IMF won't fund Greek bailout until it gets more clarity on debt restructuring

Christine Lagarde

The IMF wants Greek debt to become more sustainable before it contributes to the country's bailout program, Christine Lagarde told CNBC.

The International Monetary Fund wants Greek debt to become more sustainable before it channels funds into the country's bailout program, the organization's managing director Christine Lagarde told CNBC.

"For us to engage and for us to participate financially, more needs to be clarified, defined and approved in terms of restructuring," she said late on Thursday.

"What we believe will be needed is a deferral of interests, an extension of maturity, and a mechanism by which there is an adjustment based on growth ... this is where further discussion and negotiation is needed."

Lagarde was speaking in Luxembourg after European finance ministers approved a 8.5 billion euro ($9.5 billion) loan for Athens that will enable the cash-strapped nation to meet a major July repayment deadline.

European countries have been shouldering the burden of Greece's current 86 billion rescue fund — its third bailout package since 2010. The IMF financially contributed to Athens' previous bailouts but refused to join the current pact because it believes Greece needed debt relief — something that European creditors aren't comfortable with.

The organization's absence has been a thorn in the sides of heavyweight European countries , particularly Germany, who view IMF participation as a key credibility factor. For Berlin to continue backing euro zone loans to Athens, Germany's parliament is now insisting on IMF contribution.

On Thursday, the IMF agreed to offer Athens a standby arrangement of less than $2 billion but won't be disbursing any of the funds until euro zone countries offer more detail on potential debt relief measures in 2018, Reuters reported.

"I've always said that the (bailout) program walks on two legs: the leg of policies and the leg of debt sustainability," Lagarde told CNBC on Thursday.

Athens has proved its commitment to key structural reforms, which cover pensions, tax, serial procedures, and labor markets, but the second leg of the bailout program — debt restructuring — needs to be further clarified, she continued.

"Progress has been made today, no question about it but more is needed."

Lagarde praised Thursday's loan agreement, stating that Athens would now be protected from future crisis moments because its financial needs in terms of debt service will be low.

"It (Athens) will actually produce a primary surplus and it should be, in terms of liquidity and stability, in a fairly solid situation to develop its economy to cultivate growth, generate investment , and proceed with the privatization that they have agreed to complete."

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