Greece: What happens when a country defaults on IMF

Jeremy Tordjman
A man holds a sign with a Greek flag during a demonstartion against EU austerity policies and in support of the Greek government in Thessaloniki, Greece, on June 17, 2015 (AFP Photo/Sakis Mitrolidis)

A man holds a sign with a Greek flag during a demonstartion against EU austerity policies and in support of the Greek government in Thessaloniki, Greece, on June 17, 2015

A man holds a sign with a Greek flag during a demonstartion against EU austerity policies and in support of the Greek government in Thessaloniki, Greece, on June 17, 2015 (AFP Photo/Sakis Mitrolidis)

Washington (AFP) - The prospect of Greece missing a 1.5 billion euro ($1.7 billion) payment to the IMF due by the end of June theoretically places the country on track to Fund expulsion.

But that extremely rare consequence of a default on the world's crisis lender could take some time to play out, under the International Monetary Fund's official procedures.

On Thursday IMF Managing Director Christine Lagarde said that Greece would have no grace period if it does not make the scheduled debt payment by June 30.

Under Fund procedures, that means Athens, which has relied almost exclusively on a IMF and European Union bailout for the past five years, would see its access to Fund resources suspended immediately.

The main impact would be to freeze disbursement of the IMF's share of about half of the 7.2 billion euros in aid from the Fund, the European Commission and the European Central Bank.

According to official figures, Greece has to repay more than 5.4 billion euros to the Fund this year on borrowing.

Greece already missed a 300 million euro payment on June 5, but was not called in arrears or default after it invoked an obscure IMF rule that allowed it to roll together four scheduled June payments into one, to be remitted at the month's end.

With that Athens earned a few extra weeks to negotiate with its official bailout creditors. But if the June 30 deadline is missed, Lagarde made clear Thursday that there would be no more relief time.

"There will be no period of grace," she told reporters in Luxembourg.

According to IMF procedures, 30 days after a missed payment, Lagarde has to formally inform the executive board, which represents its 188 member countries.

After two months, the managing director would have to issue a formal complaint on the issue to the board.

At the end of three months, the board would consider the complaint, which could lead to it depriving the country in default of its right to use SDRs, the IMF currency.

The board would continue periodic reviews of the situation, and if it persists, make a declaration of noncooperation, which could then lead to a suspension of the borrower's IMF voting and representation rights.

That step would have little concrete impact but serve to further isolate the country within the Fund. Moreover, within six months of the suspension of voting rights -- or up to 24 months after the default -- the board would have to begin procedures on "compulsory withdrawal" or expulsion of the country from the IMF.

But that fate is unlikely. Expulsion would require support of a large majority of the Fund's members, comprising 85 percent of IMF voting rights.

The members have preferred to avoid an extreme outcome. After falling deeply into arrears on their IMF loans, Zimbabwe, Sudan and Somalia were not threatened with expulsion.

Only one country in IMF history has been kicked out: Czechoslovakia, which was forced out during the Cold War in the 1950s.