The 2010-imposed austerity measures in the first bailout helped Greece avoid bankruptcy but also caused the country's economy, already in recession, to plummet, the IMF said in an internal report made public after its contents were reported by The Wall Street Journal.
In contrast to publicly stated high hopes of the first bailout of $144 billion put together by the "troika" of the IMF, European Commission and European Central Bank in May 2010, "market confidence was not restored, the banking system lost 30 percent of its deposits and the economy encountered a much deeper-than-expected recession with exceptionally high unemployment," the report said.
This not only undermined Greece's already debilitated economy but also ruined the country's chances of paying back its debt anywhere near on time or in full, the report said, pointing out IMF-projected fiscal targets for Greece were unrealistically "ambitious."
"The fiscal targets became even more ambitious once the downturn exceeded expectations," the report said, adding Greece should not have qualified for further bailouts due to doubts about the sustainability of its debt.
But the report said the rescue -- which bent the IMF's own lending rules -- kept Greece in the 17-nation eurozone, limited the possibility of spreading Greek blight to healthy economies and ended up costing the troika less than creating terms that would have actually let Greece get through the debt crisis in a sustainable way, without such a severe recession.
"While earlier adjustment of the targets could have tempered the contraction, the program would have then required additional financing," which neither the IMF nor eurozone governments were prepared to give, the document said.
Senior IMF figures, including Managing Director Christine Lagarde, have repeatedly said since 2010 Greece's debt level was "sustainable," which means it's likely to be repaid in full and on time.
Lagarde acknowledged to the Journal in a separate interview last week the IMF skirted its own rules, despite privately having considerable misgivings about Greece's debt sustainability.
In Athens, officials said the report confirmed the bailout price exacted on Greece was too great for a country beset by massive debts, pernicious tax evasion and a large underground economy.
"For too long [troika officials] refused to accept that the program was simply off-target by hiding behind our failure to implement structural reforms," one Greek official told British newspaper The Guardian, referring to painful structural reforms required by the troika to make Greece's economy more competitive.
"Now that reforms are being applied, they've had to accept the bitter truth," the official said.