IMF loans, how it works

The loans from the International Monetary Fund assistance that Greece wishes to use, provide countries in need of liquidity at a low-interest rate in exchange for austerity measures. Greece is among the countries with medium to high incomes, affected by the procedure known as “the SBA.”

These loans are for a period of one to two years usually with a repayment spread over three to five years, for an amount that depends on the size of the economy and its needs, at an interest rate unique. This rate is currently 3.26% if the loan amount exceeds a threshold that Greece is likely to exceed.

This international solidarity mechanism was set up after the creation of the IMF in 1944, with the intention of avoiding a repeat of the 1930 crisis, when nationalist reflexes had pushed the world economy into depression. France was the first to benefit in 1947.

The loan is granted at the request of the Member State following a review of his situation, and under conditions discussed by the Fund’s management and the government. The IMF says it wants and “restore the conditions for sustainable economic growth.”

It is then subject to the approval of the Fund’s Board, the highest decision-making body, which voted 24 countries and groups of countries. The conditional aspect and college assistance from the Fund, which includes 186 countries, reflects the will of the exceptional nature of these loans.

IMF assistance should be accompanied by a consolidation of the country’s economy: drastic reduction of the budget deficit and external imbalances, rebuilding foreign exchange reserves and possibly higher interest rates to reduce attacks against the currency.

The IMF pays its loans slice by slice, every three to six months, in principle, by examining the respect of the objectives of the economic program which has committed the country.

These remedies are painful in times of crisis. In some countries in Africa, Latin America and Asia, the IMF’s recommendations have had social consequences that have permanently earned him the hostility of public opinion. Wanting to take these criticisms, the Fund insists for several years on the need to preserve social spending states.