IMF predicts global growth to be sluggish in 2016

The IMF predicted global growth to be sluggish at 3.1 percent in 2016 improving slightly to 3.4 percent next year. This is the same level of growth predicted in the last IMF report in July.

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The October 2016 IMF World Economic Outlook warned that slow growth in advanced economies could very well fuel anti-trade settlement which could stifle growth even more. The IMF urged countries to use monetary, fiscal, and structural policies that would encourage growth. The report cited a slowdown in the US and the UK Brexit vote as keeping growth subdued.

However, the IMF admitted that its views on the immediate effect of the Brexit vote had been too pessimistic. The IMF predicted that the UK would be the fastest growing economy in the G7 at 1.8 percent but was still predicting the negative effect of the Brexit would cut growth to just 1.1 percent next year.

The IMF chief economist Maurice Obsfeld said: “Taken as a whole, the world economy has moved sideways. We have slightly marked down 2016 growth prospects for advanced economies while marking up those in the rest of the world." Obsfeld worried that the slow recovery from the financial crisis 8 years ago might lead to a populist reaction against free trade and more protectionist demands. Obsfeld considered such a development quite negatitvely: “It is vitally important to defend the prospects for increasing trade integration. Turning back the clock on trade can only deepen and prolong the world economy’s current doldrums.” Both candidates for presidency in the US have spoken out against free trade agreements.

The IMF report recommended that easy money policies be continued to encourage growth. It also suggested spending should be increased on education, technology and infrastructure. Measures to alleviate inequality were also urged.

In 2016 advanced economies will grow by just 1.6 percent down from 2.1 percent last year and also from the forecast of 1.8 percent back in July. The US is now forecast to grow this year by 1.6 percent, down from July at 2.2 percent. Next year it is predicted to grow by 2.2 percent. The IMF recommended that any increases by the Federal Reserve in interest rates should be gradual and after signs that wages and prices are firming for certain.

The Euro area was set to expand by 1.7 percent this year and 1.5 percent next, below the 2 percent growth in 2015. The report recommends the area maintain its existing easy money stance and expand it if needed through expanding asset purchases. Japan the world's 3rd largest economy would have low growth at just 0.5 percent this year and only 0.6 percent for 2017. The world's second largest economy, China, is expected to grow by 6.6 percent this year, down from 6.9 percent next year. In 2017 growth will slow slightly to 6.2 percent. India with a growth rate of 7.6 percent this year is growing the fastest of any of the major world economies.

Many African countries were hurt by lower commodity prices with South Africa barely growing and Nigeria expanding by 1.7 percent. However, other African countries such as Ivory Coast, Kenya and Senegal grew at more than 5 percent. Many Latin American countries are seeing contraction with Venezuelan output declining by some 10 percent this year and another 4.5 percent in 2017. Brazil will contract 3.3 percent this year but grow slightly next year by 0.5 percent.

The IMF also downgraded the forecast for the growth of the Canadian economy. This year growth is predicted to be 1.2 percent, down from 1.4 percent in July. For 2017 growth is predicted to be 1.9 percent rather than 2.1. The main factors in the decline are the wildfires in Alberta, the low price of oil, and the relative slowdown in the growth of the US economy.

IMF loan to Egypt comes with conditions the will hurt ordinary Egyptians

The Egyptian economy has done poorly during the presidency of Abdel el-Sisi. The IMF is coming to the rescue with a three year loan package of $12 billion.

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A Bloomberg article suggests that the loan is most likely to be good money thrown after bad. The loan is expected to be bolstered by further funds from Arab Gulf States. During the last three years, Egypt has received about $50 billion from Gulf supporters but the economy remains in the doldrums. The tourism industry has more or less collapsed and there is a lack of foreign investment. The amount of foreign currency just to supply imported basic needs for Egyptians now exceeds $80 billion.

The official jobless rate in Egypt is around 13 percent, but the rate for young people is more than double that. The annual trade deficit is about 7 percent of GDP while the budget deficit is about 12 percent. Tunisia with similar problems has a budget deficit of just 4.4 percent.

While the collapse of the tourist industry contributes to Egypt's economic woes, the economic policies of the government have also contributed. The government likes to spend huge amounts on mega-projects often of dubious worth instead of spending on basic infrastructure. El-Sisi's dream of a new capital at a cost of $45 billion appears to have been shelved fortunately. While the government started programs of cuts to fuel and agricultural subsidies, to decrease red tape, and raise taxes, they were all dropped. A plan to let the Egyptian pound depreciate was also dropped but inflation has increased.

