With no deal reached between Greece and its creditors despite months of negotiations over the release of further financial assistance, the country opted to delay a €300 million debt repayment to the International Monetary Fund (IMF) that was due on 5 June. The Greek government now intends to bundle together several payments totalling €1.6 billion into a single payment due on 30 June, while fresh proposals have been communicated to creditors in an attempt to secure additional bailout funding.
This impasse could have been avoided. The IMF, an institution that for decades has loaned money to countries in distress, successfully sidestepped Greece-like drama in the past. The IMF accomplished this by relaxing the reforms required of borrowers in the run up to elections. In a recent study, I and my co-author Teri Caraway, find the IMF softened mandated labour market reforms in loans negotiated within six months of a pending election. The further away elections were, the more stringent the reforms required in exchange for financing.
The IMF typically softens required reforms prior to elections to avoid precisely the situation now playing out in Greece. Tough reforms give opposition parties ammunition to use against the government and increase the chances that the incumbent parties will lose. In Greece, the painful austerity policies demanded by international lenders resulted in a series of convulsive protests that shook the nation and ultimately led to the election of a new anti-austerity government under Syriza in place of the previous New Democracy-led government fronted by Antonis Samaras.