Greece economy rebalancing via recession: IMF staff

The Greek economy is rebalancing itself, not through structural reforms but through recession, and the country needs to step up actions to promote growth, an IMF staff report said Wednesday.

The International Monetary Fund on Monday approved a payment of 1.7 billion euros ($2.3 billion) to Greece after the fourth review of the struggling eurozone country's performance under the international bailout program.

The staff report on the fourth review of the program noted the recent political crisis has had a "dampening effect."

"The economy is rebalancing. However, it continues to do so through recession, not productivity-enhancing structural reform," said the staff report.

Largely because of the lagging reforms, the correction of imbalances has come at the "very high" cost: recession in its sixth year, a 25 percent plunge in output since a 2007 peak, and an unemployment rate around 27 percent.

Recurring domestic political crises and sharp opposition to reforms have also deterred investment in the debt-wracked country.

"The onus therefore remains on delivering rapidly on structural reforms to unlock growth and create jobs, which would lessen the pain of further adjustment," the report said.

The IMF staff said the process of recapitalizing banks was complete, but work had not started on cleaning up their balance sheets.

The privatization program and liberalizing regulated professions were behind schedule.

Monday's loan disbursement brings to 8.2 billion euros ($10.9 billion) that Greece has received from the IMF under the bailout coordinated with the European Union and the European Central Bank in March 2012.

The IMF's executive board, in completing the fourth review and approving the funds on Monday, altered some of the program criteria.

The board waived three end-June performance criteria on which data were not yet available: the overall stock of government debt, government domestic arrears, and the general government balance.

In addition, the board approved the modification of the end-September performance standard on privatization receipts.

On Friday, the 18-nation eurozone approved the release of 4.0 billion euros in bailout funds for Greece after it had met program conditions.

The Greek bailout is financed by the IMF, the European Union and the European Central Bank.

The so-called "troika" of international lenders first rescued Greece from a sovereign debt default with a 110-billion-euro rescue in 2010.

But when that failed, the lenders organized a second rescue worth 130 billion euros plus a private sector debt write-off totaling more than 100 billion euros.