
260
240
240
Billion 2010 euro
2010
220
220
200
200
2015 180
180
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
6
Greece: IMF program vs outcome: Nominal GDP 260
260
Billion euro
2010 240
240
220
220
200
200
180
2015
180
160
160
140
140
120
120 1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
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Why such a flawed program and default?
“Contagion from Greece was a major concern for euro area members given the considerable exposure of their banks to the sovereign debt of the euro area periphery.” “[The Greek program was a] holding operation [that] gave the euro area time to build a firewall to protect other vulnerable members and averted potentially severe effects on the global economy.” (Ex Post Evaluation. IMF Country Report No. 13/156, June 2013)
8
What was the IMF program about?
“It was about protecting German banks, but especially the French banks, from debt write offs” (Karl Otto Pohl, Former Bundesbank President, May 18, 2010.)
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Did the IMF know?
“The risks of the program are immense . . . As it stands, the programs risks substituting private for official financing. In other and starker words, it may be seen not as a rescue of Greece, which will have to undergo a wrenching adjustment, but as a bailout of Greece’s private debt holders, mainly European financial institutions.” (Brazil’s executive director, IMF Board meeting, May 9, 2010)
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References Blustein, P.(2015). Laid Low: The IMF, the Euro Zone and the First Rescue of Greece. CIGI Paper No. 61, April. https://www.cigionline.org/publications/laid-low-imf-euro-zone-and-first-rescue-greece/
Feldstein, M. (1998). Refocusing the IMF. Foreign Affairs March/April. https://www.foreignaffairs.com/articles/asia/1998-03-01/refocusing-imf
IMF (2010). Greece: Staff Report on Request for Stand-By Arrangement. IMF Country Report 10/110; May 5, 2010. https://www.imf.org/external/pubs/ft/scr/2010/cr10110.pdf IMF (2013). Greece: Ex Post Evaluation of Exceptional Access under the 2010 Stand-By Arrangement. IMF Country Report No. 13/156, May. https://www.imf.org/external/pubs/ft/scr/2013/cr13156.pdf
Orphanides, A. (2015). The Euro Area Crisis Five Years After the Original Sin. Credit and Capital Markets, 48. http://doi.org/10.3790/ccm.48.4.535 12