IMF chief terms Greek debt crisis serious and says no single, easy way exists to resolve it

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IMF chief terms Greek debt crisis serious

WASHINGTON — The head of the International Monetary Fund said Thursday that the debt crisis in Greece is serious and there would be no “silver bullet” to resolve the issue in an easy manner.

IMF Managing Director Dominique Strauss-Kahn said that negotiations with the IMF over conditions for a support package were just beginning and would take some time to come to a resolution.

But Strauss-Kahn told reporters that the IMF was not considering some type of restructuring of Greek debt that would make holders of the debt accept something less than full value for their loans. That worry has roiled markets in recent days.

“It is clear that the Greek situation is a very serious one,” Strauss-Kahn said. “There is no single way, no silver bullet to solve it in an easy manner.”

Strauss-Kahn spoke in advance of discussions over the next three days among global finance officials including finance ministers and central bank governors of the Group of 20 nations, which include the world’s richest industrial countries and major developing nations such as China, Brazil, India and Russia.

While markets slammed Greece on Thursday after the European Union revised the country’s deficit and debt figures, Strauss-Kahn said that for the IMF team negotiating the terms of financial support, the changes would just mean that “if the problems start a little worse than expected, we will take this into account.”

Also Thursday, ratings agency Moody’s Investor Services downgraded its rating on Greece’s debt by one notch to A3 from A2, and warned that further downgrades were a distinct possibility.

Moody’s downgrade was likely to make it even more difficult for the cash-strapped Greek government to tap the bond markets for money. The government has insisted that it prefers to access money via the markets to meet its borrowing requirements instead of resorting to a joint eurozone-International Monetary Fund rescue package.

Greek Finance Minister George Papaconstantinou was headed to Washington and was scheduled to meet with Strauss-Kahn on Saturday.

The Greek government is holding talks with the IMF, the European Central Bank and the European Commission in an effort to develop a three-year debt rescue package for the country.

At his briefing, Strauss-Kahn told reporters, “I do believe that we do have a solid basis on which to build a program.”

Strauss-Kahn said while the finance meetings were being held at a time when the global economy appeared to be on a recovery path, a number of challenges remained which finance officials would need to address.

The IMF reported on Thursday that the global economy would expand this year by 4.2 percent, slightly better than the IMF’s view in January, and significantly better than the 0.6 percent drop in global growth that occurred last year, the largest slump in the post Word War II period.

“Even if the recovery is stronger and faster than expected, it is still fragile,” Strauss-Kahn said.

He said it would be important for the G-20 leaders to push ahead with efforts to overhaul financial regulations, making sure that each country’s reforms were compatible with the global system. An IMF briefing paper that recommends adopting new banks taxes is expected to provide a basis for the discussions with the G-20 finance officials meet on Friday.

Canada is opposing the tax proposals recommended by the IMF, arguing that Canada’s banks should not be subjected to the same types of taxes as other countries which had major bank failures.

“We did not have bank failures in Canada,” Canadian Finance Minister James Flaherty told reporters. “We didn’t have to take billions of taxpayer dollars and pour them into financial institutions. … There has to be an understanding that different circumstances apply.”

Flaherty said that proposed bank taxes and other aspects of financial reform would be a major topic of discussions Thursday night when finance officials of the Group of Seven rich nations — the United States, Japan, Germany, Britain, France, Italy and Canada — gather for dinner at the French embassy.

Those seven nations will then resume discussions with the bigger G-20 group all day on Thursday. President Barack Obama and other G-20 leaders decided at a meeting in Pittsburgh last September that the larger group should now be the primary policy-setting panel for the global economy since it also includes fast-growing developing countries such as China.

World Bank President Robert Zoellick told reporters at a separate news conference Thursday that the changes represented an acknowledgement that the old G-7 system had passed into history with the growth of new emerging powers.

“That world is gone. We are now moving to a new world where we will have mutiple poles of growth,” he said.