Christine Lagarde, managing director of the International Monetary Fund (IMF), speaks during a press conference (Photographer: Guillermo Gutierrez/Bloomberg)

IMF Indecision on Bailout Faulted by Greek Economy Minister

(Bloomberg) -- The time has come for the International Monetary Fund to make up its mind on Greece, according to the country’s economy minister.

The path to recovery runs sequentially through completion of Greece’s bailout review, debt relief and then admission to the European Central Bank’s quantitative easing program, said Dimitri Papadimitriou, an economist who joined the government this month after a career championing alternatives to the macroeconomics espoused by the IMF. Now, the Washington-based fund must decide whether the Greek recovery will happen with or without it, he said in an interview.

“The IMF has changed its opinion many times,” said Papadimitriou, 70, who spent almost five decades in the U.S., where he is on leave from his post as president of Bard College’s Levy Economics Institute. “It’s very hard to know whether in fact they want to be in or they want to be out. I think they do want in, and we want them to be in.”

Greek markets have rallied this month on expectations creditors may finally ease the country’s debt at a Dec. 5 meeting of euro-area finance ministers. For the International Monetary Fund to stay on board -- a key demand of countries such as Germany and the Netherlands -- such a deal must assuage the fund’s doubts about the viability of Greece’s medium-term fiscal targets. The country’s economy has contracted by about a quarter since the start of the global financial crisis in 2008.

Greece’s Creditors

Officials representing Greece’s European creditor institutions and the IMF left Athens on Tuesday without concluding the country’s bailout review. Greek government spokesman Dimitris Tzanakopoulos implied that the IMF was setting obstacles to completing the bailout review. The government and the IMF remain apart on labor markets, which the fund wants to liberalize further while the government wants to restore some collective bargaining.

“We are standing firm because at the end, those reforms don’t really account for any growth,” said Papadimitriou, arguing that the IMF’s insistence on them has become a matter of dogma for the fund. “If you look at the projections that they have made, they have always been wrong. And we’re talking about being really wrong. However, if you have followed this procedure for so many countries, it is very hard to change it.”

Greece must continue to show “serious commitment” to bring the second bailout review to a close, ECB Executive Board member Benoit Coeure said in a speech in Athens on Monday. All stakeholders in the Greek adjustment program realize that there are serious concerns about the sustainability of Greek public debt, he said.

Dutch Finance Minister Jeroen Dijsselbloem, who chairs the Eurogroup of euro-area finance ministers, told Bloomberg on Thursday that officials representing the European creditor institutions and IMF have made much progress in talks with Athens, but that further reforms are being looked at in labor markets and privatization. The Eurogroup has additional debt-easing measures ready “if needed” for when the Greek program comes to an end in 2018, he said.

‘Particular Needs’

“At the end there’s always an agreement,” Papadimitriou said in the interview on Thursday. “It’s not an agreement that everybody likes, but I think it’s an agreement which each party can live with, given their own particular needs.”

At Bard College, Papadimitriou turned the Levy Institute into an intellectual refuge for economists from the heterodox, post-Keynesian school of thought, such as Wynne Godley, who predicted the euro crisis in 1992, and Hyman Minsky, known for his financial instability hypothesis.

Papadimitriou helped those ideas gain traction after the financial crisis rocked the orthodoxy in macroeconomics, according Stephen Kinsella, an economics lecturer at the University of Limerick. Used copies of Minsky’s 1986 book, “Stabilizing an Unstable Economy,” would sell for more than $300 on Amazon before Papadimitriou got it back in print.

‘Intellectual Entrepreneur’

“He’s a great example of an intellectual entrepreneur,” said Kinsella. “He’s the kind of guy who can get things done and put groups of smart people together, and a lot of people do credit him with giving much more currency to Minksy’s ideas than they would have had otherwise.”

Papadimitriou said Prime Minister Alexis Tsipras brought him into the government to map out a strategy for the country to achieve “sustainable and inclusive growth.” That means growth which doesn’t increase inequality, and it also means creating a business-friendly environment, something that Papadimitriou says the left-wing Syriza government is doing despite its reputation to the contrary.

“I’m not a member of the party and therefore I can say ‘pro-business’ without having to worry or apologize for it,” he said. “Everyone recognizes that investment is the most important issue, given the fact that we are in the euro zone and we can not do anything else but to respect the rules of the euro zone and the European Union.”

Bloomberg