The Mechanics of Funding under the EU/IMF Deal

Yesterday, the EFSF explained its funding strategy for the Ireland deal: the details are here.

The schedule for IMF funding was contained in last week’s IMF Country Report.  The relevant table is reproduced below:

8 thoughts on “The Mechanics of Funding under the EU/IMF Deal”

  1. I found it very surprising that there was little or no coverage in the press of these releases, telling us the cumulative aid to be accorded in 2011. Holiday fever, or implications fuzzy? And how will the cash be allocated?

  2. Wrt allocations, it looks like an inital slug (see latest comments on previous thread) will be going to recap AIB.

  3. A few questions.
    1. I understand SDR is the unit of the IMF. How does it convert to €.
    2. If the EFSF was the most expensive money, why is it being borrowed first?
    3. Is there an agreement to draw down all three funds proportionally?
    4. What is this money needed for now? I thought that the State was going to run down its cash reserves and NPRF first?
    5. It is my understanding that the ECB will provide liquiduty for the banks and that the State will borrow only to cover capital increases/losses. Is this the case? Or is the State borrowing to cover bank liquidity?
    6. The chart heading on the right “per cent of quota” is not correct?. Amount of quota?

  4. Q4 Excellent question! I’d have thought that the Irish public, and its press, along with the politicians and its economists, would have been all over this.

  5. Sometimes the interest of a post seems to be inversely proportional to the number of the entries. The news of course came out just ahead of the holidays.
    It doesn’t take strong skills in arithmetic to count how much will be raised for the Irish government in 2011 (although it won’t all go to Ireland), plus you might want to add in domestic cash contributions. You might also want to divide by four million plus, to get a per capita estimate.

  6. Q 1 SDRs – market exchange Cf. eg Wikipedia Special Drawing Rights
    Q 2 You can’t selectively draw down. The surprise is on the amount and the speed

  7. Q 3 My understanding would have been that the drawn from each source would have been roughly proportional. We are only getting detail now. Again, the focus should be on the amount and the speed – and the uses (i.e. Q4)
    Q 5 The ECB I think wants to see the governments more involved.
    The distinction between solvency and liquidity is not so clear.
    Q 6 The chart heading on the right ‘per cent of quota’ is correct.
    And yes, it is a hefty percentage, but not a key issue anymore. If of any consolation, Michael Holman in the FT last week helps relativise woes regarding the IMF’s role and Europe’s troubles.

  8. Ciaran O’Hagan

    many thanks for your answers above.

    Re Q4. I think it is alarming if the State is borrowing to fund bank liquidity as distinct from capital/solvency issues. In effect this means that the State would be attempting to honour its ludicrous guarantee regardless of how rapid the run was on the banks. It is insanity, if this is the case. Liquidity is an ECB issue. If the ECB says it is not, we should fold the banks.

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