The IMF is now demanding that el-Sisi devalue the pound and impose a value-added tax (VAT). Such measures will increase costs to consumers. Already a quarter of the 90 million Egyptians live in poverty. Almost the same percentage are illiterate. With a growing population Egypt could soon run out of water, especially as it employs some agricultural practices wasteful of water. The education system is totally inadequate and underfunded. Even el-Sisi admitted in 2014 that the nation needed 30,000 new teachers. However, money was not budgeted to hire them. Bloomberg concludes:Egypt should invest in simple infrastructure such as roads, schools and water-supply systems; make it easier for small and medium-sized business to get bank loans; and break up the military-industrial monopolies in everything from washing machines to olive oil. It also needs to end the crackdown on civil society, and move toward a free and fair presidential election.Much of the economy is controlled by the army. El-Sisi is not about to allow any political freedoms that might threaten his power and that of the armed forces.

The IMF has had a long history of negotiations with Egypt after the 2011 elections but there was opposition to conditions imposed so the negotiations were shelved. Under the Mohamed Morsi regime the negotiations were renewed.

A package of $4.7 billion was negotiated. Eventually the IMF backed out of negotiations because it said there was lack of political support for the deal. The IMF demands a sales taxk of 12.5 percent that was not acceptable to the Morsi government. However, the new loan involves even more demands. There must be an end to subsidies, a VAT tax, reduction of governmental jobs, and devaluation of the Egyptian pound. All of this will have a devastating effect on many Egyptians. Most Egyptians will not be able to afford the increased costs. 95 percent of Egyptians earn less than $14 per day and more than 25 percent earn less than $1.50 per day.

The economy under Morsi made modest gains with inflation hovering around 6.9 percent. Three years into the rule of el-Sisi after Morsi was overthrown, inflation is at about 14 percent and the Egyptian pound has lost half its value. The IMF demands it lose even more. Debt servicing is already taking up 31.5 percent of the budget but with additional debt this can only climb.

Much of the loan money will simply flow into the pockets of corrupt politicians and others. The government's own auditor estimated that over four years an estimated $67 billion was lost to corruption. His reward for revealing this was to be sacked and charged with harming Egypt's image. The regime seems not to have a clear vision of how to progress economically but resorts to mega projects it thinks will have positive propaganda value.

The brutality of the regime breeds terrorism which in turn makes attracting foreign capital difficult because of the security situation. The austerity policies associated with the IMF loan will cause even more social unrest. As an article in the Economist points out the ranks of young and embittered Egyptians without jobs are swelling. Options are emigration or, for a few, jihad. This sets the stage for another social explosion.

In next report IMF may report lower global growth

Policy makers in the world's biggest economies have failed to steer them out of the worst slow-growth rut they have experienced in almost three decades. The IMF warned leaders that the outlook could be for even slower global growth.

The G20 countries are to meet later this week in China. The IMF warns that urgent action is needed to help revive weak trade and investment levels. Protectionism is also rising resulting a trend that will result in less trade. The G20 or Group of Twenty, is an international forum where government officials and central bank governors, study, review, and discuss policy issues dealing with the promotion of international financial stability. It was founded in 1999.

Christine Lagarde, the managing director of the International Monetary Fund (IMF) said:“The political pendulum threatens to swing against economic openness, and without forceful policy actions, the world could suffer from disappointing growth for a long time. High frequency data points to softer growth this year.” If the IMF does downgrade economic growth again, it could make 2016 growth the lowest since the 2009 fiscal crisis.

Global markets were roiled by the Brexit vote to have the U.K. leave the EU. But the effect was not lasting. Rather, it is meager output, low inflation and slowing trade, that is indicating a slower global growth rate than the 3.1 percent growth forecast by the IMF for July.

U.S. growth, while positive, is not that high, weighed down by a strong dollar causing weak exports. The IMF said it would downgrade its next forecast of US growth from the 2.2. percent forecast this July. European economies are still struggling after the financial crisis. Japan has been unable to stimulate growth and is even flirting with recession. China's slowdown and the drop in commodity prices have hurt many emerging markets such as Brazil and Russia, both coping with contractions lasting two years. Nigeria is now in recession. Many commodity exporters are seeking assistance from the World Bank and the IMF as their debts and deficits rise.

Most central banks are keeping interest rates at near zero but this has not resulted in much increase in investment or growth. The IMF worried that the outlook for slower growth could result in further disincentives to investment and exports leading to even less demand. Flat income growth for many wage earners would also lead to less demand but also a movement against globalization and free trade.

The IMF said:“These developments threaten to open another negative dynamic, in which political action fails to deliver the structural reforms needed to lift growth and instead turns toward inward-looking assaults on free trade.” The IMF has already reduced its global growth forecast for this year from 4.6 percent to 3.1 percent. The IMF said a global stimulus program is necessary to stave off an even worse decline in production. Lagarde said:“Inaction risks reversing global economic integration, and therefore stalling an engine that, for decades, has created and spread wealth around the globe. This risk is, in my view, too large to take.” However, US Treasury Secretary Jacob Lew said: “We certainly are not seeing a global recession like we did in 2008, but I think that the macroeconomic policies have failed to take advantage of the opportunity to have a more robust period of growth.”

