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IMF set to approve Greek loan tranche on Friday
* IMF board set to approve 3 billion euros for Greece
* Risk of contagion forefront of board concerns
* Unclear new IMF chief Lagarde will chair meeting
WASHINGTON, July 8 (Reuters) - The IMF executive board on Friday is expected to approve the disbursement of just over 3 billion euros for Greece, in time to help the country pay debts falling due this month.
At the same time, Europeans will try to secure private-sector participation in a second bailout.
The payment is part of a 110 billion euro IMF-European Union bailout package crafted for Greece last year. The risk of contagion from a worsening Greek debt crisis -- and threat of a default -- is likely to loom large in the board's decision.
The International Monetary Fund has warned that the crisis in Greece could reach countries like the United States through money market funds, especially if the contagion spreads to European banks heavily exposed to Greek debt.
The global lender scheduled the meeting to consider the fifth loan disbursement for Greece after euro zone leaders agreed on Saturday to release their portion of the 12 billion euros due to be paid to Athens from the initial bailout.
So far, the program has failed to restore confidence in Greece's finances and a new package is in the works to cover Athens' funding needs through 2014, with European officials now trying to involve private sector creditors.
To secure the latest disbursement, Greece's parliament had to approve deeply unpopular austerity measures to put the nation in better position to carry its debts. It approved that package on June 29.
It is unclear whether Christine Lagarde, the IMF's new managing director, will chair the board meeting. Until a week ago, she was participating in discussions on a new bailout as French finance minister.
"As a good lawyer, she should recuse herself from directly participating in an evaluation of something that she was part of less than a week ago," said Jacob Kirkegaard, a research fellow at the Peterson Institute in Washington. "She is aware that she will be scrutinized, and rightly so, because of the obvious potential conflict of interest."
Lagarde told reporters on Wednesday that the euro zone debt crisis was her top priority, although she declined to prejudge the IMF board discussions and its outcome.
Euro zone finance ministers are trying to put together a fresh bailout by mid-September. Talks with international bankers have thus far failed to secure a deal whereby private creditors would be asked to swap their sovereign debt holdings for bonds with longer maturities.
Kirkegaard said the IMF board would likely raise issues over whether international aid should be predicated on private sector participation for countries such as Greece.
"I'm not sure the IMF board will be very comfortable having essentially delegated the responsibility of such a decision to the eurogroup," he said. "I would imagine the IMF board would have fairly strong views on that." (Reporting by Lesley Wroughton; Editing by Andrew Hay)
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