IMF Statement: Agreement with Ireland on €22.5 Billion Extended Fund Facility

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IMF Reaches Staff-level Agreement with Ireland on €22.5 Billion Extended Fund Facility Arrangement
Press Release No. 10/462
November 28, 2010

Mr. Dominique Strauss-Kahn, Managing Director of the International Monetary Fund (IMF), issued the following statement today on Ireland:

“The Irish authorities have today proposed a clear and realistic package of policies to restore Ireland’s banking system to health and put its public finances on a sound footing. Immediate actions to tackle vulnerabilities in the banks and continued strong fiscal adjustment are set in a multi-year policy framework for sustained growth and job creation.

“In recent years, Ireland has resolutely carried out bold policies in a very challenging environment, and I have confidence in its ability to implement this new program. Supported by substantial financing, this program can underpin market confidence and bring Ireland’s economy back on track.

“The strategy for the financial system rests on twin pillars: deleveraging and reorganization; and ample capitalization. A fundamental downsizing and reorganization to restore the viability of the system will commence immediately.

“At the end of this process, a smaller, more robust, and better capitalized banking system will emerge to effectively serve the needs of the Irish economy. The transition to this goal will be buttressed by substantial recapitalization based on higher capital standards and stringent stress tests and asset valuation to accurately determine the quality of banks’ loan portfolios. In addition, structural measures—a special resolution scheme for deposit-taking institutions and a further strengthening of the supervisory system—will impart greater stability.

“On the fiscal side, the program incorporates a comprehensive National Recovery Plan that covers a period of four years. The plan will form the basis for the 2011 budget and also details fiscal consolidation measures through 2014. The process of budget formation will be reformed to safeguard these gains and bring greater sustainability to public finances.

“The fiscal plan strikes an appropriate balance between revenue and spending measures, and maintains Ireland's due regard to a social safety net.

“To restore strong sustainable growth the program includes a strategy to remove potential structural impediments to enhancing competitiveness and creating new employment opportunities. It also details appropriate sectoral policies to encourage exports and a recovery of domestic demand, thereby supporting growth and reducing long-term unemployment.

“A financing package of €85 billion (about US$113 billion) will support Ireland’s effort to get its economy back on track. Of this, the European Union and bilateral European lenders have pledged a total of €45.0 billion (about US$60 billion). The Irish authorities have decided to contribute €17.5 billion to this effort from the nation’s cash reserves and other liquid assets. The Fund’s contribution would be through a three-year SDR 19.5 billion (about €22.5 billion; or US$30.1 billion) loan, representing about 2,320 percent of quota, under the Extended Fund Facility (EFF). The IMF has activated its fast-track procedures for consideration of Ireland’s funding request, and I expect the EFF will go to the IMF Executive Board for approval in December.”

The choice of an EFF offers Ireland a facility with a longer repayment period, with repayments to the Fund starting after four and a half years and ending after 10 years. The IMF charges member countries a uniform interest rate on nonconcessional loans, which is a floating rate based on the SDR interest rate, which is updated weekly. (The SDR interest rate is a weighted average of yields on three-month Treasury bills for the United States, Japan, and the United Kingdom, and the three-month Eurepo rate.) For amounts up to 300 percent of quota, the lending interest rate is currently 1.38 percent, while the lending rate on amounts over 300 percent of quota includes a surcharge that is initially 200 basis points and rises to 300 basis points after three years. At the current SDR interest rate, the average lending interest rate at the peak level of access under the arrangement (2,320 percent of quota) would be 3.12 percent during the first three years, and just under 4 percent after three years.
 


wombat

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Interesting that the IMF want 3 to 4% but our EU friends drive the average up to 5.8%. I guess its one way of getting the structural fund payments back.
 

dresden8

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We are being used as a salutory lesson to the othe PIIGS.

Germany doesn't give a flying ************************ for Ireland.

Hope they don't need a referendum passed in the next couple of years.

Poor Croatia.
 

cyberianpan

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Interesting that the IMF want 3 to 4% but our EU friends drive the average up to 5.8%. I guess its one way of getting the structural fund payments back.
Not the only disagreement between the EU & the IMF

The big EU question remains the inter bank funding, and what happens with the emergency liquidity assistance programme

cYp
 

dotski_w_

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Interesting that the IMF want 3 to 4% but our EU friends drive the average up to 5.8%. I guess its one way of getting the structural fund payments back.
Oddly enough, while the EU Council (being the Govts of the 27 MS) are predominantly of the centre right these days, the IMF MD is a French Socialist. Current polling suggests that he'd beat Sarkozy in a run-off by about 20% (if selected)
 

AidanK

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Can somebody answer this question please,

There has been alot of talk about the interest rates of the bailout funds etc but how does anybody think 67billion plus interests be paid back? The country cannot afford it as it is so tell me, in your opinion, what massive cuts will have to be taken to the governments spendings to pay this back.