Commenting on the situation after the Brexit vote Lagarde said:"You could argue that Brexit is not really delivering the massive crisis that we had expected, you could argue that the Chinese transition is proceeding reasonably well, and you could argue that low commodity prices have gone up a little bit. So this is on the surface. However, when you look deep down at the economic growth prospects, at the growth potential, at the productivity, we are not getting very good signals, and we will probably be revising down our forecast for growth in 2016."Lagarde said that the full impact of the Brexit vote would not be known until next year. She noted, however, that the pound's value had already declined by 15 percent. The IMF is scheduled to issue a new forecast in early October just ahead of its annual meeting. If another decline is forecast, it would mark the sixth straight decline in the last 18 months.

Lagarde also pleaded for countries to contribute funds of $5 to $6 billion to support Egypt, which recently negotiated a $12 billion dollar loan from the IMF. Lagarde said that she was encouraged by Greece's recent privatization moves but still would not participate in the bailout: "We are not party to the program because I have said repeatedly that the program has to walk on two legs. One, there has to be significant reforms and second there has to be a debt that is sustainable by our standards and our measurements and this at this point in time is not the case."

Lagarde faces an upcoming trial in France regarding a $448 million payout to French businessman Bernard Tapie. She said the trial would not interfere with her management of the IMF. In July, France's highest appeal court ruled Lagarde must stand trial for negligence in the use of public funds for her role in seeking an out-of-court arbitration settlement for Tapie in 2008 when she was the French Minister of Finance. The IMF board has expressed confidence in Lagarde's ability to lead the IMF. Lagarde said: "I draw a lot of strength and determination from the very strong support from the board,. And I rely on good and solid lawyers who have to do their jobs, so it's not a distraction for me. I focus my energy and time on the mission of the IMF and what I have to do to serve that mission."

IMF loans Egypt $12 billion over three year period

The International Monetary Fund (IMF) announced it had reached a deal with Egyptian authorities for a $12 billion loan over a period of three years. Egypt has been facing a dollar shortage, falling foreign reserves and a battered economy.

The agreement will need to be ratified by both IMF and Egyptian authorities. The loan comes with conditions that include subsidy cuts and new taxes. The head of the IMF delegation, Chris Jarvis said: "Egypt is a strong country with great potential but it has some problems that need to be fixed urgently." Jarvis said that the IMF is looking for the Egyptian parliament to pass a value-added tax. The IMF also wants Egypt to allow a more flexible exchange rate for the currency, the Egyptian pound. The government has been propping up the pound and also using capital controls. Jarvis said: "The central bank is progressing on exchange rate policy, the government has its program, the budget was approved in June, the VAT is in parliament...the government's fuel subsidy reform program continues to unfold." The IMF said the loan will support the government reform program which aims to alleviate the demand for black market dollar trading, reduce the budget deficit and the government debt, as well as stimulate growth and create jobs

Tarek Amer of the Egyptian Central Bank said the IMF deal would boost confidence in the country's reform program. He asked that citizens stand behind the government. Egyptian president. Abdel al-Sisi has been preparing the public for reform measures that will include further cuts to subsidies and increased taxes plus privatization of state resources. Al-Sisi said: "The problem is whether public opinion is prepared to accept the measures which could be tough or harsh. Egyptians love their country and are able to face hardship but they are too busy with their daily lives and thus must be afforded the correct information regarding the measures."

Angus Blair, head of the Signet think tank said that the IMF wants to see reforms right away. Unrest in Egypt has resulted in a decline in tourist revenues. Foreign reserves have fallen to $15.5 billion. The government claims the program will ensure that any upturn will bring benefits to the entire population of 91 million rather than just a small elite as it has in the past. However a comment on an article discussing Al-Sisi's austerity measures notes that the austerity measures hit mainly the poor and civilians rather than the army:His austerity measures apply only on the civilians and the poor. Only today he has issued a "private law" to further increase pensions of army personnel by 10%. He has increased their pensions multiple times in the last 2 years (probably a type of bribery to ensure their allegiance".

After Brexit IMF cuts forecast for Global Growth

The International Monetary Fund (IMF) cut its global growth forecasts on July 19 citing uncertainty over the economic effects of the recent Brexit vote which will see the UK leave the European Union (EU).

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Even before the Brexit vote, the IMF had cut its global growth outlook. The new forecasts represent the fifth time in the last 15 months that the IMF has cut forecasts of global economic growth. In its World Economic Outlook forecast the IMF now predicts global GDP to grow at 3.1 percent in 2016 and 3.4 percent in 2017 a decline of 0.1 percent for both years from the forecast in April.

While the IMF said that there had been recent improvements in Japan and the EU, and some recovery in commodity prices, that the Brexit vote increased uncertainty which took its toll on the investment outlook and consumer confidence. The chief IMF economist, Maury Obstfield, said that a day before the Brexit vote the IMF was ready to upgrade the 2016-17 growth projections slightly higher: "But Brexit has thrown a spanner in the works."

