GREECE notified the International Monetary Fund that it would not make a scheduled 300m-euro loan repayment last Friday after opposition to a bailout compromise with creditors erupted inside the governing party.

Following a rarely used procedure permitted under IMF rules, the Greek government intends to bundle all the payments it owes in June, totalling 1.5bn euros, and transfer it at the end of the month.

Alexis Tsipras, the Greek prime minister, has come under intense pressure from within his left-wing Syriza party to withhold payment to the IMF as a sign of the country’s defiance in the face of the terms required by its international creditors to access a desperately needed 7.2bn euros in bailout aid.

But as recently as early Thursday, Mr Tsipras had signalled that his government intended to make the payment. Asked by reporters after a four-hour meeting in Brussels with Jean-Claude Juncker, the European Commission president, whether the instalment would be paid, the Greek prime minister said: “Don’t worry about that.”

Christine Lagarde, the IMF chief, had also said on Thursday that she was ‘confident’ that Athens would make the payment and dismissed talk that Greece would opt for the bundling option, last used by Zambia in the 1980s.

But according to a Greek central bank official, Athens made the request late on Thursday. Gerry Rice, the IMF spokesman, confirmed the request, saying the rule allows countries “to address the administrative difficulty of making multiple payments in a short period.”

Athens to employ IMF procedure last used by Zambia in the 1980s, as pressure rises on Prime Minister Alexis Tsipras

However, senior IMF officials believe that any non-payment by Athens would be a political decision rather than a financial one; in an economy as large as Greece’s, 300m euros is a relatively small sum and Greek officials had been working to raid undisbursed EU funds for infrastructure projects to cover the payment as well as another 350m euros instalment due to the IMF on this Friday.

As a result, Greece’s decision — coming less than 24 hours after Mr Tsipras was presented with a five-page list of policy commitments by Mr Juncker that Athens needed to implement to win the 7.2bn euros in aid — will be seen as a negotiating tactic as well as a sign of a shortage of cash.

“This move is almost unprecedented and, based on Tsipras’s earlier comments, unexpected,” said Mujtaba Rahman, head of European analysis at the Eurasia Group risk consultancy. “It unnecessarily raises the stakes and will further undermine the goodwill of Greece’s creditors.”

Some officials believe Mr Tsipras will be forced to move to elections if he accepts the creditors’ terms. In a sign of how fraught the situation had become, he was forced to put off an expected second round of talks with Mr Juncker to address his parliament on Friday.

Additional reporting by Shawn Donnan in Washington

Published in Dawn, Economic & Business, June 8th, 2015

On a mobile phone? Get the Dawn Mobile App: Apple Store | Google Play