Everything like social welfare has already been cut to the bone.

Sorry for hijacking this thread but I cannot open my own
 

Magror14

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"and asset valuation to accurately determine the quality of banks’ loan portfolios"

Can that be emphasised enough? If there is not international agreement on this point we will all end up here again. In a globalized economy the cowboys in the area of asset valuation will undermine the best regulated economies.
 

Finbar10

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Interesting that the IMF want 3 to 4% but our EU friends drive the average up to 5.8%. I guess its one way of getting the structural fund payments back.
The investments in the pension reserve fund are supposedly earning us about 3% in dividends a year. If we have to cash these in we'd be losing out on the 3% payments. So putting money from this into our banks could be said to be costing us that 3% a year? Maybe that's the rate being calculated on these? The cash reserves were raised on the markets previously for probably about 4-4.5%. IMF seems to be at 4% or less. The non-EU contribution from ourselves and IMF must be ballpark 4%. That would imply the EU's rate is circa 7.5%. Surely that can't be the case?

EDIT: It was pointed out in another thread that the 5.8% rate might be on the non-Irish contribution to this bailout (including just IMF and EU components and not our cash reserves and NPRF). In this case I figure that the EU rate would be near 6.7%.
 
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subic

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Wasn't the UK loans supposed to be in the order of 4%, Clowen refused to answer that question.
 

TonyB

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....that would imply the EU's rate is circa 7.5%. Surely that can't be the case?
I think that's about right, possibly a little higher. There remains however a question of management and sequencing. Depending on what we draw down, from where, and when, the rates and the blend will vary. Therefore if we take the €10bn from the NPRF right now (which Moore McDowell claims will cost about 3%, I don't understand why there's a charge for our money, unless you're layering the opportunity cost for not investing the NPRF in something else (like, ohh, Portugal!!!!)) which is what we need for the banks, then we will only be exposed to 3%. If next year in 2011 we draw down the €13bn or so that we are forecasting to be short for the national finances from the IMF, that will cost us under 4%, as above.

In these circumstances, the blending is more complicated, and the heavy interest money is back end loaded. Then however there are considerations for maturation. When money matures, it needs to get repaid. So there are schedules for repayment. They need to be factored in as well. It may be that three year borrowing now may need to be replaced by further three year borrowing in 2014. The assumptions about the state of the economy in 2014 will be crucial to the plan.

It's a really, really hard question to answer - "what is the interest rate?" - and no doubt some commentators will criticise the Government for being evasive on aspects of the interest issue. But it is not like a normal loan, nor even a series of loans.
 
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cyberianpan

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"and asset valuation to accurately determine the quality of banks’ loan portfolios"

Can that be emphasised enough? If there is not international agreement on this point we will all end up here again.
Correct.

This toxic uncertainty is what hurt us, not our fiscal position

Resolving the loan asset valuation, will require getting the property market moving again

cYp
 

johnfás

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The investments in the pension reserve fund are supposedly earning us about 3% in dividends a year. If we have to cash these in we'd be losing out on the 3% payments. So putting money from this into our banks could be said to be costing us that 3% a year? Maybe that's the rate being calculated on these? The cash reserves were raised on the markets previously for probably about 4-4.5%. IMF seems to be at 4% or less. The non-EU contribution from ourselves and IMF must be ballpark 4%. That would imply the EU's rate is circa 7.5%. Surely that can't be the case?

EDIT: It was pointed out in another thread that the 5.8% rate might be on the non-Irish contribution to this bailout (including just IMF and EU components and not our cash reserves and NPRF). In this case I figure that the EU rate would be near 6.7%.
It seems that Britain are charging 6% for their component - the EU will be charging even more - probably more than 7%.
 

johnnypockets

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Is it not a simple maths equation as stated on zerohedge?

'Presumably the pensions reserve funds are at 0%, as its already our money. They form about 20% of the total amount. If one fifth of the amount is at zero percent, and the average is 5.8% - what is the interest on the rest of the money? I calculate 7.25%"
 

TonyB

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Sean Whelan interpreting the IMF money as 5.7% due to exchange rates / conversion issues...something like that.
 

j26

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Sean Whelan interpreting the IMF money as 5.7% due to exchange rates / conversion issues...something like that.
Probably trying to undo some of the outrage at the European portion of the "deal"
 

TonyB

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Jaysus, did you hear yer wan on RTE News - "Predictably, a negative reaction from the opposition, David." Come on, at least try to be independent!
 

cyberianpan

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Is it not a simple maths equation as stated on zerohedge?

'Presumably the pensions reserve funds are at 0%, as its already our money. They form about 20% of the total amount. If one fifth of the amount is at zero percent, and the average is 5.8% - what is the interest on the rest of the money? I calculate 7.25%"
No it is not , the rate quoted does not include the nprf monies

Zero hedge's main poster and founder, 'tyler durden' is a borderline criminal who has been banned from ever again working in finance
 


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