On the day before Britain's June 23 EU referendum, the IMF was "prepared to upgrade our 2016-17 global growth projections slightly," IMF chief economist Maury Obstfeld said in a statement. "But Brexit has thrown a spanner in the works." The IMF projected that the Brexit will slow global growth both this year and next.

The IMF projects the UK GDP to grow by 1.7 percent this year. This is down from the 1.9 percent it forecast in April. The forecast for 2017 is just 1.3 percent, down from 2.2 percent forecast in April. Of the 16 economies surveyed by the IMF, the reduction of 0.9 percent in the UK's 2017 forecast was only exceeded by that of Nigeria..

The Brexit was thought to have a negligible impact on the United States' economy. The IMF statement noted that the projections were made on the basis of a relatively benign settlement of the Brexit issue between the US and Europe, that presumes no major increase in economic barriers or further financial disruptions.

If there were severe disruptions as the negotiations hit snags, the UK-EU relationship would revert to World Trade Organization rules, and London could lose a significant portion of its financial services to the continental EU. If this were to happen, the UK would fall into recession and global growth would slow to 2.8 percent both in 2016 and 2017.

Under a mid-range scenario, with lower consumer confidence, and the UK losing some of its financial services sector to Europe, global growth would be 2.9 percent in 2016 and 3.1 percent in 2017. The recovery of the markets after the Brexit lead the IMF to choose the most benign model. A spokesperson for the UK Treasury said that while the Brexit vote represented a new phase for the UK economy, the focus would remain global: "Our absolute priority is to send a clear signal to businesses both here and across the world, that we are open for business and determined to keep Britain an attractive destination for investors from overseas."

The IMF outlook for China was relatively unchanged with a marginal improvement to 6.6 percent for 2016 but slowing to 6.2 percent in 2017. The recessions in Brazil and Russia are not as severe as previously thought, with both countries expected to return to positive growth in 2017 as commodity prices improve. The Fund urged countries to support demand and introduce structural reforms to help encourage growth.

German firm takes over 14 privatized Greek airports

The Greek government gazette reveals that a German company Fraport AG has been given the rights to operate 14 regional airports. Fraport AG also runs the Frankfurt airport in Germany among others.

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This is just the first of many expected privatization moves as agreed to as part of the bailout deal. Syriza the major party in the Greek coalition government had opposed such privatizations during the election campaign but now has agreed to an extensive program that will be overseen by technical staff from the lenders. Several of the airports are on popular tourist islands.

The deal represents the first privatization decision since the signing of Greece's third bailout deal worth 86 billion euros. Far from being able to repeal the austerity conditions and privatization programs of the earlier bailout deals, the new deal contains an even more extensive and more controlled privatization program than the first two deals and imposes even harsher austerity conditions. Rather than face a bankruptcy and a possible Grexit, Greek Prime Minister Alexis Tsipras agreed to almost every bailout condition that he had earlier opposed. The airport deal will yield 1.23 billion euros or about $1.37 billion US. Several of the airports are on islands that are popular tourist destinations.

The bailout deal needs approval in a number of Europeans countries. It has already been approved in Spain and Estonia. Germany approved the deal by a vote of 454 in favour, 113 against, and 18 abstentions. The bailout agreement will release 13 billion euros just a day before Greece must pay 3.2 billion euros to the European Central Bank. Much of the bailout money will simply be recycled back to the lenders as loan payments. When the agreement was announced on August 11th the Greek stock market rallied. Last Friday, when Tsipras was able to have the agreement ratified in parliament dozens of Syriza party members voted against the deal. Tsipras may call for a vote of confidence in the government this week.

While many economists and the IMF believe that the deal is not workable unless there is further debt relief including a possible write down of some Greek debt, in the short term the provisions will provide ample opportunity for private corporations, many outside of Greece, to buy public assets at fire sale prices. Assets for sale include the national lottery, the port of Piraeus, and large land areas on islands such as Corfu. Privatizing assets such as the national lottery will generate a one time cash injection into government coffers but deprive the government of a reliable and constant revenue stream in the future. That revenue stream will enrich whatever corporation purchases the port.

IMF and EU at odds over need for debt relief in Greece

The rift between the IMF and the Euro zone countries became clear when the IMF insisted on releasing a document arguing that without substantial debt relief, Greece could not manage its debt repayments.

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Euro zone countries tried to delay release of the document until the final negotiations for a bailout deal with Greece had finished but to no avail. The US virtually controls the IMF and no doubt demanded the release specifically to influence the outcome. The document also suggested that debt relief might require a substantial write off or "haircut" of loans.

