IMF Board Approves $29.7 Billion Loan for Ireland

(Bloomberg News)

The International Monetary Fund’s board today approved a three-year, 22.5 billion-euro loan facility for Ireland, the Washington-based fund said in a statement.

The IMF aid, which the fund says is equivalent to $30.1 billion, is part of an 85 billion-euro rescue package put together by the IMF and European authorities to contain the region’s fiscal crisis. Today’s action makes 5.8 billion euros available to Ireland immediately.

“The Irish economy faces a crisis without parallel in its recent history,” said IMF Managing Director Dominique Strauss- Kahn in a statement. The Washington-based IMF said a “critically weakened” banking sector is at the root of Ireland’s problems. Ireland’s parliament approved the bailout by a vote of 81 to 75 yesterday. The parliament also voted to back new banking laws proposed by the government.

The IMF’s action, the third-largest in its history, comes seven months after it helped bail out Greece and as investors turn their attention to whether Portugal and Spain will need similar assistance.

Most European bond markets fell today, as Germany’s refusal to boost the current 750 billion-euro ($1 trillion) emergency fund stirred concern that Europe hasn’t found the right formula for battling the debt crisis that threatens the euro.

‘Going to Work’
Strauss-Kahn said at an event in Washington today that the Ireland package “is going to work.” He also repeated calls for Europe to develop a comprehensive plan to address the debt crisis, saying he is concerned about “spillover” effects from the Irish banking sector’s woes.

Ireland agreed on the aid package on Nov. 28 after borrowing costs soared on investor concern the cost of rescuing lenders including Anglo Irish Bank Corp.

The government pledged an “intensification” of the restructuring of its banks, including asset sales, as part of the international aid package. Under the bailout from the IMF and EU, the government may force subordinated bondholders in Irish banks to share the cost of bailing out the financial system.
The international bailout plan preserves the country’s low corporate tax policy, with a 12.5 percent rate that has attracted companies including Google Inc.

‘Irish Rescue’
That’s an “under-appreciated feature of the Irish rescue deal,” said Daniel Heath, a former IMF board member now a Senior Fellow at Georgetown University’s business school. It signals, more than other crisis countries have, Ireland’s determination to seek long-term solvency through economic growth, rather than simply buy temporary protection in liquidity measures typical of IMF packages, he said.

The IMF said Ireland’s responsibility now is to follow through on pledges to restructure its banking system, rein in its budget deficit and improve its economy’s ability to absorb shocks. Even though Irish authorities have taken “major measures” to strengthen banks, “vulnerabilities remain acute,” the fund said.
The type of loan that the IMF agreed on, the so-called Extended Fund Facility, allows Ireland to start paying back later than in standard IMF funding. Repayments would start after 4 1/2 years and end after 10 years, the institution has said, and today the IMF said the package includes a “realistic” repayment schedule.

‘Peak Level’
The IMF said last month that the interest rate it will charge to Ireland will be an average 3.12 percent for the first three years “at the peak level of access,” the Washington- based lender said in an e-mail. It will be “just under 4 percent” after three years.

After Ireland, the IMF, which since the start of the financial crisis has rescued economies from Pakistan to Hungary, will still have about $240 billion available for lending through permanent and emergency resources, according to IMF documents. IMF spokeswoman Caroline Atkinson told reporters today that the IMF has enough liquidity “to meet any needs” that may arise.

When enough countries ratify an agreement reached earlier this year on increasing the crisis lending pool, the lender will have more than $450 billion to tap into.

To contact the reporter on this story: Rebecca Christie in Washington at rchristie4@bloomberg.net; Sandrine Rastello in Washington at srastello@bloomberg.net;

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net