By Nathan Tankus, a writer from New York City. Follow him on Twitter at @NathanTankus
Earlier this week I did a detailed analysis of the way the media misreported Lew and Lagarde’s statements last week regarding Greece. Yesterday this type of misreporting reared its ugly head again when an update to the Debt Sustainability report by IMF staff released a couple of weeks ago was leaked to the press. The report outlines the obvious: the banking system shut down has had a major impact on the economy and thus makes the previous estimates of growth and Greece’s budget position out of date. As a result, more debt restructuring than previously “estimated” will be needed to make their debt sustainable. This is all based on the IMF staff’s estimates for Greece’s future budget position, which have been notoriously and consistently inaccurate for years. It must be emphasized that what is being argued about is not whether Greece’s debt is sustainable in reality, what is being argued over is whether it is sustainable in their projections.
In general, when discussing large complicated institutions distinctions must be made between parts of this institution. The mainstream press is particularly bad at that kind of nuance because these organizations are already complicated: making further distinctions between IMF managing directors, IMF staff and the IMF executive board gets needlessly obscurant in their view. However, these distinctions are important. The report that was leaked two weeks ago and the latest update to that report was written by IMF staff and specifically “neither discussed with nor approved by the IMF’s Executive Board”. Additionally, Christine Lagarde or her title “managing director” appear no where in this document. Thus to say that the “IMF” is saying anything in this report is deeply misleading.
The reporting of this latest update was even more muddled because it was combined with an anonymous statement from a “senior IMF official” by the Financial Times. The Financial Times lede reads as follows :
The International Monetary Fund has warned that it might not be able to participate in Greece’s bailout if the programme does not include substantial debt relief, setting itself on a collision course with the country’s eurozone creditors.
Despite the implication of the first few paragraphs following the lede, the basis for this statement is not the report but the statement made by the “senior IMF official” that:
We have made it very clear that before we go to the [IMF] board [for authorisation to release funds] we need a concrete and complete solution to the debt problem,”
Thus, the report itself doesn’t make any claims about the implications of their analysis for a new IMF program. It is this quote from an anonymous official that does that. Further this is a very confusing (and perhaps incoherent) quote. Who is this anonymous official? What group of people does the anonymous official’s use of the word “we” refer to? According to Article XII, section 4B of the “Articles of Agreement of the International Monetary Fund ”
The Managing Director shall be chief of the operating staff of the Fund and shall conduct, under the direction of the Executive Board, the ordinary business of the Fund. Subject to the general control of the Executive Board, [s]he shall be responsible for the organization, appointment, and dismissal of the staff of the Fund.
This (and the rest of the document) suggests to me that it is the Managing Director (ie Christine Lagarde) who goes to the board and ask for authorization. Is the anonymous official claiming to speak on behalf of Christine Lagarde? If so why is she not making this statement publicly? In my mind this anonymous official’s statements only make sense in three situations:
- Christine Lagarde is both unwilling to sign on to a deal the Eurogroup would currently agree to and unwilling to overtly and strongly pressure them to create a “better” deal they could sign. Thus she is aiming for a Grexit and no deal.
- Christine Lagarde is willing to sign on to whatever deal the Eurogroup would currently agree to but wants to covertly pressure them to offer more debt restructuring. In other words it’s a point of contention but not a dealbreaker.
- Many on the IMF staff don’t want Lagarde to sign whatever deal the Eurogroup is currently considering and specifically want much more debt restructuring. They have and are willing to leak things to the media to attempt to create this outcome whether by embarrassing their own Managing Director or putting indirect pressure on the Eurogroup.
To me option three seems like the most plausible. The same FT reporters (Peter Spiegel in Brussels and Shawn Donnan in Washington) reported over three weeks ago that a “senior [IMF] official” says many staff at the IMF “would rather cut off their little finger” than continue being involved in Greek bailouts. The use of similar descriptions (“senior official” and “IMF senior officials”) implies that the same sources at the IMF that said this over three weeks ago have been leaking the Debt Sustainability analysis and interpreted them for the press. This suggests a revolt among the rank and file of the IMF that doesn’t extend to the people who will ultimately make the decision. Remember that the definition of a “senior official” is necessarily vague to preserve anonymity and could easily be someone who can’t directly influence the decision made and certainly doesn’t speak for Lagarde. Thus, in this scenario this statement makes sense as a calculated lie by IMF staff to influence events. This also may suggest that my intuition earlier this week was wrong: it may not be the Obama administration crafting a narrative with the leaked reports and selective interpretations of official statements, but simply off the record comments from these same IMF staff sources (or at least, a complicated combination of both these sources).