As I see it, the plan of Finance Minister Woflgang Schaeuble of Germany was to present two options to Greece, a Grexit with some sweeteners or a completely humiliating, painful, bailout plan that originally required transferring over 50 billion in Greek assets to a Luxembourg firm to be privatized. Tsipras managed to transfer the fund to Athens with Greek control but under Troika supervision. This will achieve exactly the same result — privatization of any remaining Greek national assets at fire sale prices — but it looks better when Greeks help out the process. Greece was required to erase all its red lines and pass legislation immediately reducing pensions, retirement age, and increasing taxes often on those least able to pay. Schaeuble no doubt believes that the bailout terms will produce an unsustainable debt level resulting in default and a Grexit, what he has wanted all along. There was mention of discussion later on of debt restructuring in the bailout agreement, but specific warning that there would be no haircuts and that Greece must fulfill all its debt obligations.

Now the IMF has come out with an analysis of the EU offer to Greece that warns Eurogroup ministers that the Greek public debt is "highly unsustainable." It urged debt relief on a scale "well beyond what has been under consideration to date." Recognizing the Eurogroup reluctance to allow haircuts, the IMF suggests Greece should be given 30 years to repay all its European debts and extension of maturity of other debts.

The Eurozone governments will contribute between 40 and 50 billion euros to a new bailout, but the IMF is also expected to contribute another major amount. Funds will also be produced by sell-off of state assets. Greece will also have renewed access to borrowing from financial markets. The IMF said it will not participate unless there is a clear plan. No doubt this meant to refer in part to a clear plan for restructuring that will make debt sustainable. Greece already has missed two deadlines for paying 1.6 billion euros on IMF loans. According to BBC correspondent Chris Morris, the IMF report was written before the bailout agreement was reached in the early hours of Monday morning. The report was shared with Eurozone leaders in advance.

The changes recommended by the IMF might foil Schaeuble's plan for a bailout system that is unsustainable and force a Grexit. However, the IMF suggestions may not be accepted. Some countries, such as France, might support the IMF suggestions but Germany may by now be irritated at the IMF interference in the negotiations by the Eurogroup and see the whole affair as an attempt by the US to trim Germany's influence in the EU and also ensure there is no Grexit. The U.S. may not only see a Grexit as destabilizing but may also be concerned that a Grexit would draw Greece more into the Russian orbit and out of NATO. Within Germany, the Netherlands, and certainly Finland a Grexit plan would no doubt find majority support. Even should a restructuring of the debt be possible it will do little to lift the austerity measures, and nothing to prevent the alienation of Greek resources, and hence would do little or nothing to improve the life of the average Greek.

Ukraine may default on debt payment in July

Ukraine has found it necessary to obtain a further bailout from the IMF even though it had agreed to a $17 billion aid package last year, of which it has so far received $4.6 billion. It needed more in early 2015.

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In February of this year, in spite of the fact that the Ukrainian economy was in a tailspin and the IMF may never get its money back, a new bailout program was extended:The International Monetary Fund has agreed to give Ukraine a new bailout deal worth 15.5 billion euro ($17.5 billion) that could climb to around $40 billion over four years with help from other lenders like Europe and the U.S.. ..Facing bankruptcy, Ukraine last month asked the IMF to replace its program with a new one to restore confidence in its finances and help it meet its debt obligations.

As of March 5, the Ukrainian economy was getting worse: Its central bank raised benchmark interest rates from 19.5% to 30% effective Wednesday. Ukraine's currency, the hryvnia, has lost nearly 70% of its value against the dollar in just a year. GDP shrank by 7% in 2014. And while the war-torn country secured a $40 billion international bailout package in February, the chances of recovery any time soon are small.

Now Ukraine is facing a default as it will miss a $120 million bond coupon payment in July, setting off a default of approximately $19 billion in debt. There is no sign of a standoff between the government and creditors being resolved, according to Goldman Sachs. Ukraine is giving creditors just a few weeks to accept a proposal that includes a 40 percent write-down of the principal, or it will issue a debt moratorium. Imagine the international outrage and horror if the Greek government had set conditions such as that! The Greek government on the other hand has so far agreed to meet its debt obligations in full. Research analyst Andrew Matheny in a research note said:“Ukraine will not make the July 24 coupon payment and, as a result, will enter into default at that point. We do not expect the ad hoc committee to accept Ukraine’s latest restructuring proposal.”The committee, the Ukraine government, and the IMF officials will meet in Washington next week to decide whether the next slice of the $17 billion loan should be released to Ukraine. The IMF said earlier this month that it can keep supporting Ukraine even if it refuses to pay private holders of Ukrainian bonds.

Private bondholders have objected to a debt writedown. Franklin Templeton holds about $9 billion in Ukrainian debt. The company suggested extending bond maturity and reduction in coupon amounts as a means to saving about $16 billion for the Ukraine over four years. This is a variation on the type of scheme that Greek finance minister Varoufakis was suggesting as a means by which Greece could manage its debt. However, analyst Matheny of Goldman Sachs thought a debt writedown would be necessary.There are also proposals that bond repayment be linked to economic performance, a suggestion also made by the Greek government.

