In a critical assessment of its own handling of the euro-zone financial crisis, the International Monetary Fund is set to publicly admit to major missteps in the bailout of Greece, the recipient of one of the institution's largest-ever rescue packages and the spark for a wider debt crisis across Europe.

In an internal document marked "strictly confidential" seen by The Wall Street Journal, the Washington, D.C.-based institution says it badly underestimated the damage its prescriptions of austerity would do to Greece's economy, but stresses the response to the crisis bought the euro area time to limit the fallout to the rest of Europe.

The IMF admits that it bent its own rules to make Greece 's burgeoning debt seem sustainable and that, in retrospect, the country failed on three of the four IMF criteria to qualify for assistance. In the course of the past three years, a number of senior IMF figures, including current Managing Director Christine Lagarde, repeatedly have claimed in public that the country's debt was "sustainable"--likely to be repaid in full and on time.

The document describes the uncertainties around the Greek rescue as "so significant that staff was unable to vouch that public debt was sustainable with a high probability," the document says. The IMF admits it was too optimistic over the Greek government's prospects for a return to market financing and its political ability to implement the conditions of its rescue program.

A version of the document is likely to be put in the public domain Thursday. It is the most significant in a series of IMF analyses over the past few months that attempt to assess the institution's involvement in the euro-zone crisis.

The greater benefit of the 2010 bailout was not so much to Greece as to the wider euro zone, the document suggests. The rescue was a "holding operation," it says, that "gave the euro area time to build a firewall to protect other vulnerable members and averted potentially severe effects on the global economy."

The IMF joined forces with the European Commission and the European Central Bank in 2010, forming the so-called troika, to manage Greece 's first 110 billion euro ($144.03 billion) bailout.

The three continued to run the country's second bailout, which came in 2012. Beyond Greece , the troika is managing the Irish, Portuguese and Cypriot bailouts. While the fund has been scaling back its new financial commitments to euro-zone economies, it has put up a total of $47 billion for Greece , the biggest loan the IMF has ever made when compared with the size of a country's economy.

The fund criticizes the delay in restructuring Greece 's massive debt load, which eventually came in May 2012, two years after Greece 's original bailout deal.

It says cutting Greece 's debt before May 2012 was "politically difficult" because of resistance from some euro-area countries whose banks held too much Greek government debt. These countries also were concerned that cutting Greece 's debt would make the country relax on reforms and believed the debt load to be a lever to pressure the government into action.

An immediate restructuring also would have been cheaper for European taxpayers--as the delay ensured that private-sector creditors were repaid in full for two years prior before 2012 while Greece 's debt, which was still too high, shifted to other European governments and the IMF.

It also admits its own analysis of the future development of debt was wrong "by a large margin," as the fund's debt-sustainability analysis --a critical piece of forecasting--"included stress tests but these turned out to be mild compared to actual outcomes."

The document is critical of a key player in the program, the Brussels-based European Commission, with which it partnered up in 2010 to run the country's mammoth assistance package.

The report says the executive branch of the European Union "tended to draw up policy positions by consensus, had enjoyed limited success with implementing [loan conditions]... and had no experience with crisis management."

It adds that the commission focused more on "compliance with EU norms than on growth impact" and "was not able to contribute much to identifying growth enhancing structural reforms."

The European Commission is currently the lead institution tasked with designing and promoting growth-enhancing and job-creating policies in the EU to help its economies out of the crisis.

"None of the [troika] partners seemed to view the arrangement as ideal," the paper continues in a section discussing the "unusual" troika arrangement, noting that there were "marked differences of view within the troika, particularly with regard to the growth projections."

Growth projections were wildly off the mark, but Greece still had to meet the same targets of cutting deficit. "The fiscal targets became even more ambitious once the downturn exceeded expectations. In addition, the starting point moved," it says, adding that the targets and the underlying macroeconomic projections weren't revised to reflect what was actually happening in Greece for 18 months, until December 2011.

The IMF originally had projected Greece would lose 5.5% of its economic output between 2009 and 2012. The country has lost 17% in real gross domestic output instead. The bailout plan predicted a 15% unemployment rate in 2012. It was 25%.

Slowing down the pace of austerity would have helped Greece 's economy but wasn't politically possible, the fund says. "While earlier adjustment of the targets could have tempered the contraction, the program would have then required additional financing," the document says, stressing that neither it nor euro-area governments were prepared to lend more than EUR110 billion for Greece 's rescue plan at that time.

The paper criticizes Greek governments for failing to implement structural economic reforms that could have propped up the private sector and says the pain of the adjustment was "unevenly spread across society." But it admits there are few historical precedents for the size of the spending cuts and tax increases that Greece implemented to hit the bailout targets.

The fund doesn't explain why it made the choices it did in detail, nor why it agreed to troika analyses that it now says were incorrect. But it says IMF staff "explicitly flagged" risks in the Greek program implementation.

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