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Clearly overnight the government was told that the tactic of sending the Brians out to deny the obvious — that we are negotiating a loan — was making things worse so the new spin today is that because we’re so special, the IMF is designing a special type of loan just for us. One where a headline amount of money is specified but is only drawn down if actually needed. So it won’t really be an IMF loan because it will just be sitting there like a new piggy bank.
Luckily for the IMF, they won’t actually have to redesign all their policies to come up with such a uniquely Irish loan — because it’s how they’ve been lending for about the last 50 years. It’s called a stand-by arrangement (SBA) as the Fund’s website says, it’s their workhorse lending arrangement. The only recent innovation — and the one that the government today hinted they are looking at — is a “High Access Precautionary Arrangement” (HAPA), which is just the standard SBA with a bigger headline amount and less presumption that it will be drawn down than a regular arrangement.
During the crisis, it was used by Costa Rica, El Salvador, and Guatemala. We are truly in select company!
P., Does a country pay an annual percentage-based fee for an undrawn facility such as SBA or HAPA?
P – any guesses at the headline measures IMF might like to see?
The rate on SBA begins at about 1.4 percent with a 2% add-on for a large loan as Ireland’s would be — but only on the undrawn amount. There is a 0.15-0.6 percent annual fee on the total amount (even if undrawn) but that gets rolled into the interest on any amount actually borrowed so you are only paying 0.15-0.6 percent if you don’t use it (we’d be closer to the 0.6 percent range given the size of the loan). This is all still way cheaper than what we face in the markets.
As for the headline measures, my guess is that IMF will take most of the budget and 4 year plan as they find it, and will be looking most intensively at the banks, paradoxically forcing things that should have been done all along (i.e. more ruthless of restructuring of banks than has happened — even Anglo is still only tip-toeing on loss-sharing).
But on the fiscal side, my guess is public pensions will take a hit, contrary to Croke Park. It’s a big item on the bill and a potential source of multi-year savings. It’s sitting there as a source of big savings with one stroke.
“Loan”, “bailout”, “contingency fund”? What exactly is happening? To me it seems to me that what is happening is based on a very old idea where one or more loan sharks who have the wherewithal to make sure that their “loans” are repaid take on the “loans” of others who do not have this clout. I gather that people living in the tenements of Dublin in the early part of the last coentury were well familiar with this.
So it seems to me that if we think that the money will not be drawn down we are mistaken.
I could be wrong!!!
P,
Agree that the four year plan and the 6bn frontload in December’s budget likely to be viewed favourably since the EU have been in on the framing of the plan and budget for some time now. I’m not so sure then why they would go near the terms of Croke Park, beyond saying that the promised review for lower paid civil servants – one of the main carrots offered to secure their assent to the deal in the first place – will be off the table?
Given the turn of events, and even before, the government should have been pencilling in further reductions of 30% to 50% in high level salaries for senior civil servants and politicians and contracted salaries of CEOs of semi-states and abolition of many of hte remaining perks these grades of public servant continue to enjoy and which are purely self serving in their effect, even if in real terms they don’t cost very much. If they don’t like it, the CEOs of semi-states and the senior civil servants can leave and take their chances in the jobs’market and TDs needn’t bother standing for election again. Examples of specific suts may also include pooling of ministerial cars and immediate elimination of allowances for mortgages available to Ministers; abolition ofsigning in money for Dublin TDs; elimination of ‘research posts’ for TDs which were used simply to bolster their constituency re-election campaigning; reductions in leaders’ allowances and grants paid to political parties and independents, coupled with regulations requiring that all election literature must specify source of funding on the finished product. I don’t see how a package of 6bn euro in cuts to programmes, services and social welfare payments and increases in taxes can otherwise be made publicly acceptable or should be acceptable to the citiaens of this state.
They can get round to other public service salaries and pension entitlements in years two and three of the plan, as one anticipates they must. But since the plan will be published next week, we’ll all know in advance.
If there’s a silver lining to the present cloud surely it’s that the next government will be able to devote their full attention to structural reform of this state, in particular our political system, since they won’t have anything else to do with their time?