The Washington negotiations over the restructuring of Ukrainian debt are set to resume this next week. The IMF is demanding a lower Ukraine debt load before releasing more of the bailout money. This could mean "haircuts" for bondholders: Ukraine must restructure about $19 billion of debt held by international investors in order to secure another tranche of IMF funds. As a condition of the bailout, the IMF wants private debt restructured to save $15.3 billion over four years, and has urged Ukraine and its private creditors to find a compromise by June. As with Greek negotiations, the atmosphere is rather sour. A government minister claimed: “[The committee] has so far refused to contribute to Ukraine’s recovery. For three months, despite the urgency of our situation, they have refused to engage in substantive negotiations on the terms of a debt operation meeting the three targets established in the IMF program.” A spokesperson for the committee said this was an inaccurate description and that negotiations should start as soon as possible without preconditions and should emphasize solutions. The IMF will be urging the two sides towards finding a solution. As with Greece, the government may simply decide to walk away and default. However, if it does so, the west will surely find a way to save Ukraine.

Ukraine has not been spared the usual austerity conditions and reforms demanded for a bailout. Ukraine now has an American, Natalie Jaresko, as finance minister who was conveniently awarded citizenship on the day she was appointed to the job. She will help ensure the provisions of the bailout are met. Jaresko saysUkraine could default in July. There have already been violent demonstrations against austerity and economic conditions as shown on the appended video. The Ukrainian government could lose support very quickly if economic conditions do not improve.

Greek Prime Minister claims that deal with creditors is close

Alexis Tsipras, the Greek Prime Minister, insists he is close to a deal with the country's creditors that would result in the remainder of the bailout loan funds to be dispersed helping to ease the country's cash shortage.

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This is not the first time Greek officials have said they are close to a deal. The same claim was made back on May 8. There are still key issues that are not resolved including pension and wage reforms, that is austerity measures. Tsipras claims that there is no possibility of retreat either on the wages issue or pensions. However, Greece has already caved on the issue of privatizations and tax reform another two issues that were previously said to be red lines. If there is to be a deal Tsipras would probably be required to yield on the pensions and wage issues as well. There will be virtually nothing left of the government's anti-austerity measures. Both the IMF and other EU creditors insist that the Greek reform proposals are still too vague. An EU official said that the Greek government needed to move beyong promising openings to final agreed upon wording and commitments.

EU leaders are holding a conference in Riga, Latvia, on May 21 and 22 to discuss eastern Europe. Tsipras will raise the bailout negotiations issue on the sidelines of that conference. The negotiations are now stretching beyond 100 days with little progress made until lately when Greece caved on key issues of taxation and privatization. Stephen Gallo, European head of currency strategy at the Bank of Montreal said in a TV interview: “Even if they have a deal before the bailout extension ends at the end of June, we don’t think they’ll get access to the full remaining 7.2 billion euros ($8.2 billion) of the current bailout extension.” He said the Greek crisis will not be over for a long time.

Meanwhile the Greek financial situation is getting worse as the government scrambles to raise 500 million euros in cash to pay for wages and pensions at the middle of the month. After raiding pension funds, and local governments the government is now asking that consulates and embassies cough up any cash reserves. The credit rating of government debt has plunged further into junk status. Greek banks have seen huge withdrawals of funds as nervous depositors worry that there may be a default and a return to the drachma. Money is flowing out of Greece as well. A leaked IMF document notes:“non-performing loans are at very high levels and – going forward – the system might suffer from important stress. The staff also noted a dramatic deterioration in the payment culture in the country”. This last refers to the near gridlock of the Greek system of inter-company payments as betwen €30 and €35bn has flowed out of the banking system – into the cash economy and abroad – since Syriza came to power.

Greece manages to scrape up funds for another payment to the IMF

The Greek government managed to scrape together enough cash to pay off $222 million that was due to the International Monetary Fund yesterday.

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To raise the cash, the government has been borrowing from pension funds and also from the reserves of local governments. The government is also placing a surcharge on withdrawals of cash and financial transactions. This surcharge will not only raise revenue but also discourage capital flight. Greece is also considering a special levy on the country's 500 richest families to collect more cash.

Next Tuesday, Greece faces an even larger payment of 770 million euros to the IMF. Greece also is required to pay salaries and pensions later next week. Greek officials have been talking with their creditors and EU officials to help push for a release of funds from their bailout loan, but so far creditors have insisted Greece must present and implement reforms that have been demanded as part of the original bail-out agreement. The reforms include changes to pensions and in the labor market that so far the government has refused to countenance and would go completely counter to their election pledges. Alexis Tsipras, the Greek Prime Minister, discussed with French President Francois Hollande how negotiations could be fast forwarded.

