(MENAFN- The Journal Of Turkish Weekly) There is still time to work out a compromise that could save the Greek bailout, International Monetary Fund Chief Economist Olivier Blanchard said.
Writing in a blog post published early Monday morning, Blanchard claimed: "At the core of the negotiations is a simple question: 'How much of an adjustment has to be made by Greece, how much has to be made by its official creditors?'"
There is a trade off on conditions that creditors can make with the Greek government to achieve a compromise, Blanchard wrote, after negotiations between the Greek delegation and creditors broke off without success late Sunday night in Brussels.
Blanchard's proposals are the first public statement by Greece's creditors that there could be wriggle room on issues like value-added tax reform, and pensions.
Blanchard called for creditor demands for a high level of primary budget surplus to be reassessed.
"A lower target leads to a less-painful fiscal and economic adjustment for Greece. But it also leads to a need for more external official financing, and a commitment to more debt relief on the part of the European creditor countries.
"Just as there is a limit to what Greece can do, there is a limit to how much financing and debt relief official creditors are willing and realistically able to provide given that they have their own taxpayers to consider."
Blanchard also called for the set of economic reforms demanded by creditors to be re-evaluated.
"Greek citizens, through a democratic process, have indicated that there were some reforms they do not want. We believe that these reforms are needed, and that, absent these reforms, Greece will not be able to sustain steady growth, and the burden of debt will become even higher.
"Here again, there is a trade-off: To the extent that the pace of reform is slower, creditors will have to provide more debt relief. Here again, there is a clear limit to what they are willing to do."
On the fraught issue of pension reduction, Blanchard pointed out that pension expenditures account for over 16 percent of GDP, and transfers from the budget to the pension system are close to 10 percent of GDP.
"We believe a reduction of pension expenditures of one percent of GDP (out of 16 percent) is needed, and that it can be done while protecting the poorest pensioners."
Blanchard insisted that a "comprehensive" reform of value-added tax is required.
"We are open to alternative ways for designing both the VAT and the pension reforms, but these alternatives have to add up and deliver the required fiscal adjustment.
"We believe that, under the existing proposal, debt relief can be achieved through a long rescheduling of debt payments at low interest rates."
However, Blanchard warned that each side would have to make "some tough choices".
The country's creditors - which include fellow eurozone states, the European Central Bank and the International Monetary Fund - want the country to commit to new economic reforms before they disburse the last 7.2 billion euros ($8.2 billion) left in Greece's bailout fund.
Another meeting for negotiations will take place on Thursday. If, at that time, no deal is reached, there is a strong possibility that capital controls will be imposed on the Greek financial system.
That would mean limiting access for businesses and citizens to their own bank accounts. Some observers predict that the current SYRIZA government could not survive such measures.
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