IMF offers first concession on bailout interest for its loan
Published 04/03/2011 | 05:00
IRELAND has been given the chance to lower the crippling interst rate on a portion of its €85bn loan package by the IMF.
Due to internal reforms of the Washington-based organisation, Ireland could see the rate on longer term loans drop from 4.04pc to 3.85pc, and on shorter term loans drop from 3.17pc to 3.04pc.
The IMF is providing Ireland with €22.5bn of the €85bn package agreed in December. While the decreases are small, the organisation said last night further falls were possible because of other technical changes planned.
News of the offer of a lower interest rate arises because Ireland's share of the IMF quota system is rising, meaning it can borrow more money without incurring extra "surchages'', said the IMF last night.
However, Ireland must agree to the changes within 30 days ,and will also have to up its one-off contribution into the IMF's coffers first.
The Department of Finance were not available last night to comment on whether Ireland will be taking up the offer.
Overall the IMF package comes with a 5.8pc rate, but the EU portion of this is by far the most expensive amount of the debt.
This week the German Chancellor Angela Merkel said it was not possible to "artifically'' lower this rate.
The German government has been determined to make sure the rates on rescue loans are punitive enough to put off other countries from applying for aid. For example, Portugal is currently believed to be close to needing external aid.
No punitive element
The IMF, unlike the EU, bases its interest rates on technical factors and does not seek to add a punitive element. A basket of currencies is used to calculate the number which is broadly the same for most countries that use its funds.
The IMF made it clear last night that its offer was technical in nature and "not a change of policy''.
The IMF yesterday admitted there had been some "slippage'' in Ireland reaching certain key targets included in the plan. But this is not expected to stop any money flowing from the organisation.
When it granted Ireland a bailout, the organisation said it wanted to fix the banks in particular.
"At the end of this process, a smaller, more robust, and better capitalised banking system will emerge to effectively serve the needs of the Irish economy,'' it said. However, it has found it difficult to do this because of credit rating downgrades and deposits leaving the system.
"The transition to this goal will be buttressed by substantial recapitalisation based on higher capital standards and stringent stress tests and asset valuation to accurately determine the quality of banks' loan portfolios,'' its November statement said.