Fitch upgrades Greece out of default territory

ATHENS (AP) ― The Fitch ratings agency on Tuesday upgraded Greece out of “restricted default” after Athens carried out the biggest debt writedown in history in a bond swap with private creditors. International debt inspectors, however, warned the country’s recovery will be slower and harder than expected.

The new “B-” rating, which applies to the new bonds issued under Greek law, is still junk status, meaning they are not investment grade despite the huge cut to Greece’s debt pile.

Along with the upgrade, which had been widely expected after Monday’s bond swap, Fitch assigned a “stable outlook.”

Securities not eligible for the bond exchange were also upgraded to “B-” from “C” rating. Fitch kept a “C” rating on foreign-law bonds as the settlement date for their swap is not until April 11

In last week’s agreement, 83.5 percent of private investors holding Greek debt agreed to the deal, which will see them face real losses of more than 70 percent on their holdings.

The bond swap was essential for Greece to win approval for a second massive bailout from other eurozone countries and the International Monetary Fund. The country has been surviving since May 2010 on an initial 110 billion euros ($144 billion) package of rescue loans.

Over the next few years, Greece stands to receive a total of 172.7 billion euros in bailout funds from the eurozone and the IMF, including amounts still left over from the initial bailout, and 130 billion euros of new money, Finance Minister Evangelos Venizelos said in a statement.

On Wednesday, the Greek Cabinet will discuss legislation to approve the new eurozone bailout, a government announcement said.

Despite the bond swap debt relief, Greece’s outlook is grim and the government is expected to have a tough time returning the economy to growth.

The latest assessment by the so-called troika ― the European Union’s executive commission, the European Central Bank and the IMF ― indicated that Greece will have to make strenuous efforts in economic reforms and budget cleanup if its assistance program is to succeed.

A copy of the report, obtained by the Associated Press on Tuesday, says that Greece’s economy, now in its fifth year of recession, will recover more slowly than expected and will stagnate in 2013, which growth expected to return only in 2014.

“Implementation risks remain will remain very high,” the report says, warning that further bailout money could be needed if Greece remains unable to borrow when the assistance program ends in 2014.

It said the fact that the new bonds would get priority payment over any new Greek offerings could complicate efforts to return to private bond markets and that in that case “additional official sector financing could become necessary.”

The Greek government needed to make “stronger efforts to overcome the resistance of vested interests” in reforming its economy and improving growth.

Efforts to combat tax evasion “have remained far too timid” and the government is still working on implementing in earnest a 2011 law to open up trades and professions that have restrictions to entry, a practice regarded as making the economy less productive and a more costly place to do business.