Greece may be set to default on IMF payment due on June as the government cannot raise enough money to pay pensions and creditors.
But what would the fall-out of default be?
In an interview with Greek radio station Parapolitika FM, Dr. Miranda Xafa*, explained that missing the payment would not immediately trigger a default as according to IMF protocol, Greece would be afforded a 30-day grace period, during which it would be urged to pay back the money as soon as possible.
“A default to the IMF would automatically constitute a default on the Greece's European rescue loans, and the country would be considered to be in default to other creditors - the European Central Bank and European Commission, and to the rest of the eurozone” says Dr. Xafa. In short if a debtor is in default to its most senior creditor then it's in default to them all.
Missing its latest installment would make Greece the only advanced economy to default of its IMF loans. Greece would join a list of nations who have failed to pay back the Fund on time; a list which includes countries such as Sudan, Zimbabwe and Somalia.
Countries that default on their IMF obligations often experience widespread disruption to their international financial relations. In the case of Greece, such a default would hinder the flow of funds from the European Central Bank and it would accelerate the outflow of deposits from banks. In that case a range of measures to restrict big outflows would be implemented, as it happened in the case of Argentina Mrs. Xafa said.
*Dr. Miranda Xafa started her career at the International Monetary Fund in Washington in 1980, where she focused on stabilization programs in Latin America. In 1991-93 she served as chief economic advisor to the government of Prime Minister Constantinos Mitsotakis in Athens, and subsequently worked as a financial market analyst in London and Athens. She has taught economics at the University of Pennsylvania and Princeton.