By Lefteris Papadimas and George Georgiopoulos
ATHENS (Reuters) - Time is running short to clinch a deal on a voluntary debt exchange for Greece, private sector bondholders warned on Thursday during crunch talks, while euro zone sources said Athens might force reluctant investors to accept losses.
Negotiations on the debt swap deal, which Greece needs to secure international aid and avoid a messy bankruptcy when a major bond redemption comes due on March 20, have entered the final stretch after dragging on for months.
"A range of issues were discussed and some key areas remain unresolved. Discussions will continue in Athens tomorrow, but time for reaching an agreement is running short," the Institute of International Finance said after its chief, Charles Dallara, met Greece's prime minister and finance minister.
"It is essential in order to finalize the voluntary (private sector involvement) agreement that support be given by all official parties in the days ahead," the IIF said in a statement.
Greek officials sounded rather more optimistic.
"I'm cautious and very confident after this two-hour meeting," Finance Minister Evangelos Venizelos said in a statement.
A finance ministry source said Greece could reach a deal by the end of next week, with a formal offer possible by early February.
Whatever happens, a deal must be struck well before the March 20 bond redemption of 14.5 billion euros, because the paperwork alone will take at least six weeks.
EU, IMF and ECB inspectors also want to see an agreement before they wrap up talks, due to start on Tuesday, on a 130 billion euro rescue plan for Greece.
The swap aims to cut Greece's debt burden from 160 percent of the nation's annual output to 120 percent by 2020 and erase about 100 billion euros from the country's debt load of over 350 billion euros.
Banks have agreed to a "voluntary" 50 percent write-down on Greek debt holdings, but the talks have been complicated by demands for further concessions, which has made it less attractive for some investors to take part on a voluntary basis.
FURTHER SUPPORT NEEDED?
However, the risk that recalcitrant bondholders could be rewarded has prompted Greece to consider an unprecedented retroactive introduction of collective action clauses (CACs) on outstanding debt.
Three senior euro zone sources said on Thursday that Athens could impose such clauses to force holdouts to sign up to the bond swap.
The clause may be required because sources say hedge funds who have picked up Greek debt are intent on staying out of the bond swap deal. They either prefer letting the country go under, which would trigger the credit insurance they have bought, or hope to get paid out in full if enough others sign up.
"CACs are necessary to get the holdouts on board. Otherwise the euro zone summit's goal of a high participation rate is totally unrealistic," one of the three sources said.
Such clauses would say that a debt restructuring deal agreed on by a certain percentage of investors is binding for all, thus removing any profit for hedge funds from holding out.
Speculation has centred on whether euro zone governments would be forced to stump up more cash to save Athens, something that would be deeply unpopular in Germany and other northern euro zone countries.
IMF chief Christine Lagarde is also said to have warned Europe that Greece's economic prospects are deteriorating and the European Union will either have to put up more money to rescue Athens or debt holders will have to stomach steeper losses.
"We always require full financing of any program we are involved or might be involved," IMF spokesman Gerry Rice told reporters in Washington. "We need to wait and see what the final conclusions of the deal are, make an assessment on that and how it meets the debt sustainability targets that have been set."
Asked to explain why Lagarde was discussing the possibility of Greece needing additional funds, Deputy Finance Minister Filippos Sachinidis said that could depend on the level of participation in the bond swap scheme.
"If the percentage of participation is not, for instance, 100 percent, then Greece may need further support from the side of our partners," Sachinidis told Skai radio.
Sachinidis sidestepped a question on whether Greece would insert or activate a collective action clause.
"Let's not jump ahead and let's see how we can seal the technical agreement in such a way that it ensures two things," he said.
"First, a high participation rate and a voluntary participation in the bond swap programme and secondly, that Greek debt ends up with characteristics that allow analysts monitoring and examining its viability to conclude that after this procedure it is sustainable."
(Additional reporting by Dina Kyriakidou in Athens, Jan Strupczewski in Brussels, Steve Slater in London and Lesley Wroughton in Washington; Writing by Ingrid Melander and Deepa Babington; Editing by Hugh Lawson)