Sat, Dec 01, 2012 - Page 15 News List

Greek debt buyback must be ‘voluntary’: bank lobby


German Minister of Finance Wolfgang Schaeuble, right, in wheelchair, delivers his government statement at the German parliament in Berlin yesterday, where lawmakers approved a 43.7 billion euro bailout deal for Greece.

Photo: EPA

A powerful international bank lobby warned on Thursday that the outcome of Greece’s looming debt buyback program remains uncertain and warned that it must be “purely voluntary.”

The Institute of International Finance’s (IIF) Market Monitoring Group welcomed a third EU-IMF aid program agreed on Tuesday as important to cutting Greece’s debt and helping it avoid a default.

But the IIF said that “uncertainty remains” over the plan, especially regarding Athens’s planned buyback of debt, a linchpin of the deal that will reduce its interest burden and free up funds from its lenders.

“A voluntary debt buyback is assumed by the euro area to be instrumental to reducing Greece’s debt-to-GDP ratio, allowing program disbursement,” it said in a statement following meetings in New York.

“However, it is critical that any buyback be conducted on a purely voluntary basis,” it said.

The IIF, which led the talks between private-sector creditors and Greece, which resulted in banks taking a deep write-off earlier this year, made clear its members did not want to be forced into taking more losses on Greek bonds.

It hailed important parts of Tuesday’s deal, including the reduction in bilateral lending rates, the extension of maturity on rescue loans, and the turning over of European Central Bank (ECB) and other eurozone central banks’ profits on their Greek bonds to the Greek government.

The debt buyback is a cornerstone of the agreement reached by the IMF, the European Commission and the ECB, which pledged the release over the next four months of 43.7 billion euros (US$56.7 billion) in new rescue aid to Greece.

IMF spokesman Gerry Rice said on Thursday that the fund’s support of the new program is contingent on the success of the buyback program.

Athens said it expected to launch the buyback next week and complete it by Dec.13, though if the operation fails, Athens said it had an alternative plan.

But the IIF raised doubts over whether the buyback would achieve its goals, and said the focus should be on restoring growth to the depressed Greek economy.

“At present, the outcome of the buyback — and the final decision on the next disbursement — remains uncertain,” the IIF said.

“In any event it is increasingly clear that meaningful progress toward debt sustainability can only be achieved with a return to economic growth,” it added.

The group criticized lenders’ policy approach toward Greece and the weak economies of the eurozone.

“The emphasis on aggressive short-term fiscal contraction in the euro area does not fully address the fundamental challenge,” the IIF said.

In Greece’s case, the group argued for more emphasis on privatization and tax reform, an acceleration of eurozone investment funds, and more concessions by official creditors such as interest rate cuts, including from the IMF.

Such moves are “urgently needed to restore economic growth,” it said.

Ratings firm Moody’s echoed the IIF’s concerns on Thursday, saying it was uncertain whether there would be sufficient private-sector participation “to contribute to a meaningful debt reduction.”

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