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Bailout can cut new State cash call costs -- ESRI

IRELAND will probably be able to reduce the amount of money it pays to borrow in the second half of the year by returning to the markets, Economic and Social Research Institute (ESRI) economist John FitzGerald said yesterday.

The State will be able to borrow money more cheaply from the private sector because the promise of an €85bn bailout means that lenders know that they will get their money back, Mr FitzGerald said.

The European Central Bank, European Union and the International Monetary Fund (IMF) are all lending more to Ireland but the average interest rate is 5.8pc or almost six times the ECB's base rate.

Ireland should be able to borrow in the markets at less than the rate charged by the bailout fund until 2013, the economist said. "It depends on how things pan out.

"If there is a return to growth, general perceptions will change. The money will probably be borrowed for six months and then rolled over until we approach the end of 2013 when positions will have to be unwound."

Rating agencies

Mr FitzGerald said he has already discussed the idea with rating agencies, the European Commission and other organisations but it was unlikely to happen until the second half of the year.

The Department of Finance said yesterday that Finance Minister Brian Lenihan will present legislation to the Dail within days which will shave 15 basis points off the cost of the €22.5bn which the State is set to borrow from the IMF.

The legislation will save the taxpayer tens of millions of euro if the State proceeds with plans to borrow €85bn from the IMF and other sources.

The IMF had been expected to charge an average interest rate of 5.7pc but that will be reduced to around 5.55pc with the new legislation which recognises 2008 changes to the way the IMF is governed.

Those changes have increased the voting rights of small and poor countries, such as Ireland, which in turn reduces the cost of borrowing. The Bretton Woods (Amendment) Bill 2011 is due to be introduced to the Dail in the coming days, a spokeswoman said.

Irish Independent