Greek officials are meeting with members of the Troika, the European Commission(EC), European Central Bank(ECB), and International Monetary Fund(IMF) or as they are now called "The Institutions" before a meeting of the Eurozone's 19 finance ministers next Monday at which the group could decide whether Greece has done enough to merit release of the remaining 7.2 billion euros of their bailout loan. In Brussels, technical talks had been extended beyond yesterday. An unidentified Eurozone official claimed that there had been visible progress after weeks of stalemate. The Greek Finance Minister Yanis Varoufakis was in Rome to discuss issues with the Italian Finance Minister, Pier Padoan and was then to talk with Spanish finance minister Luis de Guindos. Prime Minister Tsipras consulted with EC president Jean-Claude Juncker yesterday and they both affirmed that "constructive talks should continue."

Tsipras and Juncker issued a joint statement that seems to indicate that Greece may be reconsidering its opposition to demands for pension reform. The two spoke of the remaining reforms Greece needed to implement. These included modernizing the pension system "so that it is fair, fiscally sustainable, and effective in averting old-age poverty". The EC will no doubt stress the fiscally sustainable aspect aspect. The Troika have been demanding pension reforms that Greece has so far resisted. The other main issue was labor market reform and that also the two agreed must be addressed and they said they had discussed "the need for wage developments and labor market institutions to be supportive of job creation, competitiveness and social cohesion."

While the statements sound optimistic, there are reports members of the Governing Council of the ECB are growing impatient at Greece's reluctance to agree to and implement reforms demanded. They also worry about their exposure to Greek bank debt and are reluctant to bend the rules any further to help Greece out of its cash difficulties. German Finance Minister, Wolfgang Schaeuble, who has taken a hard line against Greece said that it was in Germany's interest to help Greece but not at any cost and that just giving more aid without changing the conditions under which Greece was operating made no sense. He also said that Greek demands for World War II reparations were nonsense. We should find out next week whether there is any breakthrough in negotiations. If there is a breakthrough, it would appear that is because Greece has basically caved in to the demands of the Troika.

Greece denies that it is making plans to default on debt payments

As has happened often during negotiations with its creditors, mixed and contradictory messages are coming from the Greek Syriza government.

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The Financial Post reports that the Greek government is preparing to default on its debt if it can't reach a deal with the Eurogroup creditors by the end of this month. One government official claimed:“We have come to the end of the road . . . If the Europeans won’t release bailout cash, there is no alternative [to a default].” There are 2.5 billion euros of payments due to the International Monetary Fund in May and June. The government may be using the threat of default as leverage to receive a better deal from creditors but there is little sign that it is working.

Negotiators for the creditors appear to be exasperated by the Greek government's lack of movement towards presenting and implementing a set of acceptable reforms. There is no sign that any funds from the extended bailout loan will be released until that happens. European Commission Vice President Valdis Dombrovskis said that the mood between the Greek government and negotiators had been tense:"Talks are very complicated. Time is running out. Greece should come up with an ambitious reform list in line with its bailout program and also start to implement it."The Euro Working Group of deputy finance ministers gave the Greek government a deadline of six working days to present a revised economic reform plan. The next meeting of the eurozone finance minister is set for April 24. Dombrovskis claimed that the finance ministers had done their best to be flexible but Greece had to do more.

Whether the Greek negotiators are using the threat of default as a negotiating tactic or not, the depletion of Greek government coffers and the need for more cash is a reality as payment of pensions and salaries become due as well as loan payments. Investors are unsure whether there will be a forced exit of Greece from the eurozone or even perhaps an election called again if no agreement is reached.

Syriza has not only passed legislation on poverty and home foreclosures condemned by its creditors but also has steadfastly refused to address what the Financial Times calls "politically sensitive structural economic reforms":

These included an overhaul of the pension system, including cuts in the payments received by Greek pensioners, and measures to permit mass dismissals by private sector employers.

In spite of promising to meet Greece's international debt obligations, the finance minister Yanis Varoufakis said that the government's top priority is its domestic commitments and this included an obligation to continue paying pensions. Surely, it should be evident by now that Greece cannot do what its creditors demand while also meeting its "domestic commitments."

Nevertheless a Greek government spokesperson denies that it is preparing a default if it cannot reach an agreement with creditors on bailout terms or that it might call an early election afterwards. The spokesperson said that negotiations were proceeding swiftly towards a solution. A solution is needed since the Greek government needs 2.4 billion euros to pay salaries and pensions this month. On the first of May it needs to pay the IMF 203 million euros and another 770 million euros on May 12. Greek prime minister Alexis Tsipras maintains that Greece will simply be unable to service its debt without funds from the European Union.

Greece made payment to IMF on time but cash shortage remains

The Managing Director of the International Monetary Fund(IMF), Christine Lagarde, has confirmed that the Greek government made a 459 million euro payment due on April 9.

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Lagarde was confirming a statement by a source in the Greek finance ministry that the payment had been ordered. The crucial payment will help Greece move closer to receiving more funds from an extended bailout loan that will help Greece stay in the euro zone. The Greek government had threatened not to make the payment on time if it would not be able to pay pensions and a government payroll a few days later. Greece will still need to make interest payments of 400 million euros and roll over 2.4 billion euros in short-term treasury bills on April 14 and 17. Even yesterday, Greece issued 1.14 billion euros in six month term treasury bills. The Greek unemployment rate declined marginally in January to 25.7 percent in January versus 25.9 percent the previous month. After a long recession, the Greek economy grew 0.7 percent last year.

