Friday, January 19, 2018

Greece, The IMF's Sugar Daddy

Today, a look at the Greece-IMF relationship from the only perspective that really matters: money.

When Greece imploded back in 2010 it turned to the IMF for help.  The IMF agreed and as of Oct. 2017 Greece owes it 9.5 billion SDR (Special Drawing Rights, the IMF's in-house currency), equivalent to 11.3 billion euro.  The loan carries an interest rate around 3.5% per annum. 

So, Greece pays the IMF roughly 340 million SDR per year in interest (=396 million euro). 

So what, you ask?  Greece is the IMF's largest borrower by far and without the income generated from these loans the IMF would be hard pressed to make any profit at all.  

An excerpt from the IMF's quarterly statement ending Oct. 31, 2017 (I have annualized all amounts, in million SDR).

Operational Income:         1,658
Operational Expenses:    -1,344  (mostly salaries and admin.) 
Operating Net:                      314
Other Income:                         94
 Total Net:                         408 million SDR

As you can see, the Greek loan interest is 20.5% of operating income and a whopping 83.3% of total net.  Given that IMF's expenses are basically inelastic - salaries and administrative expenses -  total net without the Greek interest income would drop to a mere 68 million SDR.

And here's the rub: Greek bond yields have now dropped so low that early repayment of IMF loans is very possible. They are due in several installments with average maturity around 2.5-3 years and cost 3.5%.  Compare that, for example, with the 2-year Greek government bond at 1.40% and the 5-year at 2.80%.  

Therefore, issuing new 2 and 5 year GGB's to pay off the IMF early is a very attractive possibility, one that would save Greek taxpayers some 200-250 million euro per year.  It would also mean lean times for the Washington boffins, but I'm sure no one will shed tears for them.

And what are them boffins doing about it? The relationship between Greece and the IMF has been testy for the last 3-4 years;  so much so that the IMF is no longer a "full" member of the bailout program (i.e. it provides no more financing), instead participating on an advisory role only.  It has frequently intimated that it would rather withdraw altogether.

So, here's the good part: in the last few days the IMF has done a complete about face and is now eager to participate in the Greek program, including fresh financing!

I think the IMF's income statement (here) explains a lot..


  1. This is a very good point. Although for the IMF to join in, it has to conclude the GR debt is somehow sustainable in one of the scenarios.

    1. ...and if they would reduce their interest rate down to 1% it would make the debt more sustainable ;). But... they are not going to do it, of course.

      It’s best to repay them and get them off Greece’s back.

  2. The IMF can simply Pink Slip the toppiest 30% of its employees. That should reduce its budget somewhat. It could also move its HQ from 19th Street NW DC to a low cost US region - say, West Virginia, Montana or some such. Actually I'd site them a tad North-West of Barrow AK. Cool their excess arrogance a bit.

    The real measure of the economic health of a capitalist state is that it has a properly functioning public healthcare, public housing and primary education. How is Greece making out on these three?

    Here in Ireland the situation has steadily gone downhill for all three. Our Government has promised us increase spending in all three sectors and simultaneous reductions in income taxes. That's hardly going to work out too well.

    1. With Fashion Lady Mme. Lafarde at the helm even Washington DC seems like the boonies for the IMF, never mind Alaska :)

      Greece has very little public housing since most Greeks own their residences. Funding for education is OK, healthcare is being cut at the moment, particularly on the pharmaceutical side - but that was a source of huge waste and graft, so I think it is justified.