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Irish c.bank chief expects big EU/IMF loan

DUBLIN (Reuters) - Ireland is likely to end up taking a loan from the European Union and International Monetary Fund which will run into 10s of billions of euros, Irish Central Bank Governor Patrick Honohan said on Thursday.

Following are highlights of his interview with state broadcaster RTE.

ON SIZE OF LOAN

“The intention is and the expectation is, on their part and personally on my part, that negotiations or discussions will be effective and a loan will be made available and drawn down as necessary.

“It will be a large loan because the purpose of the amount to be advanced, is to show that Ireland has sufficient fire power to deal with any concerns of the market. That’s the purpose of it, so we’re talking about a very substantial loan for sure.

“Tens of billions yes, I don’t know that any precision has been put on it at this stage yet.”

IS THAT UNDERSTANDING OF THE GOVERNMENT?

“I’m not the government, but I know that these talks are serious talks that the IMF and the European Union Commission, and the ECB would not send large teams if they didn’t believe that this was something they could agree to a package, and that there is a program that is fully acceptable to them that could be designed and that is likely to be acceptable to the Irish government and the Irish people.”

“It’s (a multi-billion euro loan) not my call, it’s a government decision at the end. It’s my expectation, that that is what is definitely likely to happen, that is why the large technical teams are sitting down discussing these matters. I think this is the way forward. Market conditions have not allowed us to go ahead without seeking the support from our international collaborators. I think that is what’s ahead. I don’t see it as something that is really worrisome or should lead to a huge change of direction. As we know, the fiscal discussions, 6 billion in cuts, all that is part and parcel of what an IMF team would ask for or would suggest if they came in, in the absence of any such discussions. I’m not saying that they’ll rubber stamp, but I think they will not find all that much to disagree with.”

WHAT WILL BE DONE WITH MONEY, ALL FOR BANKS?

“I don’t think there is any question of it all going into the banks ... it’s true that the banks need additional confidence. The huge sums of money that have been put in by the government to support the banks, have not generated sufficient confidence yet. The money is enough objectively, but the confidence isn’t there, and it’s partly not there because investors are concerned in general about the government finances and the future prospects for growth and employment.

“So with the market uncertainty generally high for the last four or five months, effectively since the end of April, it is desirable that the banks should have more capital, that’s government capital ownership fund available, to show to the market, look, this is beyond question.”

HOW MUCH WILL BANKS NEED?

“That’s one of the very specific questions that technical work is going on at the moment on and there are different views. I think the best way to think about this, this is contingent funding, the capital is probably not required at all but it can be made available in the form of contingent capital funding that can be shown but now used.”

NOW TALKING ABOUT LARGER FIGURE THAN THAT GIVEN IN

SEPTEMBER?

“Not really if you’re talking about the net losses and what the overall ultimate cost to the taxpayer will be. This is money that is supposed to go in as capital in other words something goes in as a buffer and comes out again when it’s not needed.”

WHAT RATE OF INTEREST ON LOAN?

“We know very clearly that the IMF’s procedures for the rate of interest on their lending ... the ESFF and ESFM, these European facilities, the exact rate of interest hasn’t as yet been agreed how it should be structured but in broad terms, it’s expected to be in roughly the same territory as the IMF standard lending interest rate.

(Around 5 percent?) “The Greek context is slightly different, but in broad terms, it’s in that territory (5 percent). Some of the lending will be in the form of SDRS, some of the lending is in the form of euros, it gets a little bit complicated.”

ON OUTFLOW OF DEPOSITS FROM BANKS

“There have been substantial outflows of funds from the Irish bank system since April, what’s happened is, that very large investment firms, investment funds, financial institutions, largely abroad, who invested and placed deposits in banks in good times when we were a triple A country. As the ratings of the country fell, they said we don’t as a matter of course invest in less than triple A, so they just didn’t renew their deposits as they fell due. But that was all replaced by borrowing from the ECB facility.”

PURPOSE OF MISSION VISIT

“The purpose of this whole exercise is to provide reassurance to international markets, reassurance to our partners, that the policy stance that the government is adopting and will adopt, is designed and will be effective in getting us back on a stable debt trajectory, a situation that is sustainable indefinitely.

“They will also want to provide assurance to investors and depositors in the banks, that they as independent examiners that they are satisfied of the conditions of the banks and that the banks have adequate capital resources to meet any calls that might come to them.”

RELUCTANCE TO USE WORD BAILOUT

“Normally, we don’t talk about bailouts when you talk about the IMF, the IMF provides loans as the loans get repaid. There hasn’t been a bailout for the IMF, shareholders in the IMF, which are governments, get the returns on the money they have advanced to the IMF, so it’s not a bailout, it’s a loan.”

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