MACROECONOMIC STABILISATION
MAGDA WIERZYCKA: Beware of the IMF dragons
Help in the form of loans comes with stringent conditions such as severe austerity measures, reforms and privatisation of state assets
An IMF bail-out is often mentioned as the “dark scenario” facing SA if we do not get our finances in order. I thus thought it useful to look at what an actual IMF bail-out looks like, choosing Greece as an example, probably because I visited Greece in July. The more I researched, the more I felt like I was reading a Greek tragedy. The Greek crisis started in the aftermath of the global financial crisis of 2007/2008 after revelations that Greece entered the EU, and maintained its membership, by using fake economic data. That is, they lied about the size of their debt. This news triggered credit ratings downgrades to junk status, capital flight and bond yields spiking to unsustainable levels. Essentially, if Greece wanted to borrow more money to fund running the country and the repayment of existing debt, it would need to pay unaffordable interest rates. This meant existing creditors faced a very real risk of Greece defaulting on all its existing debt obligations. In 2010 three player...
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