The IMF's chief economist, Olivier Blanchard, said on Monday it looks like the 'haircut' on Greek private debt will be very large as negotiations between bondholders and the government drag on to cut Greece's debt burden.

With respect to private creditors at this stage it looks like the haircut will be very large, Blanchard told an event at the Carnegie Endowment for International Peace, adding: But that is only half of what it needs, and it may be in a way it's the easier half, the other half is (improving) competitiveness.

Blanchard said Greece needs a dramatic reduction in its public debt. The IMF has said Greece needs to cut its debt to 120 percent of gross domestic product by 2020 - from nearly 160 percent now - to put its economy on a sustainable path.

Blanchard said the only way for Greece to eventually emerge from its economic doldrums was for the government to cut public debt and reduce labor costs and for a commitment by Europeans to support Greece as long as it's needed.

Under these conditions it is still terribly ugly and an unpleasant path but it is at least one that can be tried, Blanchard said.

He added: Under a realistic scenario this is going to take a very long time and for a long time Greece will not be able to go back to markets.

The IMF chief economist said he was impressed with progress by the euro zone to erect a firewall against financial contagion. It seems avoiding a catastrophe (in the euro zone) is well within reach. I am very hopeful it will be avoided, he added.

Blanchard said it was not clear that the impact from the euro zone crisis on the United States is that major. To be sure, the IMF 2012 projection for U.S. growth would probably be closer to 2 percent than the 1.8 percent the IMF forecast on January 24, he added.

(Reporting By Lesley Wroughton; Editing by Andrew Hay and James Dalgleish)

International Monetary Fund