Greece Defers IMF Payment Till Month’s End

The Greek government has informed the IMF that a debt payment of about $339 million that is due today isn’t coming today. Instead, Greece is going to bundle it in with all the other payments it needs to make to the IMF this month and deal with everything owed by June 30. The lump sum to be paid on that date $1.7 billion. The IMF does permit this, and it is not considered a default event. However, it does take the current negotiations into overtime. One expects the creditors to blink in the next couple of weeks.

IMF spokesman Gerry Rice said in an e-mailed statement. “The Greek authorities have informed the fund today that they plan to bundle the country’s four June payments into one, which is now due on June 30. Under an Executive Board decision adopted in the late 1970s, country members can ask to bundle together multiple principal payments falling due in a calendar month.”

Last week, Mr. Rice’s colleague William Murray stated, “Countries do have the options of bundling when they have a series of payments in a given month. They have the option of bundling, making a single payment at the end of that month. This is a policy that was adopted back in the 1970s. It is rarely used. I’m only aware of one case and it was back in the mid-80s in which a country bundled payments to the Fund… My understanding is that it was Zambia.”

Mike Bird of Business Insider UK remarked on the Zambian situation, “Inflation sent prices up 4,000% between 1980 and 1990. Between 1982 and 1984 the country was in a severe slump, and debt ballooned to more than 200% of GDP. According to the IMF’s own record Zambia began to experience ‘protracted arrears’ in 1985 — by 1987 it terminated its own programme with the Fund as Zambia defaulted.”

Greece is nowhere near Zambia’s dire straits of the 1980s. The point is that bundling is an extreme measure used only in extreme times, a rare bird. At the same time, it was insufficient to avoid a default. The precedent Greece is following is not a cheerful one.

Greece, however, appears to have much more leverage with its creditors that Zambia ever had. The June 30 payment date is significant because that happens to be the same day the IMF-EU bail-out arrangement with Greece comes to an end. The message the bundling sends is “Don’t push us too far. We may decide to take you down with us.” When Prime Minister Tsirpas addresses the Greek parliament later today to brief legislators, he will be laying out his proposal to his nation’s creditors. One doesn’t expect him to be terribly generous or flexible just yet. He doesn’t need to be.

In truth, the entire kerfuffle over Greece paying its debts has been about keeping the banks that lent it all that money afloat. Most of the Greek debt was owned by French and German Banks. Had Greece defaulted a few years ago, the banking systems of those two countries would likely have locked up. No euros would come out of the ATM in Berlin or Paris. That was the disaster that everyone wanted to avoid.

Now, the banks in question are in better shape, and the current discussion is largely operating on the momentum of what went on before. Greece may still default, but the collapse of core Europe won’t follow.