By Ian Talley, The Wall Street Journal
WASHINGTON–A bond buyback plan meant to shave roughly 20 billion euros off Greece's debt burden will likely succeed, which would pave the way for the International Monetary Fund to approve the next tranche of bailout financing, the Institute of International Finance said Thursday.
"With the likely participation from the Greek banks, it appears likely that the buyback operation could reach the target of EUR14 billion or so of participation by foreign investors…so as to fully utilize the EUR10 billion set aside for buyback," the IIF said in a report. The group represents over 400 of the world's largest financial firms and negotiated the massive debt restructuring for private holdings of Greek sovereign debt earlier this year.
The IMF has said a successful bond buyback program, one of a number of ways euro-zone officials agreed earlier this week to cut Greece's massive debt overhang, is critical to meet the fund's criteria for continuing to finance the program. But the fund and others have said they are "uncertain" whether the buyback will work, potentially putting at risk the entire Greek program and threatening to rekindle contagion fears in other ailing euro-zone economies.
Officials should know by Dec. 13 whether the buyback plan worked. If so, the IMF could soon thereafter approve the next bailout tranche. While the actual loan amount is relatively small, the credibility of the program is more important, which could help assure investors and calm spillover fears to larger euro-zone economies.
