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UPDATE 2-IMF scrambles to figure out role in Greece

Published 03/26/2010, 05:31 PM

* IMF tries to figure out its role in Greece

* IMF says following development closely on Greece

(Adds details, comments from analyst)

By Lesley Wroughton

WASHINGTON, March 26 (Reuters) - The International Monetary Fund was trying on Friday to understand precisely what its role will be in a European-led rescue of Greece.

A day after euro zone leaders agreed to provide coordinated loans to Greece with the help of the IMF, officials at the Washington-based lender were unclear over how the Fund's resources would be tapped and how it would impose the sort of conditions that normally come with its financial aid.

In its first comments since the EU announcement, the IMF said it was monitoring developments.

"We are following developments closely," the IMF said, repeating that it stood ready to consider any financial assistance if asked.

IMF Managing Director Dominique Strauss-Kahn begins a short visit to Poland and Romania on Monday where he is likely to encounter questions on Greece.

The IMF's website said he is likely to call for closer cooperation and reforms to Europe's architecture.

The dilemma for the IMF is that Greece falls under the jurisdiction of European Union rules and is a member of the euro zone where monetary and foreign exchange policies are dictated by the European Central Bank.

That makes it difficult for the IMF to set policy prescriptions backed by its money.

Under the accord, Athens would receive bilateral loans from other euro zone countries and the IMF if it faces severe difficulties. Tough terms imposed by German Chancellor Angela Merkel mean the mechanism could be activated only under strict conditions. See [ID:nLDE62P0J3]

A senior IMF official, speaking on condition of anonymity because of the sensitive nature of the issue, told Reuters that Greece was not expected to request IMF aid just yet.

The official said it was unclear under what conditions Greece would be allowed to activate the lending mechanism and at what point the Greek authorities could request IMF aid.

Greek Finance Minister George Papaconstantinou said on Thursday Greece would prefer to get funding from financial markets although that will depend on interest rates.

The European Union said it would shoulder about two-thirds of the funding to Greece and the IMF about one-third.

Greece's IMF borrowing quota is equivalent to $1.25 billion, although it would be allowed to draw up to 10 or 12 times that which was permitted for other countries needing bailouts during the global financial crisis.

Analysts have said Greece could be allowed to borrow between 20 billion to 22 billion euros from the IMF.

Greece would be the first country in the euro zone to borrow from the IMF, breaking new ground for the world's lender of last restort.

UNCOMFORTABLE MOMENTS

Uri Dadush, senior associate at the Washington-based Carnegie Endowment for International Peace and a former senior official at the World Bank, said there was no clarity on who would lead the intervention in Greece -- the IMF or the EU.

"While I greatly welcome the IMF's involvement as a big step forward nevertheless the agreement as outlined has enormous ambiguity and therefore is unlikely to have the desired effect on the market," said Dadush.

An added complication for the IMF, he noted, would be for the entire euro zone to agree on any decision taken on Greece.

Dadush said since the ECB set monetary policy for the euro area, the IMF would have to be more forceful on needed structural and fiscal reforms. A weaker euro would help indebted countries like Greece, Portugal or Spain adjust better, he added.

Dadush said the IMF had knowledge of all euro zone countries and could provide independent economic advice to individual countries and the euro zone.

The IMF's involvement, while welcome, may make for some uncomfortable moments as the IMF questions European policies.

"In another context countries would welcome this with open arms, but what this is in effect is a new, somewhat unpredictable element for the euro zone," Dadush added. (Reporting by Lesley Wroughton; Editing by Chizu Nomiyama)

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