In his recent meeting with Russian president Vladimir Putin, Greek Prime Minister Alexis Tsipras did not request any economic aid. Putin suggested Russia might provide credits for large scale joint projects in the future. He said:"The Greek side has not addressed us with any requests for aid, We discussed cooperation in various sectors of the economy, including the possibility of developing major energy projects."

The recent list of reforms presented by the Greek government to its creditors is not regarded as enough by Greece's creditors. Euro zone deputy finance ministers have given Greece six working days to come up with revised reform proposals in order to allow a deal to be reached on April 24 at a Eurogroup meeting in Riga, Latvia. The earlier reform list was regarded as too optimistic about revenue projection and did not deal adequately with pensions and labor market reform. On these latter issues the Eurogroup demands are at odds with the promises of Syriza during their election campaign.

While the IMF payment may provide a short term sense of relief, Greece's top banks including the National Bank of Greece are bracing for a continuing battle as more payments become due. Reports indicate that a default and Grexit or exit from the euro zone, could create even more hardships for the Greeks and problems for the Greek economy. Even if Greece does get the remainder of the funds in this bailout extension after the meeting on April 24, within two months it will need more funds to cover its debt. The Greek government says it does not want another bailout but it is not clear how this can be avoided.

Greece threatens to miss payment deadline on IMF loan

Conflicting narratives are coming from the Greek government. There are reports that the government is drawing up plans to nationalize the banking system and introduce the drachma as a parallel currency to the euro.

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According to an article in the Telegraph, a senior Greek official said:'We are a Left-wing government. If we have to choose between a default to the IMF or a default to our own people, it is a no-brainer...We may have to go into a silent arrears process with the IMF. This will cause a furore in the markets and means that the clock will start to tick much faster,”The article claims that sources close to the Syriza party insist that when it comes to keeping public services running and paying pensions or missing a payment to the International Monetary Fund(IMF) on April 9, the government will choose to miss the payment.

The article claims that Greece does not have funds to cover payments of salaries and pensions on April 14th and also the IMF on April 9th. There are conflicting reports however. On Wednesday, Interior Minister Nikos Voutsis claimed that the country would be required to choose between paying the IMF and paying pensions and salaries, and that the government would choose the latter. This position was used in an appeal for further funds in a teleconference with euro zone deputy finance ministers, also on Wednesday. Later, a government spokesperson denied that Greece would miss the IMF payment deadline.

The threat of default and plans to return to the drachma and nationalise the banks may be a bluff designed to force creditors to release cash quickly to avoid these drastic measures. Apparently, the view in Athens is that EU creditors do not sufficiently appreciate the significance of the changed political landscape in Athens. To get a deal the EU creditors must make genuine concessions. So far most concessions are coming from Greece that has given up any debt write off, halts to privatization, and any significant easing of the austerity conditions imposed by the original bailout deal. So far the reforms presented by the Greek government have been rejected as inadequate. Even if Greece does carry through with its threat to default on the IMF loan this is unlikely to cause EU creditors to change course.

Syriza seems incapable of setting out a unified position in public. This has happened on the issue of privatization where it has promised as part of reforms to privatize the port of Piraeus while government officials at the same time claim that the government will not give up its 67 percent stake in the port project. Now it is happening with the default threat. While Voutsis announces the threat of default, government spokesperson, Gabriel Sakellandis, claimed to Reuters that this announcement did not represent the stance of the government: "There is no chance that Greece will not meet its obligations to the IMF on April 9."

Circumstances may be developing for an accidental Grexit or Greek exit from the euro zone. The National Bank of Greece is already facing difficulties with its stock hitting new lows. It has required emergency liquidity assistance. There has been an outflow of funds that add up to $30 billion since last October. One Greek source said: “We will shut down the banks and nationalise them, and then issue IOUs if we have to, and we all know what this means. What we will not do is become a protectorate of the EU." Another official complained:“They want us to impose capital controls and cause a credit crunch, until the government becomes so unpopular that it falls. They want make an example of us, and demonstrate that no government in the euro zone has a right to have mind of its own. They don’t believe that we will walk away, or that the Greek people will back us, and they are wrong on both counts.”The Greek government should have seen this coming and made plans and started to implement them long ago. Instead, it insisted that it would do anything to remain in the euro zone.

The Greek government apparently suggested that a partial payment of the bailout funds could be issued but this was rejected by the Eurogroup. While indications are that there is no agreement yet in sight, Economy Minister, George Stathakis,said on TV that an agreement will be reached next week. There are a few days between the IMF payment and the payroll payment. Perhaps Greece will make the IMF payment and then expect some move by creditors to help cover the pension and government payroll payment.