One of the main reasons readers should be skeptical of the other options is the public statements Lagarde has made since the leak of the latest report. In particular, she appeared in a segment with Christiane Amanpour on CNN international. Parts of the conversation are transcribed below but readers should watch the segment in full for themselves
CA: so it’s quite amazing that you’re saying this now, everyone has been sort of been putting a huge amount of pressure on Greece, sort of shoving everything down their throat and you’re now saying … ‘Greece’s debt can now only be made sustainable through debt relief measures that go far beyond what Europe has been willing to consider so far’. Why are you arguing this at this hour?
CL: well Christiane we have been arguing this for quite a while actually and what is very disappointing is that while Greece was on the path to sustainability and actually over-performing about a year and a half ago, in the last year and a half there has been a significant deterioration both as a result of the previous government not doing the things that it was supposed to do in terms of measures and the new government delaying some of the measures and also reversing reforms that had been undertaken by the previous team. It has been the combination of these two over the last 18 months or so which has been quite devastating for the country. Now we did say that all along to the Europeans but clearly the necessary deterioration which has taken place in the last couple of weeks as a result of the bank closure and the capital controls put in place by the Greek authorities has made the whole situation a lot more serious.
There are a few interesting points here: she blames the deterioration of Greek finances on both the previous and the current Greek governments. In other words further debt restructuring, to the extent that it is needed, is needed because of local mismanagement of the economy. What is even more interesting is her comments on debt restructuring itself
CA: Does Ms. Merkel have to finally say debt relief?
CL: I have some hope, because as late as a couple of hours ago, I understand that there were some more positive noises towards that principle of debt restructuring. What we have said to all of them is no matter what form it takes, whether it is by extending maturities, providing a longer grace period, compressing the interest rates on the one hand; or through other options such as transfer, which I think is not in the cards, such as haircuts which is not in the cards as I understand form the political point of view in those member states, but one way has to be found in order to release the burden and allow that country to demonstrate that yes it can be back on a sustainable path and yes it is serious about structural reforms and it is serious raising tax and collecting revenues.
Thus the burden of adjustment falls on Greece to raise taxes, collect revenue and implement structural reforms which will explicitly make their debt more sustainable by making their economy more competitive. She mentions that debt restructuring needs to happen and implies that sufficient debt restructuring will occur through options that aren’t haircuts on the face value of debts or direct transfers from other member states. She doesn’t comment on how much debt restructuring will be necessary and surely gets nowhere near saying that if there is not sufficient debt restructuring the IMF will not be able to sign off on a deal. Why would she take this interview and comment so publicly if she was authorizing these leaks? Again, why authorize someone to comment anonymously if her goal is to pressure the Eurogroup to provide more extensive debt relief? This seems like the strategy of staffers in open revolt, not the strategy of an in control managing director.
As this piece was being finished Donnan and Spiegel published an article in the FT which supports my hypothesis entitled “Latest IMF debt relief push baffles eurozone creditors”. In it two “eurozone officials” claimed that while “the IMF chief, made clear in one of the plenary sessions that any request for a new programme would have to be approved by the IMF board”, she did not say that without sufficient debt restructuring there would be “no new IMF programme”. Notably, neither did the document or Lagarde say that. The confusion documented above emanating from an anonymous “senior IMF official” has been successful in muddying the waters between the Eurogroup and the IMF. What this has accomplished is very unclear. The article ends by saying
Officials said despite the awkwardness over the IMF stance, it need not throw a wrench into the current talks, which are only about a new eurozone bailout to go alongside the existing IMF programme.
But once the IMF is asked to disburse some of the €16.4bn remaining in its programme, which is likely to come as early as September, things could get tricky – though in theory, it can hold on until next March, when its current programme is due to expire, before presenting a fully-funded plan to its board for approval. The IMF can wait. But, once again, it is pushing for the conversation in Europe to change.
Thus the IMF’s concerns can (and seemingly will) wait until early next year, which is a lifetime in financial time especially with Greek banks still closed. This confusion looks to be the invention of angry staff who don’t want to be involved in Greece anymore. If Lagarde wanted to wash her hands of Greece or attempt to coerce Europe into more “generous” debt restructuring measures she would have been saying that explicitly and loudly. Until there is a headline that says “Lagarde says no IMF money will be dispersed without extensive debt restructuring” read reporting on IMF “motivations” and “warnings” with extreme skepticism. If this does ultimately prove true, it will become clear well after the current round of deals are already done and thus be no help to Greece at all.
Update 10:25 PM:
“Sooner or later the banks will reopen as a sign that confidence is restored”
Well I’m reassured, aren’t you?