In arrears, it is the first developed country to miss an IMF payment
FRANKFURT, Germany – Greece on Tuesday added its name to a roster that includes some of the world’s poorest and worst governed nations, including Iraq, Sudan, Somalia and Zimbabwe.
Those are a few of the countries that have missed payments to the International Monetary Fund — as Greece did Tuesday, when it failed to make a loan payment of about 1.5 billion euros, or $1.7 billion, to the fund.
The International Monetary Fund does not use the term default. It instead places countries that miss their payments in so-called arrears. But the failure by Greece to meet its obligation to the fund will prompt other lenders to conclude that Greece has defaulted.
Those lenders include bond holders and the European Central Bank, which now may be less willing to continue emergency loans that have been propping up Greek banks for the past several months.
Credit rating agencies will not consider Greece to be in default based on missing the IMF payment, for the technical reason that the IMF is not considered a commercial borrower. But the ratings agency Standard & Poor’s said in a statement Tuesday that it would designate Greece as being in default if the country cannot make payments to private creditors, like 2 billion euros in Greek Treasury bills that are due on July 10.
And once found in arrears, Greece is barred from receiving any more money from the IMF until it settles the debt. That is a big problem, because the IMF has been a crucial partner with the European Union in dealing with Greece, providing not only money but financial and economic expertise.
The IMF confirmed that Greece had failed to make the payment, after a 6 p.m. Washington deadline came and went.
“We have informed our executive board that Greece is now in arrears and can only receive IMF financing once the arrears are cleared,” said Gerry Rice, a spokesman for the fund. Rice said the IMF board would consider Greece’s request, made Tuesday, to extend the loan payment deadline.
The development came as, separately, Greece’s European creditors rejected an 11th-hour attempt by Athens to extend the country’s international bailout program.
It is the clearest signal yet of the political and financial dysfunction in Greece, which on Sunday announced that it would close its banks for at least a week to prevent panicked depositors from withdrawing their money.
Jacob Funk Kirkegaard, a senior fellow at the Peterson Institute for International Economics in Washington, said delinquency would put Greece in ignoble company.
“They are joining countries we would normally regard as failed and failing states,” Kirkegaard said. “The symbolism is quite dramatic.”
Greece is the first developed country to miss an IMF payment. And the missed payment is the largest in the fund’s history. Sudan still owes about $1.4 billion from loans acquired in the 1980s, according to the fund.
Countries that have fallen behind more recently include Iraq, Bosnia and Afghanistan. All three later settled their obligations to the fund.
The European Central Bank, which has kept Greek banks on life support during the debt negotiations, is allowed to finance only solvent banks. Because Greece’s banks and the government are tightly linked, it would be hard to consider Greek banks solvent when their government is not paying its bills — which is perhaps the biggest implication of the missed payment.
A last-minute bailout proposal that the government of Prime Minister Alexis Tsipras made on Tuesday to its European creditors was said to exclude the IMF’s involvement.
But as Kirkegaard pointed out, countries like Germany are unlikely to approve more aid for Greece without IMF participation.
By stiffing the IMF, Greece is also challenging the fund’s status as the preferred lender — a hierarchy of creditors in which private bondholders should theoretically lose their money before the IMF does. But because Greece is in no position to pay any of its major creditors, the order may not matter much.
Stock market reaction
The U.S. stock market stabilized on Tuesday as investors followed the latest developments in the Greek saga. Stocks edged higher a day after the market had its worst day of the year, prompted by the uncertainty in Greece.
The Dow Jones industrial average gained 23 points, or 0.1 percent, to 17,619. The Standard & Poor’s 500 index gained 5 points, or 0.3 percent, to 2,063. The Nasdaq composite index climbed 28 points, or 0.6 percent, to 4,986.