The International Monetary Fund said on Friday it was releasing 3.2 billion euros ($A4.29 billion) to Greece but warned there was "no margin for slippage" in the country's reform program.
The funds, part of the 110 billion euros ($A147.45 billion) joint bailout with the European Union for the debt-stricken country, came as Europe's leaders and banks struggle to achieve an ostensibly voluntary restructuring of the country's debt to relieve pressure on Athens and avert a forced default.
The IMF said Greece was making "some progress" to get back on a sustainable fiscal path but stressed the government had to press ahead on reforms required under the IMF-EU program.
But it also said that Europe's richer countries needed to keep up their backing for Athens.
"Greece's debt sustainability hinges critically on timely and vigorous implementation of the adjustment program, with no margin for slippage, and continued support from European partners and private sector involvement," new IMF chief Christine Lagarde said in a statement.
Lagarde said the Greek bailout is "delivering important results" and the fund predicted the country would return to positive economic growth in the first half of 2012.
"The fiscal deficit is being reduced, the economy is rebalancing, and competitiveness is gradually improving," she said.
"However, with many important structural reforms still to be implemented, significant policy challenges remain," she said, citing the need for more work on narrowing the country's fiscal deficit and increasing economic productivity to restore growth.
The IMF statement said Greece needed to address high pay packages for public sector workers, the possibility of shutting down inefficient state firms, and widespread tax evasion.
It called the government's privatisation goals - required by the IMF-EU program to raise government revenues - "a critical step toward boosting investment and growth" as well as cutting state debt.
"While the target of selling 50 billion euros ($A67 billion) of state assets by 2015 is very ambitious, the establishment of an independent privatisation agency should help realise transparent and timely implementation."
It also cited the need for reform of the high labour taxes and the "inefficient judicial system".
The fund meanwhile warned that Greek banks need to boost their capital but said it is "critical" that the European Central bank keeps providing liquidity to the country's financial system.
The IMF has made its largest commitment ever to a single country, 30 billion euros ($A40.21 billion), as its part of the joint rescue of Greece.
Friday's release takes the total disbursed in the three-year program to 17.4 billion euros ($A23.32 billion).
It came a day after private sector creditors and international banks met in Rome to make progress on a possible restructuring of the country's debt.
While many economists and financiers say a rescheduling of the debt is necessary, ratings agencies have warned that this could put the country technically in default, even if the rescheduling is voluntary.
Because a ratings downgrade in that case could make it more difficult for the ECB to keep supporting the country, the bank has condemned the idea of a restructuring of Athens' debt.
"No credit event, no selective default, no default. That is the present message of the governing council," ECB president Jean-Claude Trichet said on Thursday.
On Wednesday the German and Greek finance ministers said they agreed that Athens must boost its economic growth if the debt-ravaged country wants to restore its budget balance.
Wolfgang Schaeuble and Evangelos Venizelos agreed that an austerity plan voted a week earlier by the Greek parliament "must immediately be put into action to return Greece rapidly to a healthy economic situation,", according to a German finance statement.
"But beyond this, other measures to sustain growth must be taken. It is only with a stronger private economy and with private investments that Greece will be able to achieve a balanced budget in the medium and long term," it added. (aap)
Investors are unlikely to gain strong conviction on asset allocation any time soon as risks from the escalating euro zone debt crisis and risks surrounding China offset more positive signals from the corporate earnings season.
World stocks, measured by MSCI , briefly hit a five-week high on Friday, July 8, extending their recovery from a June sell-off prompted by concerns about the euro zone debt crisis and weakening economic momentum.
Investors remain nervous about the impact of a potential default in Greek sovereign debt and contagion to other weak peripheral countries in a saga that is unlikely to end any time soon.
A smaller-than-expected rise in U.S. non-farm payrolls in June was also a drag, but other recent data showed the economy is coming out of a soft patch in a global economy still expected to grow at a healthy 4 percent this year.
Investors are also uncertain whether China's latest interest rate hike leaves Beijing near the end of a nine-month long policy tightening cycle as its economy eases gently but inflation stays elevated at 34-month highs.
This tug-of-war prevents any single asset class from strongly outperforming others and investors are forced to keep neutral allocation for now.
"Investor concerns are primarily about the soft patch and the European crisis. The insolvency situation is required for the euro zone, which is very difficult to achieve when you have so many policymakers involved," said Carl Astorri, global head of economics and asset strategy at British private bank Coutts.
"We seem to be stuck in a world where people are not having strong conviction. People don't seem to have a staying power to hold positions. But you're getting nothing on cash. Ultimately we think people will get rewarded for taking risks."
Coutts is overweight on equities, especially in emerging markets, and has a strong underweight position on government bonds.
International bankers and European Union officials are in a deadlock over how private creditors might voluntarily maintain their exposure to Greek sovereign debt. Euro zone finance ministers will meet in Brussels next week. (theedgemalaysia.com)
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