May 04, 2010, 12.38 PM IST
The International Monetary Fund (IMF) walks a delicate line in crafting an economic bailout for Greece that can restore the country's fiscal credibility without stirring old resentments over tough loan conditions
Past IMF efforts in other regions, including Latin America and
To some extent, the jury is still out in
Certainly the IMF's 30-billion-euro (about USD 40 billion) contribution comes with strings, as will 80 billion euros the rest of the European Union will put up over three years. But analysts note there are signs of generosity in it too.
For example, the aid is approaching 40 times the size of
"The IMF clearly recognizes that a Greek debt default could have ripple effects on other vulnerable economies in the region and has the potential to spread to other regions as well," said Eswar Prasad, a senior fellow at Brookings Institution.
One problem the IMF faces is limited room for maneuver -- currency devaluation to spur trade is not an option since
That's why the IMF said Sunday that fiscal adjustment "must be the cornerstone of the program."
Pain can turn to collapse
Simon Johnson, former IMF chief economist, said the Fund is in a tough position. "You don't make yourself popular by calling for or implementing big fiscal adjustments, but if you don't do so in this case, then
The public sector is heavily targeted for more reductions, including for wages and entitlements like pensions. Military spending also will fall, but Johnson and other analysts said the IMF had little choice except to call for the cuts.
He blamed European foot-dragging for making the problem more severe and forcing a much larger bailout than might have been required if the European Union had stepped up with a rescue package for its fellow member three months ago.
"The EU has shown itself bankrupt morally and politically and now also economically, at least on the periphery, and so a day of reckoning has appeared," Johnson said.
Prasad similarly called it regrettable that
"What has happened now is that the IMF has bought
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