Friday 26 December 2014

Deal to repay IMF loans early may be too late for Budget

Published 26/07/2014 | 02:30

Minister for Enterprise Richard Bruton
Minister for Enterprise Richard Bruton

The Government has yet to take a formal decision to ask EU leaders to waive their right to have European bailout loans paid off at the same time as more expensive IMF debts.

It means it is now highly unlikely any savings will be made before Budget 2015, especially with decision-makers across Europe now heading into the traditional long summer break.

The Irish Independent revealed this week that the Government could save as much as €930m a year for taxpayers by replacing increasingly-expensive IMF rescue loans taken out as part of the bailout with money raised on the markets.

After the latest increase, the IMF is charging double the interest on the €45bn European element of the bailout.

But the Government cannot replace the expensive IMF loan with cheaper market funding without triggering an obligation to repay a share of the European debt.

A spokesman for the European Commission confirmed that Ireland has not made any request for early repayment of loans granted under the EFSM rescue fund.

The minister for enterprise, Richard Bruton, said yesterday a deal would be worthwhile.

"That's what we do at every opportunity - seek to find the cheapest possible lending sources - and no doubt we would like to secure that agreement."

Officials in the Department of Finance and at the NTMA are examining the mechanics of how a so-called "debt re-profiling" deal could work, however, with a firm mandate from Cabinet substantive talks are not underway on the issue, sources said.

The average interest charged by the IMF rose to 4.99pc a year earlier this year.

On the €22.5bn owed to the Washington-based lender the interest bill is €1.12bn.

The IMF loan has an average maturity of about seven years.

The State can borrow seven-year debt for 1.2pc per year.

That has led to calls for a renegotiation.

The call to replace the expensive IMF loans was first made publicly back in January.

On a visit to Dublin, the chief economist at global banking giant Citi, Willem Buiter, said Ireland should have taken "every sheckle" of €14bn that was offered by investors on the market at the then interest rate of 3.5pc, and used it to pay off the more expensive IMF bailout loans early.

Since then, the interest rate on the IMF loans has increased while the cost of borrowing on the markets has continued to fall - making the potential savings ever greater.

The terms of the original EU/IMF bailout state that any repayment of any of the European or IMF element of the bailout would trigger the paying down of an equal portion of the other.

Changing that would require agreement from all of the euro area member states that contributed to the bailout - and there are indications that some members could resist a deal for Ireland.

Irish Independent

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