The Role of the IMF IN THE STABILIZATION OF GREECE
Greek Tragedy which is the focal point of the world now was basically the deed of their Govt. However it is also emerged as an offshoot of global economic and financial crisis 2007 now the bigger challenge is to minimize and reduce the severity of other offshoots of the Greek default which has engulfed the whole Europe and slowly spreading to whole world.
The risk is that the European situation will spiral out of control, push Europe back into recession, and further damage the US and global economy and financial system.
The world economy will not recover without a reasonably healthy European recovery. The US economy will not enjoy the sustained recovery without global recovery. That was the key lesson of the global crisis of 2007–09. Crises that initially affect large parts of the global economy and financial system have adverse impacts in all parts of the globe.
he Greek economic and financial stabilization program requires a huge, but not unprecedented, amount of fiscal adjustment along with other needed policy measures to restore Greece's external competitiveness. On top of the country's general government debt estimated at 115 percent of GDP at the end of 2009, its gross external debt was 168 percent of GDP, and it had a negative international investment position of 83 percent of GDP.
Greece and its political leaders are in hazardous territory, but the financial assistance from Greece's European partners and from the IMF is not creating additional moral hazard. The bad incentives were established long ago by the flawed architecture of the Economic and Monetary Union in Europe.
Is the role of the IMF in the Greek crisis and elsewhere in Europe consistent with the IMF's mission? My answer is yes for four reasons.
The IMF is a cooperative international organization with near-universal membership. Its mission is to promote sustainable global growth and financial stability.
IMF lending operations have not been limited to developing countries in recent years. In November 2008, Iceland embarked on an IMF-supported economic reform program. Moreover, the IMF, in cooperation with the European Union, is already supporting economic reform programs in Hungary, Latvia, and Romania.
Is the IMF likely to exhaust its financial resources in lending to European countries and become unable to lend appropriate amounts to other members of the IMF?
I think no !!
Estimate is that the IMF now has at least $250 billion in resources from usable quota subscriptions, The IMF also follows a conservative policy in estimating its so-called "one-year forward commitment capacity," which helps this organization to safe guard itself from drying up the resources of the bank.
Final Words:
The European crisis underlines the importance of shifting away from relying as much as in the past on IMF financial resources provided by European members of the Fund and toward greater reliance on other countries that may not have an immediate need to borrow from the Fund.
But Greece certainly needs to realign their resources, economic policies and of course their political issues to ensure the development.
