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Total EU/IMF profit on Irish loans to exceed €13 billion

Speaking in response to new figures released by the Department of Finance on Wednesday 13th July, Sinn Féin Finance spokesperson Pearse Doherty TD has said that the total EU/IMF profit on loans to Ireland will exceed €13 billion. Dail Questions and Govt responses included.

The figures were released in response to a parliamentary question submitted by Deputy Doherty.

Deputy Doherty said:

“Last week Minister for Finance Michael Noonan admitted that the total profit being made by our European partners from the 3% surcharge on EFSF and EFSM loans would be at least €9 billion. This is a cautious estimate based on a full draw down over seven and a half years and may increase if the cost of borrowing at EU level increases as predicted by some economists.

“Last night the Department of Finance confirmed that the IMF is set to make an additional € 4.6 billion profit on its mark up on loans provided to Ireland under the EU/IMF programme. Again this figure based on the full amount being drawn down.

‘Taken together the EU, European member states and the IMF will make more than €13.6 billion profit from loans extended to Ireland under the EU/IMF austerity programme.

“People across the country will be shocked to learn the scale of the profit being creamed off by our European partners and the IMF.

“These so called friends are imposing savage austerity on the Irish people, in the form of withdrawal of emergency services from hospitals, reductions in special needs assistants and cuts to life and death benefits such as the winter fuel allowance. They are also demanding that the Government waste billions of taxpayer’s money on bailing out toxic banking debts in Anglo Irish and Irish Nationwide.

“Now it is revealed that they believe it is acceptable to profit to the tune of €13 billion off the backs of the suffering of ordinary people.

“It is time for the Taoiseach to start standing up for the interests of the Irish people. In advance of this Friday’s European Council meeting he needs to send a clear signal he is no longer willing to accept such naked profiteering and that he will no longer pay these outrageous surcharges.”

DÁIL QUESTION NO 115

To ask the Minister for Finance the profit that the IMF will make on the loan facility extended to Ireland as part of the EU-IMF programme assuming a full draw down of the moneys available and that the moneys are held for an average of 7.5 years; and if he will make a statement on the matter.

  • Pearse Doherty.

  • For WRITTEN answer on Tuesday, 12th July, 2011.

Ref No: 19907/11

REPLY

Minister for Finance ( Mr Noonan) : The IMF loans to Ireland under the EU/IMF Programme come from the quota subscriptions of its member countries and a new arrangement whereby certain countries and institutions provide a back-stop facility. This is in sharp contrast to the EFSF / EFSM which access the general capital markets for funds through the sale of marketable bonds when funding opportunities present themselves.

Under the IMF’s Extended Fund Facility, the official name of the fund used, interest is due quarterly at the IMF’s standard interest rate. The interest rate is the IMF’s basic rate of charge plus surcharges which are based on the size of the loan relative to the country’s IMF quota. An amount of 1% is charged over the SDR interest rate to give the basic rate of charge. In addition a level-based surcharge of 2% for amounts over 300% of the borrower’s quota is added. This surcharge is modified after three years such that a further 1% is added. This added surcharge is referred to as the time-based surcharge. In addition to the interest charge there is a once off up front handling fee of 0.5% for all disbursements. Repayments in respect of each disbursement are made by way of 12 equal semi-annual payments that commence 4½ years after disbursement.

The SDR interest rate is reset weekly and is based on a weighted average of the three-month Eurepo rate, three-month Japanese Treasury Discount bills, three-month UK Treasury bills, and three-month US Treasury bills. The current SDR interest rate is 0.58% but could change significantly over the life of the programme.

I am informed by the IMF that its surcharges are automatically placed in its reserves to protect the value of assets that member countries place with it. It says that the security of these assets means that the IMF's cost of funds is low, being a weighted average of 3-month Treasury bill rates for the US, Japan, and UK, and the 3-month eurepo rate. This low cost of funds is passed on to borrowing countries as a lower interest rate. As of July 11, the interest rate due on Fund credit is 1.6% on the first 300 percent of quota, and 3.6% on amounts above 300 percent of quota.

I understand from the NTMA that the total amount of interest and surcharges over the basic SDR rate due under the extended arrangement, assuming all disbursements are made as scheduled and all repayments are also made as scheduled (with the last repayment in 2023), is estimated at SDR 4,115 million, which is equivalent to € 4637 million based on the July 11 SDR/€ exchange rate. Unlike the EFSF and EFSM, it is possible to pay the IMF borrowing back early without penalty, should circumstances allow at some point in the future, thereby reducing the cost of borrowing.

DÁIL QUESTION NO 32

To ask the Minister for Finance if, during any of his meetings at the European Council, he has raised the fact that the European Union will profit to the tune of €10 billion as a result of the 3% mark up on the interest rate charged on the EU portion of the EU/IMF bailout loans; and if he will make a statement on the matter.

  • Pearse Doherty.

For PRIORITY answer on Tuesday, 5th July, 2011. Ref No: 18895/11

REPLY

Minister for Finance ( Mr Noonan) : The EU portion of the EU/IMF Programme funding for Ireland is made up of the European Financial Stabilisation Mechanism (EFSM), the European Financial Stability Facility (EFSF) and the bilateral loans from the UK, Sweden and Denmark. Of these, only the EFSM relates directly to the European Union.

Based on full drawdown of the €22.5 billion from the EFSM, the current margin of 2.925% and an average maturity of 7½ years, the gross margin would be about €4.9 billion – out of which its costs would have to be deducted. Interest paid on EFSM loans, including the margin, will be entered into the EU Budget as miscellaneous revenue from which all Member States, including Ireland, benefit.

The margin on borrowing from the EFSF on the other hand, accrues to the EFSF in the first instance. Based on the current margin of 2.47%, full drawdown of the €17.7 billion available and average maturity of 7.5 years, the gross margin will be around €3.3 billion. This ultimately accrues to the EFSF guarantors.

The margin from bilateral loans accrues to the relevant country. Only the UK facility has been agreed and it provides for a margin of 2.29% providing a gross margin in the order of €650 million. The agreements and therefore the margin for Denmark and Sweden have yet to be finalised.

Taken together, the total margin applying under existing arrangements could be of the order of €9 billion over the period.

It is the Government’s strong position that the margin being charged on loans from both the EFSM and the EFSF is excessive. This argument, which has been supported by the European Commission, is one that I and my Government colleagues plus our officials make at every possible opportunity. It is safe to say that my ECOFIN counterparts are fully aware of this issue and I will continue to remind them and press them on this matter.

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This document was last modified by Mick Carty on 2011-07-14 10:18:06.
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