IMF approves second rescue loan for Greece

The IMF executive board authorized a four-year, 28 billion euro ($36.7 billion) loan for Greece "in support of the authorities' economic adjustment program," the global lender announced.

"Greece has made tremendous efforts to implement wide-ranging painful measures over the past two years, in the midst of a deep economic recession and a difficult social environment," IMF managing director Christine Lagarde said in a statement.

"However, the challenges confronting Greece remain significant, with a large competitiveness gap, a high level of public debt, and an undercapitalized banking system."

The new Fund-supported program "will enable Greece to address these challenges while remaining in the eurozone," Lagarde said.

The IMF loan approval came days after eurozone ministers signed off on their part of a huge 237 billion euro rescue plan for Greece, that combines 130 billion euros in new financing and 107 billion euros of debt reduction by the private sector.

The Fund made a first installment of 1.65 billion euros available immediately, with other tranches dependent on Athens's progress in hitting economic benchmarks.

The economic outlook was worse than previously believed, the IMF said.

The Greek economy was expected to exit recession only in 2014, not 2013 as forecast in December.

But with gross domestic product growth in the low digits beginning in 2014, Greece's public debt would be on track to meet the loan program's debt-to-GDP benchmark of below 120 per cent by 2020.

The IMF projected debt would fall from 163 per cent this year to 117 per cent in 2020.

Lagarde highlighted that the Greek authorities were "fully committed" to the program objectives and "stand ready to take any additional measures as may be necessary."

"Greece's priority is to undertake competitiveness-enhancing structural reforms," she said.

But, Lagarde warned, "risks to the program remain exceptionally high, and there is no room for slippages.

"Full and timely implementation of the planned adjustment -- alongside broad-based public support and support from Greece's European partners -- will be critical to success."

The IMF mission chief to Greece, Poul Thomsen, said the structural reforms Athens needs to take will be "undoubtedly socially and politically challenging."

But with the support of the IMF, the EU and private creditors, he said, Greece can overcome its debt problems and get its economy on the recovery track.

"This is doable," he told reporters.

The loan approval had been expected, despite some misgivings among members over the Fund pouring more money into troubled Greece and Europe, and worries that Greece's fractious politics might impede progress in restructuring its finances.

After keeping its plans secret for weeks until Athens and its private lenders could complete the 107 billion euro debt writeoff deal, last Friday Lagarde announced the larger-than-expected 28 billion euro proposal under its extended fund facility program.

The four-year version of the EFF was freshly minted by the board, which on Wednesday approved extending the maximum time frame from three years, just in time for the Greek loan approval.

The IMF said it would disburse the 28 billion euros in equal tranches over the four-year period.

The IMF was disappointed by Greece's progress under its previous 30 billion euro loan in 2010, the biggest direct loan in IMF history and part of the first IMF-EU bailout that failed to get Athens's finances on a sustainable path.

The IMF disbursed 20.3 billion euros of that loan. The rest has been canceled to make way for the new loan program.

Thomsen stressed that reforms, particularly in labor market reforms such as wage adjustments to stimulate hiring, must be swift for the new bailout to succeed.

"Greece has no room for maneuver," the IMF mission chief said.

"Greece's problem above all is a competitive problem."