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IMF gives positive report card to Greece

By the CNN Wire Staff
Greek Prime Minister George Papandreou (L) and his Spainish counterpart Jose Luis Rodriguez Zapatero in Lisbon on Monday.
Greek Prime Minister George Papandreou (L) and his Spainish counterpart Jose Luis Rodriguez Zapatero in Lisbon on Monday.
STORY HIGHLIGHTS
  • The International Monetary Fund says Greece is on track
  • Greece received a 110 billion euro bailout in May
  • IMF: "Significant progress has been made"
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Athens, Greece (CNN) -- Greece is on track and turning its economy around following a massive bailout this year, international lending authorities said Tuesday.

Teams from the International Monetary Fund, European Central Bank, and European Union have been in Athens over the past week to assess Greece's progress after the 110 billion euro ($150 billion) loan it received in May.

The Greek economic program, which is being supported by the loan, "remains broadly on track," the IMF said Tuesday.

"While challenges remain, significant progress has been made, particularly in reducing the fiscal deficit," it said.

Nothing can hold Greece back, prime minister says

The news may be encouraging for Ireland, which requested financial assistance Sunday from the IMF and European Union after days of denying it needed help. The country needs funds to shore up its banking sector and support the government, which has poured billions into saving the banks.

Irish Finance Minister Brian Lenihan said the country would ask for less than 100 billion euros ($136 billion).

The IMF predicted Greece's economy will begin turning around in 2011. Wage and price inflation are beginning to moderate, "setting the state for improvements in competitiveness," it said.

The government has already managed to reduce its deficit by 6 percent of gross domestic product (GDP) in 2010, larger than its initial target. Meeting the deficit target of 7.5 percent of GDP in 2011 will be more difficult, however, after Greece revised its 2009 data and collected less revenue than projected, the IMF said.

It said Greece has adopted new measures to broaden tax bases and eliminate wasteful spending, particularly in the areas of health spending, state enterprises, and tax administration.

The IMF said Greek spending on health is "inefficient" relative to other countries using the euro currency, and its state enterprises are a "heavy burden" on the economy, with "perennial losses for Greek taxpayers."

The Greek government is still aiming to reduce the deficit to below 3 percent of GDP by 2014, the IMF said.

Greece's financial sector is also becoming more stable, the IMF said, even though the banking system remains under pressure. Some private banks have had success recently in raising funding and capital in the markets, and the government is strengthening its supervision of the banking and insurance sectors.

Structural reforms are a challenge, however, the IMF said.

"While significant progress has been made, with some landmark reforms -- including pension reform -- the program has now reached a critical juncture," the IMF said. "Many of the reforms that are necessary to transform Greece into a dynamic and export-driven economy require skillful design and political resolve to overcome entrenched interests. The challenge now is to implement an ambitious schedule for these next-stage reforms."

The IMF said Greece needs to align wages more closely with productivity and reform arbitration and collective bargaining systems. It needs to open up access to services, trades, and professions, and cut red tape and entry barriers to Greek industries, while also privatizing state assets.

In summary, it said, "the reforms needed to return Greece to robust economic growth are under way, but developments to date also reveal that structural issues must be dealt with to make the adjustment sustainable."

The IMF plans to next review Greece's progress in February.