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IMF releases €2.2 billion in rescue funds for Greece

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The IMF has released 2.2 billion euros ($A2.88 billion) in rescue funds for Greece, giving a nod to new prime minister Lucas Papademos’s commitment to a tough reform program.

Delayed for months by political turmoil that led to the early November downfall of prime minister George Papandreou, the move opens the way for the European Union to release its 5.8 billion euro share of the latest bailout installment.

The funds could help Athens to avoid a looming default on its debt that many fear could crack the 17-nation eurozone.

But International Monetary Fund managing director Christine Lagarde also stressed that a restructuring of Greek sovereign debt by private banks, aimed at saving Athens 100 billion euros, was crucial to stabilising its finances.

“Near-universal participation in the proposed private debt exchange will be important to realise a sustainable debt position, meet financing needs, and ensure continued Fund support,” Lagarde said in a statement.

The IMF’s executive board approved the immediate release of the funds on Monday after reviewing Greece’s performance under the rescue program, launched in May 2010.

The 110 billion euro program, including 30 billion euros from the IMF, requires Athens to stick to reforms and austerity targets aimed at crunching its huge fiscal deficit and reducing its debt.

But by the middle of this year it was apparent that Athens was not meeting the targets, and the newest tranche of the loan was held back, risking allowing the country to default.

The board decision on Monday though granted Athens waivers for not having met certain targets, opening the way for the disbursement.

Lagarde applauded the new government’s commitment, but urged it to adhere to structural reforms, warning that the Greek economy remains weak and threatened by a deteriorating external environment.

“Greece has substantial achievements to its credit, including a large fiscal deficit reduction,” she said.

“The creation of a national unity government and the endorsement of program objectives and policies by major parties is an important step.

“The new government should use its wider mandate to steadfastly implement the program, which is the best way to help Greece manage the risks it now faces.”

The 2.2 billion euros freed up on Monday takes to about 20.3 billion euros the total funds released by the IMF to Greece – the most it has ever disbursed to any one country.