WASHINGTON: The International Monetary Fund said on Tuesday it anticipates a deeper recession for Greece through 2012, but expressed optimism for a deal with private bondholders to help make the country's debt more sustainable.
In a staff report issued in connection with last week's release of a 2.2 billion-euro ($3 billion) aid trenches, the IMF said it revised gross domestic product projections downward due to less favourable external demand, a contraction in bank credit and a slow progress on reforms to improve the investment climate.
The Fund said that a growth inflection point expected in late 2011 has not materialized, so Greece's 2011 GDP will contract 6 percent for 2011 from a previous forecast for a 5.5 percent decline. For 2012, it revised GDP growth to a 3 percent contraction from a 2.75 percent decline.
Poul Thomsen, the IMF mission chief for Greece, said this shows that an improvement in market and investment sentiment towards Greece has yet to materialize.
"Reforms have been running behind schedule and have not yet reached the critical mass needed to decisively transform the investment climate," he told reporters on a conference call.
But Thomsen said that he was optimistic that a debt-reduction deal with private-sector holders of Greece's sovereign bonds would be reached early next year.
Thomsen declined to discuss specifics of negotiations that are now underway, but said that, along with public sector support, the so called "private-sector involvement" would help make Greece's debt more sustainable.
"I think the PSI is core to securing debt sustainability, and of course to ensure adequate financing for the program for the next 12 months," he said.
"I am confident that we will get this PSI, reducing debt to 120 percent of GDP" by 2020, he added aid.
He noted that European leaders have made commitments to support Greece as long as it sticks to its reform program commitments.
"This commitment for official sector support at the Triple-A financing rate of the EFSF together with the comprehensive PSI entails a major improvement in the prospects for debt sustainability compared to the past," he added.
Thomsen said there were no discussions underway regarding a follow-on second loan program for Greece. The IMF has not received any requests for such a program, he said.
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