The International Monetary Fund on Thursday approved a 28 billion euro ($36.7 billion) bailout for Greece and warned Athens there was no room for missteps in implementing the economic program.
The IMF said it would immediately disburse 1.65 billion euros to the Greek government, part of a broader 130 billion euro international rescue package to keep Greece funded through 2014 and avoid a messy debt default.
The IMF board approval ends months of financial uncertainty for Greece. The country secured a joint IMF-EU bailout package after agreeing to a series of painful economic reforms and spending cuts and completing a debt swap that imposed losses of as much as 74 percent on private bondholders.
The new Fund-supported program will enable Greece to address these challenges while remaining in the euro zone, IMF Managing Director Christine Lagarde said. Risks to the program remain exceptionally high, and there is no room for slippages.
Greece will hold parliamentary election in April and there are concerns among international lenders that the vote will shift Athens' attention away from the economic program.
Only Brazil did not back the loan. Many board members expressed concern at Greece's poor record of meeting targets set in an earlier bailout program and the potential implications for the IMF's credibility as overseer of sound economic policies, board sources said. Brazil's board director did not immediately reply to a request for comment.
IMF sources said there was a sense Europe was making progress in addressing its debt troubles, although several directors stressed the need for the euro zone to erect a strong financial firewall to keep the crisis from spreading.
Greece still faces enormous risks and any delays in needed economic reforms could upset its recovery, IMF mission chief to Greece, Poul Thomsen, said on a conference call with reporters.
Thomsen said the IMF would support Greece's rescue effort as long as Athens stuck to its program. There is clearly in there a strong signal that implementation has to improve compared to what we saw in 2011, he added.
Asked whether the IMF was comfortable that the rest of Europe was now insulated from the Greek crisis, Thomsen said: There is a clear sense there is a much reduced risk but there is also a sense there is still risk.
Greece's problem is above all a competitiveness problem ... and will require difficult structural reforms and this will undoubtedly be socially and politically challenging, he added.
Thomsen said Athens did not have the scope to raise taxes further, but could better target tax evaders to increase revenue.
Updated IMF estimates put Greece's total financing needs through the end of 2014 at 165 billion euros, an amount that is being fully covered by fellow European nations and the IMF.
There is no financing gap during these almost three years that lie ahead, Thomsen said, adding that it remains to be seen whether Greece will be able to tap private markets by then.
IMF estimates put Greece's debt-to-GDP ratio by 2020 at 116.5 percent, below the 120 percent that international lenders were originally targeting. The lower level reflects a higher participation in the Greek debt swap than expected.
Jacob Kirkegaard, a senior fellow at the Peterson Institute for International Economics, said the IMF would not hesitate to cut off its financial lifeline to Greece if the government failed to meet its targets.
I would be very surprised if there wasn't a strongly worded warning to Greece that unless we get a different tune here in terms of implementation we will cut off funding very quickly, he said.
(Reporting by Lesley Wroughton; Editing by James Dalgleish and Andrew Hay)