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| Union members in Athens protested in May a government order not to strike. The banner reads, “Bread, education, freedom.” |
John Kolesidis/Reuters
By ANNIE LOWREY
WASHINGTON — The International Monetary Fund released an internal report on Wednesday that sharply criticizes its first bailout program for Greece,
the latest in a series of partial mea culpas as the fund reassesses the
austerity that it has insisted on for ailing, debt-plagued economies.
People collected onions distributed by market vendors during a protest in Athens last month.
The 50-page report, titled “Greece: Ex Post Evaluation of Exceptional
Access Under the 2010 Stand-By Arrangement,” acknowledges major mistakes
in Greece’s first bailout, which totaled about $143 billion and came
into effect in 2010. The fund bent or broke three out of four of its own
rules with the lending program, the report concludes. It also seriously
underestimated the severity of Greece’s downturn.
The first bailout failed to set Greece on a sustainable path. “Market
confidence was not restored, the banking system lost 30 percent of its
deposits, and the economy encountered a much deeper-than-expected
recession with exceptionally high unemployment,” the report said. In
2012, the I.M.F. and its partners, the European Commission and the European Central Bank,
agreed to a bigger second program, totaling about $170 billion and
requiring Greece’s private sector bondholders to accept losses of at
least 50 percent. The Greek economy has been shrinking for six
consecutive years, with no end in sight, erasing a full decade of
growth. The unemployment rate has hit 27 percent.
The report said that the fund miscalculated the so-called multiplier, or
the effect that adding or subtracting a dollar of government spending
would have on the broader economy during the downturn. It underestimated
the scale of what has proved to be a devastating Greek depression,
fueled in part by sharp government spending cuts and tax increases.
Over the last year, the fund has performed a broader reassessment
of the fiscal multiplier during the downturn, to help explain why it
underestimated some countries’ growth and overestimated others.
Multipliers at that time were actually multipliers that were in line
with estimates by the Organization for Economic Cooperation and
Development, said Poul Thomsen, the fund’s mission chief for Greece, in a
conference call with reporters. He said other, unexpected factors had
contributed to Greece’s collapse: among them the country’s internal
political crisis, concern within the European Union that the country
would abandon the euro currency and worries among investors that the
Europeans did not have an adequate crisis response.
The initial program for Greece was “necessary” and “appropriate,” the
report concludes. But it also bent the I.M.F.’s own rules for lending to
bankrupt countries. In particular, the fund’s experts were “unable to
vouch” that Greece would be able to repay its loans in the medium term.
“Staff favored going ahead with exceptional access because of the fear
that spillovers from Greece would threaten the euro area and the global
economy,” the report said.
The I.M.F. released the document after The Wall Street Journal reported some of its conclusions online.
In hindsight, the fund arguably missed two other internal criteria as
well, the report concludes: ascertaining that Greece had “good prospects
of regaining access to private capital markets” and ensuring that it
had a “reasonably strong prospect of the programs’ success taking into
account institutional and political capacity to deliver adjustment.”
The report suggests that the so-called troika responsible for the
bailout program — the I.M.F., the European Commission and the European
Central Bank — might have forced Greek bondholders to take a haircut on
their bonds sooner, while noting the political opposition to that step.
“Not tackling the public debt problem decisively at the outset or early
in the program created uncertainty about the euro area’s capacity to
resolve the crisis and likely aggravated the contraction in output,” the
report states.
The report also said Greece might have benefited from less stringent
fiscal targets, or targets spread out over a longer time frame. But that
would have required billions more euros in support, the fund said, and
that support clearly did not exist. Indeed, “the fiscal targets became
even more ambitious once the downturn exceeded expectations,” the report
said.
The initial Greek program ended up acting as a “holding operation,”
buying time for Europe to try to limit the fallout, the report
concludes.
The I.M.F. also expressed misgivings about the troika that financed and ran the bailout program.
“None of the partners seemed to view the arrangement as ideal,” it said,
and they failed to establish a proper division of labor. Still, “the
view of everybody involved on the inside is that given that these are
three institutions that have not had a history of working in that way
together, it worked surprisingly well,” Mr. Thomsen, the Greek mission
chief, said. “It doesn’t mean it couldn’t work better.”
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