Robert Kahn

Macro and Markets

Robert Kahn analyzes economic policies for an integrated world.

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Showing posts for "IMF"

Taking Stock of the Greece Crisis

by Robert Kahn

Yesterday, John Taylor and I testified on the Greece crisis before the Senate Foreign Relations Subcommittee on Europe and Regional Security Cooperation.  A summary of my testimony is here (including a link to my written statement), and the full video of our discussion is here. I continue to see Grexit as the most likely outcome, as we are at the very early stage of a complex adjustment effort that will face serious economic and political headwinds in Greece, and will be extraordinarily difficult to sustain. But whether Greece is ultimately better off in or out of the euro, a competitive and growing Greece is an objective the United States shares with our European partners.

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Ukraine Needs a Moratorium

by Robert Kahn

After months of standoff, the Ukraine government appears to be making halting progress towards an agreement restructuring its external private debt. On hopes of a deal, and ahead of an IMF Board meeting next week to review its program, the government reportedly has decided that it will make a $120 million payment to creditors due tomorrow. It is possible that decision to repay will be seen as a signal of good faith and create momentum towards an agreement, but I fear it’s more likely we have reached a point where continuing to pay has become counterproductive to a deal. Absent more material signs of progress in coming weeks, there is a strong case—on economic, political and strategic grounds—that a decision to halt payments and declare a moratorium gives Ukraine the best chance of achieving an agreement that creates the conditions for sustainable debt and a growing economy in the medium term.

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Yes or No, Greece Needs Debt Relief

by Robert Kahn

The International Monetary Fund (IMF) has released their most recent debt sustainability analysis for Greece and, while it doesn’t include the devastation resulting from this week’s bank and capital controls, it makes for sober reading. Its bottom line is that, even if Greece were to commit to the policies now being proposed by the creditors, and were to fully implement them, Greece will need over €50 billion in financing over the next three years (see table), and require long-term debt relief through extraordinary maturity extensions and concessional interest rates. Factor in the damage in the past week, and the likelihood of further slippage in the best of scenarios, and the message is clear:  however the referendum turns out this weekend, actual debt haircuts eventually will be needed as part of any successful reform program for Greece within the eurozone.

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Greece: Game Over?

by Robert Kahn
People line up to withdraw cash in Athens on June 28, 2015. (Alkis Konstantinidis/Reuters) People line up to withdraw cash in Athens on June 28, 2015. (Alkis Konstantinidis/Reuters)

This is how Grexit happens. Following the collapse of negotiations between Greece and its creditors, the European Central Bank (ECB) has halted emergency liquidity assistance. Facing an intensified bank run, the Greek government on Sunday introduced banking controls and declared a bank holiday. With substantial wage and benefit payments due this week and local banks out of cash, economic conditions are likely to deteriorate quickly in Greece ahead of a planned referendum for July 5 asking Greek voters whether the government should accept a creditor-backed reform plan.

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A Roadmap for Ukraine

by Jennifer M. Harris and Robert Kahn

U.S. and European efforts to resolve the Ukraine crisis seem to be finding their stride in recent days. U.S. Secretary of Defense Ash Carter ended months of “will they won’t they?” by announcing earlier this week that the U.S. would be sending heavy weaponry into Eastern Europe, and late last week EU leaders declared that EU sanctions against Russia would remain in place through the end of 2016, quelling months of anxiety around whether EU resolve on sanctions would hold.

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Greece’s Bridge to Nowhere

by Robert Kahn
Greece's Bridge to Nowhere Last week, Greece delayed a $338 million payment to the IMF as negotiations stalled. (Grigoris Siamidis/Reuters)

Negotiations continue today between Greece and its creditors, with reports that the government has presented a revised proposal that offers minor concessions in an effort to break the deadlock. A deal is needed in the next week if a package of assistance is to be put in place before end-month payments of $1.7 billion are due to the IMF. While this is not a hard deadline—a short-term default to the IMF need not sink the Greek economy—the government is out of cash and it is hard to imagine how they make critical domestic payments without an injection of cash from creditors.

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Greece and the Politics of Arrears

by Robert Kahn
Merkel-Tsipras German Chancellor Angela Merkel and Greek Prime Minister Alexis Tsipras review an honour guard during a welcoming ceremony at the Chancellery in Berlin on March 23, 2015. (Pawel Kopczynski/Courtesy Reuters)

Greece is running out of money. Greek Prime Minister Alexis Tsipras’s meeting this week with German Chancellor Angela Merkel has taken some of the toxicity out of the conversation for now, but cannot mask Greece’s current collision course with its creditors. Committed to a platform on which it was elected but that it cannot pay for, and with additional EU/ECB financing conditioned on reform, the Greek government is likely to run out of money in April (if not before). If past emerging market crises are any guide, the decisions that it will then confront about who to pay and who not to—the politics of arrears—will present a critical challenge to the government and likely define the future path of the crisis.

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Ukraine’s IMF Program Sets Stage for Debt Restructuring

by Robert Kahn

The IMF yesterday approved a four-year, $17.5 billion arrangement for Ukraine, their contribution to a $40 billion financing gap that they have identified over that period. A further $15 billion is to come from a restructuring of private debt, with formal negotiations expected to begin soon. The rest is expected to come from governments and other multilateral agencies. An ambitious array of reforms—including to fiscal and energy policy, bank reform, and strengthening the rule of law—are laid out, signaling a dramatic break from past governments. These measures are expected to set the stage for recovery: output falls 5 ½ percent this year before 2 percent growth returns in 2016, inflation will average 27 percent this year and then decline, while the current account deficit falls to 1 ½ percent and the currency stabilizes around current levels. Public sector debt will peak at 94 percent of GDP in 2015 as the program takes hold. All this depends on an end to the current hostilities, which as the IMF notes remains a considerable risk to the program.

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The Meaning of Ukraine’s IMF Deal

by Robert Kahn

While today’s headlines focus on the truce agreement between Ukraine and Russia, a significant economic milestone was achieved yesterday with the IMF’s announcement that its staff has reached agreement with the government on a new four-year program. The Fund’s Board will likely consider the program next month. Whether or not the truce holds, the program is the core of western financial support for Ukraine. Is it enough?

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