IMF says bank talks 'key step' in Irish recovery

DUBLIN Wed Jul 18, 2012 12:38pm EDT

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DUBLIN (Reuters) - A decision by European leaders to look at improving the terms of Ireland's bank rescue is a key step towards Dublin returning to the bond markets, the International Monetary Fund (IMF), one of Ireland's troika of lenders, said on Wednesday.

Ireland is hoping to significantly improve its debt profile and ease the path back to financial markets through the talks precipitated by an agreement at last month's European Union summit to examine Dublin's expensive bank bailout.

The IMF, who monitor Ireland's 85 billion euro ($104.25 billion) bailout program along with the European Commission and European Central Bank (ECB), said the talks were a key move towards a durable bond market return that would avoid continuing dependence on official funding.

"I would be amiss if I didn't take particular note of the June 29 (summit) statement which in our view offers a welcome path forward to help improve Ireland's economic prospects in the future," IMF European deputy director Ajai Chopra told a news conference at the conclusion of a mission in Dublin.

"What's encouraging is there seems to be a new political mandate to make meaningful progress in this area," he added.

Ireland returned to short-term debt markets earlier this month for the first time since before its bailout in November 2010, but most analysts see some easing of the manner in which 64 billion euros was pumped into its banks as crucial to any sustainable resumption of long-term borrowing.

Together with officials in Dublin, Ireland's troika are working on a set of technical proposals to present to European finance ministers in September which Chopra said needed to improve Ireland's debt sustainability and its prospects to regain market access.

"We will need to do further work to design the type of approaches that would be suitable for Ireland keeping in mind the equal treatment of countries in similar situations," Chopra said.

The IMF has long pushed Europe to help ease the burden of Ireland's banking debt and after remarking on Tuesday that the question of burden sharing with senior bond holders was evolving in Europe, ECB President Mario Draghi said any developments in that area would be reflected in Ireland's adjustment program.

Noting that much of the senior debt at non-viable Irish banks had already been repaid, Chopra simply said authorities "need to look ahead" when asked if Draghi's comments would help Ireland's negotiations on its banks.

After Ireland's lenders again gave the country a clean bill of health in their latest bailout review last week, the IMF said on Wednesday that Ireland's efforts remained steadfast but difficult challenges remained in the context of persistent euro are uncertainties.

Data showed last week that the economy unexpectedly shrank by 1.1 percent in the first quarter of the year after growing by a faster-than-predicted rate last year. <ID:L6E8IC5K6>

The IMF suggested in a report earlier on Wednesday that the European Central Bank could play a bigger role in fighting the euro zone sovereign debt crisis through more rate cuts, bond purchases and further liquidity provision.

"There is no question that that task (Ireland's deficit cutting drive) becomes more difficult if the external environment does not improve and conversely it becomes easier to the extent that the external environment does improve," Chopra said. ($1 = 0.8154 euros)

(Editing by Jon Boyle, Ron Askew)

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