According to Bloomberg, a person familiar with the matter said that Greece’s hopes of sealing an accord with its creditors by the end of May dimmed on Sunday, as disagreements between the two sides on budget targets persisted.
The raid from Greece’s own reserve account at the IMF to make a recent payment to the fund suggests the Syriza-led government is running out of cash to pay its creditors and, in the absence of additional bailout funds, will be unable to make this payment its next payment to the IMF on June 5 for E312mln. However, this would not necessarily trigger an immediate default, but instead a grace period of one month according to an IMF document titled “Review of the Fund’s Strategy on Overdue Financial Obligations”. Below is a timetable of events:
***The IMF staff “immediately” send a cable urging the member to make the payment promptly; “this communication is followed up through the office of the concerned Executive Director. The member is not permitted any use of the Fund’s resources nor is any request for the use of Fund resources placed before the Executive Board until the arrears are cleared.”
***Two weeks: Management sends a communication to the Governor for the member stressing the seriousness of the failure to meet obligations and urging full and prompt settlement.
***One month: The Managing Director notifies the Executive Board that an obligation is overdue.
Therefore, it appears the real issues for Greece regarding default begins 1-month after non-payment when the IMF Managing Director notifies the Executive Board that an obligation is overdue and then the EFSF may also cancel as it “deems appropriate the whole or any part of the undisbursed amount.” According to the Master Financial Assistance Facility Agreement between the EFSF and the Hellenic Republic:
“In case the IMF cancels the IMF Arrangement, any other Financial Support Provider cancels in whole or in part any support facility entered into with, or in respect of, the Beneficiary Member State or EFSF cancels any of the facilities provided by EFSF…In this case the cancellation of a Facility shall be proportionate to (a) in the case of cancellation by the IMF, the proportion which the sum cancelled represents to the aggregate initial amount of such IMF Arrangement and (b) in the case of cancellation of any of the other facilities, the proportion which the cancelled amount represents to the aggregate of the initial amounts of this Agreement and each of the facilities provided by EFSF and each of the other Financial Support Providers.”
Note that several newspapers note that IMF policy allows Greece to bundle the four payments due in June and make them together at the end of the month, though the practice is rare. Nevertheless, IMF spokesman William Murray said that Greece hasn’t requested that bundling.