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IMF and Greece

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    April 23, 2015

    “Greece could make it a few months delaying payment to the IMF — but it will need to reach an accord with its creditors by late July” writes Bloomberg Economist David Powell in this morning’s Bloomberg Brief. http://briefs.blpprofessional.com/issue?id=N-wZwyI1MP7GwRxM1xpNQA__

    At Cumberland, we receive full details of all morning briefs as Bloomberg subscribers and users.   Here is a summary excerpt from today’s Brief.  The timing outline is superbly done.

    In addition, the IMF wouldn’t even have to make a public announcement about the country being in arrears until three months have passed since the missed payment, though the country is immediately shut off from the Fund’s resources. For details, see here.

    The IMF could still sign off on a “successful conclusion of the review” that would officially end Greece’s second bailout even if the country were in arrears. The four-month extension granted in February stipulates that this must be done by the end of June, though it’s a soft deadline. The “successful conclusion” would release the outstanding tranche of the current European Financial Stability Facility program — 1.8 billion euros — and the profits from the ECB’s Securities Markets Programme — 1.9 billion euros.

    Those funds from Greece’s euro-area creditors, which sum to 3.7 billion euros, would be sufficient to repay the IMF about 3 billion euros that are due between now and July 13.

    The IMF could then release the 3.5 billion-euro payment linked to the sixth program review after the second bailout is successfully concluded, as long as Greece is not in arrears to the Fund. That would cover the bond held by the ECB that matures on July 20.

    In addition, the Fund could also accelerate the payments linked to the seventh and eighth reviews, which were originally scheduled to have been completed by Nov. 30, 2014, and Feb 28. 2015. That would provide an additional 5.3 billion euros. Those could be used by Greece to repay the 3.2 billion-euro bond held by the ECB that matures on Aug. 20.

    Once Greece agrees on a reform program with creditors, it should be back on track to make it through the rest of 2015.

    Readers may note the link to the IMF paper dated April 20, 2012.   Here it is for your convenience.  http://www.imf.org/external/np/pp/eng/2012/082012.pdf.

    This outline may offer the roadmap and timetable which ultimately leads to a “deal.”  Such an outcome “kicks the can into next year and allows the continuing provisions of Emergency Liquidity Assistance (ELA).  ELA is the only financial lifeline keeping Greek banks from deposit runs and complete collapse.  This timetable is as plausible as any other outline and timetable and may be tracked closely.   Nice work by Bloomberg and good data for market followers as the Greek tragedy unfolds.

    About The Author

    Images: Flickr (licence details)

    About the Author

    David R. Kotok cofounded Cumberland Advisors in 1973 and has been its Chief Investment Officer since inception. He holds a B.S. in economics from The Wharton School of the University of Pennsylvania, an M.S. in organizational dynamics from The School of Arts and Sciences at the University of Pennsylvania, and a masters in philosophy from the University of Pennsylvania.

    Mr. Kotok’s articles and financial market commentary have appeared in The New York Times, The Wall Street Journal, Barron’s, and other publications. He is a participant in Bloomberg radio programs.  He is a frequent contributor to CNBC programs, including Morning Call, Power Lunch, Kudlow & Company, Squawk on the Street, Squawk Box Asia, and Worldwide Exchange. He co-authored the book Invest in Europe Now!

    Mr. Kotok currently serves as a Director and Program Chairman of the Global Interdependence Center (GIC) (www.interdependence.org), whose mission is to encourage the expansion of global dialogue and free trade in order to improve cooperation and understanding among nation states, with the goal of reducing international conflicts and improving worldwide living standards. Mr. Kotok chairs its Central Banking Series, and organized a five-continent dialogue held in Philadelphia, Paris, Zambia (Livingstone), Hanoi, Singapore, Prague, Capetown, Shanghai, Hong Kong, Rome, Milan, Tallinn, and Santiago, Chile. He has received the Global Citizen Award from GIC for his efforts.

    Mr. Kotok is a member of the National Business Economics Issues Council (NBEIC), the National Association for Business Economics (NABE), serves on the Research Advisory Board of BCA Research, and is also a member of the Philadelphia Council for Business Economics (PCBE).

    Mr. Kotok has served as a Commissioner of the Delaware River Port Authority (DRPA) and on the Treasury Transition Teams for New Jersey Governors Kean and Whitman. He has also served as a board member of the New Jersey Economic Development Authority and as Chairman of the New Jersey Casino Reinvestment Development Authority.

    Mr. Kotok hosts an annual Maine fishing trip, where, it is rumored, most of the nation’s important financial and economic decisions are actually made.


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