IIF says Greek debt buyback must be 'voluntary'

A powerful international bank lobby warned Thursday that the outcome of Greece's looming debt buyback program remains uncertain and warned that it must be "purely voluntary." The Institute of International Finance's Market Monitoring Group welcomed a third EU-IMF aid program agreed on November 27 as important to cutting Greece's debt and helping it avoid default. But the IIF body that "uncertainty remains" surrounding the plan, especially regarding Athens's planned buyback of debt, a linchpin of the deal that will reduce its interest burden and free up new funds from its lenders. "A voluntary debt buyback is assumed by the Euro Area to be instrumental to reducing Greece's debt-to-GDP ratio, allowing program disbursement," it said in a statement following New York meetings. "However, it is critical that any buyback be conducted on a purely voluntary basis." The IIF, which led the talks between private-sector creditors and Greece which resulted in banks taking a deep write-off earlier this year, made clear its members did not want to be forced into taking more losses on the Greek bonds they hold. It hailed important parts of Tuesday's deal, including the reduction in bilateral lending rates, the extension of maturity on rescue loans, and the turning over of European Central Bank and eurozone central banks' profits on their Greek bonds to the Greek government. But the debt buyback is a cornerstone of the agreement reached by the International Monetary Fund, the European Commission and the European Central Bank, which pledged the release over the next four months of 43.7 billion euros ($56.7 billion) in new rescue aid to Greece. IMF spokesman Gerry Rice said Thursday that the Fund's support of the new program is contingent on the success of the buyback program. Athens said it expected to launch the buyback next week and complete it by December 13, though if the operation fails, Athens said it had an alternative plan. But the IIF raised doubts over whether the buyback would achieve its goals, and said the focus should be on restoring growth to the depressed Greek economy. "At present, the outcome of the buyback -- and the final decision on the next disbursement -- remains uncertain," the IIF said. "In any event it is increasingly clear that meaningful progress towards debt sustainability can only be achieved with a return to economic growth." The group criticized the lenders' policy approach toward Greece and the weak economies of the eurozone. "The emphasis on aggressive short-term fiscal contraction in the Euro Area does not fully address the fundamental challenge." In Greece's case, the group argued for more emphasis on privatization and tax reform, an acceleration of eurozone investment funds, and more concessions by official creditors like interest rate cuts, including from the International Monetary Fund. Such movers are "urgently needed to restore economic growth." Ratings firm Moody's echoed the IIF's worry Thursday, saying it was uncertain whether there would be sufficient private-sector participation "to contribute to a meaningful debt reduction."