IMF seeks to soothe Greece over fiscal crisis

World finance ministers entered a pressure cooker Saturday at meetings in Washington, where Greece's dire fiscal situation dominated urgent discussions about how to avoid a major debt default in the heart of the European economy.

The meeting of the International Monetary Fund ended on a resolute note, though, with the global body's managing director, Dominique Strauss-Kahn, saying Greeks have nothing to fear from a possible $54-billion bailout.

"Greek citizens shouldn't fear the IMF. We are there to try to help them," he said.

The Mediterranean country on Friday formally asked the IMF and the European Union for the bailout cash after weeks of speculation. Greece has to come up with at least $8.2 billion by May 19, its next credit due date, or it could become the first euro country to default on debt.

Greece is hoping to obtain loans of about $40 billion from the other euro zone countries, and an additional $13.4 billion from the IMF. With his country's bottom line ravaged by soaring borrowing costs, Prime Minister George Papandreou has declared on TV that his country's economy is a "sinking ship."

The proposed three-year recovery package would provide loans at a five per cent interest rate, which Greece cannot get on its own on the open market.

But discord rages in Greece over whether to accept outside meddling. Germany is demanding major budget cuts and tax hikes from Athens as a condition of any loans, while the IMF has a reputation for requiring austerity measures that suggests it would echo that. Thousands of public servants' jobs are at risk.

Asked at a news conference Saturday whether he was concerned that the IMF was being "demonized," Strauss-Kahn said it would not be the first time that the global body, which often delivers harsh economic remedies, has been cast as the villain.

But he maintained that today's IMF is a changed institution from the agency that generated anger in countries around the world for its devastating austerity programs in previous crises.

IMF officials have said its current remedies are crafted with an eye to protecting the most vulnerable. In the past, such organization policies as requiring countries to privatize their water systems have unleashed mass protests.

The IMF also says it is striving to be more representative of the views of developing countries, not just rich nations that contribute the largest shares of support.

Strauss-Kahn has a personal stake in the jockeying. A former French finance minister, he is expected to seek the French Socialist Party's nomination to run in the 2012 president election against incumbent Nicolas Sarkozy. Bungling the rescue of a European economy would severely dampen his chances.

Flaherty warns

Canadian Finance Minister Jim Flaherty used the Greece crisis as a backdrop to warn countries like the United States and Britain about the dangers of massive deficits.

"There are a number of western industrialized economies, including a number of European economies, that are running substantial deficits and accumulating a lot of debt," he said.

Under Flaherty's fiscal stewardship, the Canadian government has spent its way to its biggest deficit ever. But Greece's deficits threaten to become structural and permanent, he said, a distinguishing feature from Canada's.

"Those issues need to be addressed and can't go on indefinitely, especially since we are starting to see good indications of economic recovery," Flaherty added.