€2 Billion - Loose Change

Last week, Michael D. Higgins asked the Minister for Finance, Brian Lenihan, to clarify Ireland's commitment as part of the G-20 to contibute to a new fund led by the International Monetary Fund (IMF). Here is the full text from the Parliamentary Debates;

Deputy Michael D. Higgins asked the Minister for Finance the Irish commitment at a recent meeting of the G20 to contribute to a special fund addressed to the needs of indebted countries; if the fund is to be led by the International Monetary Fund; if so, the guiding principles that exists for the fund; and if they will include debt cancellation.

Minister for Finance (Deputy Brian Lenihan): I understand the Deputy is referring to the International Monetary Fund’s New Arrangements to Borrow (NAB) which has not, however, been designed to deal with debt cancellation. The NAB is essentially a set of credit arrangements between the IMF and member countries and institutions to provide supplementary resources to the IMF to forestall or cope with an impairment of the international monetary system or to deal with an exceptional situation that poses a threat to the stability of that system. Arrangements for a new and expanded NAB are currently under negotiation.

In April 2009, G20 Leaders agreed to increase the resources available to the International Monetary Fund (IMF) by up to USD500bn, thereby tripling the total pre-crisis lending resources of the IMF to USD750, to support growth in emerging market and developing countries. This agreement was endorsed by the International Monetary and Financial Committee, the European Council and Ecofin Ministers. The increase in IMF resources is to be made in two steps: (i) through the immediate provision of bilateral loans up to USD250bn from IMF member countries to the IMF; and (ii) by subsequently rolling over these loans and making additional provision into an expanded and more flexible New Arrangements to Borrow NAB), increased by up to USD500 bn.

At the Spring Council 2009, the EU agreed to provide temporary bilateral loans of €75bn to the IMF. Ireland agreed to provide its share - a loan facility of €1.3bn - based on Ireland’s new IMF quota. On 17 September 2009, EU Heads of State agreed to further increase support to the IMF by increasing the €75bn to €125bn (approx USD175bn) by rolling over EU bilateral loans into the new NAB and making further financial commitments to NAB. The result of this agreement for Ireland is that our share of the new and expanded NAB (based on Ireland’s IMF quota) would be approximately €2bn, inclusive of Ireland’s bilateral loan of €1.3bn.

On 13 January 2010, the Government decided in principle to approve Ireland’s participation in the IMF’s New Arrangements to Borrow (NAB), for increasing IMF resources, and Ireland’s provision to the NAB of a loan facility of approximately €2bn, subject to agreement on terms and conditions. Like a number of EU countries, Ireland’s provision of the bilateral loan to the IMF and participation in NAB will be met using Central Bank resources. Legislative provision for the bilateral loan and Ireland’s participation in NAB will be required.

Some important questions now need to be addressed. How will the €2 billion (and indeed the fund in its entirety) be used and who will it be given to? Will the poorest countries be targeted or excluded? Will Ireland re-coup this money - when and how? When will the appropriate legislation be drafted?