The IMF approved a 22.5 billion euro (US$30 billion) loan for Ireland on Thursday and said it was open to renegotiating parts of the bailout package with a new government provided its overall targets were adhered to.
Irish Prime Minister Brian Cowen is expected to lose office in an election in the first quarter of next year and a new coalition government wants to alter the 85 billion euro joint EU/IMF rescue package to allow it impose losses on some senior bondholders in Irish banks and introduce its own fiscal measures.
“The fact that the IMF board approved this program, knowing that there is going to be an election in a few months, is a clear sign that the board believes that across the political spectrum there is a clear endorsement of the objectives,” the IMF’s European Department deputy director Ajay Chopra told Ireland’s national broadcaster RTE.
“Of course different governments might have somewhat different priorities in the areas of achieving fiscal and financial stability. These would need to be discussed and as long as the priorities are consistent with meeting the overarching objectives, there is always room for discussion,” he said.
Meanwhile, Moody’s Investors Service yesterday slashed its credit rating on Ireland by five notches from Aa2 to Baa1 because of increasing uncertainties over the debt-stricken country’s economy and public finances.
Moody’s said the Baa1 rating outlook is negative.
Fitch Ratings also cut Ireland’s credit rating on Dec. 9 by three levels to BBB+ from A+.
Chopra, who negotiated the bailout with officials from the EU, the European Central Bank and the Irish government in Dublin last month, sidestepped a question about whether senior bondholders in Irish banks should shoulder losses.
Ireland was forced to go to the IMF and the EU to deal with a crisis in its banking sector which brought the former “Celtic Tiger” economy to its knees and rattled the wider euro zone.
Under the terms of the EU/IMF deal, Irish people face years of cutbacks and tax increases in return for fresh capital to shore up the banks, preserving full payment of their senior bonds — those first in line to be repaid in the event of any default.
The country’s parliament passed legislation on Wednesday giving the government the power to impose losses on holders of subordinated debt, a riskier class of asset, but the EU fears imposing losses on senior bondholders, who rank on a par with depositors, could destabilize other banks in Europe and compound the region’s debt crisis.