Greece missing the IMF payment next week won’t be a default


If Athens does not meet next Tuesday’s payment of the debt it owes the International Monetary Fund, it won’t technically be a default. It will just be in arrears, which leaves room for further tortuous negotiation. Which leaves it on the European Central Bank drip.

Greek officials have said they can’t pay the fund without a deal, needing additional emergency financing from its creditors to cover upcoming bills to the IMF, the European Central Bank and even its own domestic institutions.

But according to Reuters, most top credit rating agencies say they would not cut Greece’s  rating to default if it misses a payment to the International Monetary Fund or European Central Bank. Standard and Poor’s, Fitch and DBRS, three of the top four, say that as the IMF and ECB are not standard creditors, a missed payment to either, would not be classed as a default. All it would do would be to push Greece’s credit rating into junk. “If Greece were, for whatever reason, not to make a payment to the IMF or ECB that would not constitute a default under our criteria as it is ‘official’ sector debt,” said Frank Gill, who rates Greece for S&P.

The Wall Street Journal says that if Greece missed the payment, IMF Managing Director Christine Lagardewould notify the fund’s executive board. But the IMF’s official arrears policy allows the managing director to take a month before reporting the arrears to the board, which means more time for negotiation.

Bloomberg says that non-payment would land Greece in a club of countries in arrears that currently includes Zimbabwe, Sudan and Somalia. The three nations have combined overdue payments of about $1.8 billion.

And once in arrears, Greece may have little incentive to pay back the fund. More to the point, the real loser could be the IMF. As Benn Steil, director of international economics at the Council on Foreign Relations in New York says in a blog post non-payment by a European state will surely undermine the IMF’s credibility in the eyes of developing countries, and likely accelerate efforts to build alternative institutions.
What will it do when it’s Ukraine’s turn?


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