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Greece fails to make debt payment

Employees of a restaurant talk on an empty street in the northern Greek port city of Thessaloniki Tuesday. AP

FRANKFURT — Greece added its name Tuesday to a roster that includes some of the world’s poorest and worst-governed nations, including Iraq, Sudan, Somalia, and Zimbabwe. Those are a few of the countries that have missed payments to the International Monetary Fund — as Greece did Tuesday, when it failed to make a loan payment of about $1.7 billion to the fund.

Greece is not technically in default — the International Monetary Fund said it was in arrears —but missing the payment is an unmistakable warning that the country will probably be unable to meet obligations in coming weeks, to bondholders and to the European Central Bank. That might make the central bank less willing to continue emergency loans that have been propping up Greek banks for several months.


In declaring Greece in arrears, the term “default” was avoided. Credit rating agencies will not consider Greece to be in default based on missing the payment, for the technical reason that the International Monetary Fund is not a commercial borrower.

But the ratings agency Standard & Poor’s said it would designate Greece as being in default if payments cannot be made to private creditors. Two billion euros in Greek Treasury bills are due July 10.

And once found in arrears, Greece is barred from receiving more money until it settles the debt. That is a problem, because the International Monetary Fund has been a crucial partner with the European Union in working with Greece, providing not only money but financial and economic expertise.

The International Monetary Fund confirmed that Greece had failed to make the payment, after a 6 p.m. Washington deadline came and went.

Gerry Rice, a spokesman, said the board will consider Greece’s request, made Tuesday, to extend the loan payment deadline.

Separately, Greece’s European creditors rejected an eleventh-hour attempt by Athens to extend the international bailout program.


It was the clearest signal yet of the political and financial dysfunction in Greece, which on Sunday announced it will close its banks for at least a week to prevent panicked depositors from withdrawing money.

Jacob Funk Kirkegaard, a senior fellow at the Peterson Institute for International Economics in Washington, said delinquency would put Greece in ignoble company.

“They are joining countries we would normally regard as failed and failing states,” Kirkegaard said. “The symbolism is quite dramatic.”

Greece is the first developed country to miss a payment. And the missed payment is the largest in the fund’s history. Sudan still owes about $1.4 billion from loans acquired in the 1980s.

Countries that have fallen behind more recently include Iraq, Bosnia, and Afghanistan. All three later settled their obligations.

The European Central Bank, which has kept Greek banks on life support during the debt negotiations, is allowed to finance only solvent banks. Because Greece’s banks and the government are tightly linked, it would be hard to consider Greek banks solvent when their government is not paying its bills.

A last-minute bailout proposal that the government of Prime Minister Alexis Tsipras made Tuesday to European creditors was said to exclude the International Monetary Fund’s involvement.