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The International Financial Institute has warned that the time for PSI is expiring

12 January 2012 / 23:01:35  GRReporter
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The international financial institute has warned that the time for negotiating the 50-percent reduction in Greek debt held by private creditors, is expiring. The head of the Institute, Charles Dallara is now on an official visit in Athens to finalize negotiations on the reduction of the Greek external debt. He met with Prime Minister Lucas Papademos and Finance Minister Evangelos Venizelos. 

While Venizelos claims that the process is going very smoothly and that he is optimistic about its imminent completion, the financiers-creditors do not share his opinion. "A range of issues were discussed and some key areas remain unresolved," says the message of the Institute. "Discussions will continue on Friday as well, but the time to reach an agreement is expiring," says the country to the private creditors. The reduction of the Greek debt held by private owners (PSI) aims to relieve the country from 100 billion Euros of obligations. The government argues that structural reforms and restructuring of foreign debt will help bring down Greece's debt to 120 percent of GDP in 2020 from the 160 percent of GDP, which has accumulated to date. 

It is essential in order to finalize the voluntary (private sector involvement) agreement that support be given by all official parties in the days ahead, stress bankers. Both sides in the negotiations refused to give details about the process, but the main problem issues, which still seek consensus, are probably the maturity of new bonds with reduced nominal value and the interest rates on them. Once these two values ​​are determined, the total loss for creditors by cutting the Greek debt, will be able to be calculated. The process must be completed by mid-March 2012, when it will be time for Greece to pay the 14.4 billion Euros for the repayment of an old debt. The country itself is unable to meet its needs and depends on the adoption of the second aid package, which will not be signed before the completion of the PSI. 

Some hedge funds deliberately do not want to participate in the process of partial debt relief, because they expect to have greater profits if the insurance market for Greek government bonds (CDS) is activated. This is an opinion, which is becoming more and more widespread in Greece. Greek Deputy Minister of Finance Filipos Sahinidis said that Greece may need additional financial aid from Europe, if at least 90 percent of private creditors do not join. The European Central Bank also issued a statement that it will not participate in the process, which is no surprise to anyone, because it falls under a group of institutional creditors, like the International Monetary Fund and the European Commission. 

Tags: Charles Dallara International Financial Institute Greece debt haircut PSI
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