Statement on promissory note payment
The following is the full text of today's statement by Minister for Finance Michael Noonan to the Dáil on the promissory note payment.
29th March 2012
I wish to make the following announcement to the house.
The Government has been committed to reviewing the arrangements that were put in place to capitalise IBRC - formerly Anglo Irish Bank and Irish Nationwide. The purpose of this review is to determine if there was a way to reduce the overall cost to the State. Part of the capitalisation of IBRC was provided using promissory notes as consideration.
The second instalment under the promissory notes arrangement is due on 31 March 2012. We have the funds available in our programme to make this scheduled debt payment.
On Wednesday last, I informed Dáil Eireann that there were discussions with the EU authorities, on the basis that the €3.06 billion promissory note instalment due on 31 March 2012 could be settled by the delivery of a long term Irish Government Bond. This proposal would result in the €3.06 billion cash payment due from the Exchequer at the end of the month being deferred. This proposal does not involve any adjustment or variation to the terms of the promissory notes.
The use of an Irish Government bond in relation to the promissory note payment allows the wider discussions to continue between the Irish Authorities and the Troika, both on the promissory notes arrangement and on how to advance the return to normality of the Irish banking system thus improving the availability of banking services in support of economic recovery.
There are significant advantages to this approach:
· This payment was included in our debt repayment schedule for 2012 and this proposal removes the requirement for the exchequer to settle in cash, the €3.06 billion promissory note instalment.
· There is a significant cash flow benefit to the Exchequer in 2012 and our long terms debt sustainability is enhanced.
· This will have an approximate €90m impact on the general government deficit in 2012 which is small relative to the overall benefit of the removal of the requirement for the Exchequer to settle €3.06 billion in cash.
· The €3.06 billion of Programme funding that would otherwise have been used to make the promissory note payment should potentially allow greater flexibility around when and at what level Ireland returns to the capital markets.
· As noted by the Governor of the Central Bank in his appearance before the Finance and Public Expenditure and Reform Committee: “There is a very definitive gain in debt sustainability.”
· The net effect of this transaction is to reduce the economic cost for the State as a whole of refinancing this payment.
Given these benefits the Government is going to proceed with the proposed settlement approach.
The EMC, alongside my officials and representatives of the Central Bank and the NTMA, have been working on this Government bond settlement proposal to determine the finer details of the proposal.
Put simply, €3.06 billion will be settled by delivery to IBRC of a long term Government bond with an equivalent fair value. Ultimately, it is intended that this long term Government bond will be financed for one year, on commercial terms, with Bank of Ireland who may in turn refinance the bond with the ECB. While this transaction has been approved by Bank of Ireland’s board it remains subject to the approval of the Bank of Ireland shareholders.
As a short term interim measure, pending the results of Bank of Ireland’s shareholders’ vote, the financing of the bond will be a collateralised facility provided by NAMA to IBRC on equivalent commercial terms as the financing with Bank of Ireland. NAMA is in a position to facilitate this collateralised financing from its own funds.
This financing approach reduces the level of Emergency Liquidity Assistance provided by the Central Bank of Ireland to IBRC.
This approach reinforces the commitment of our European partners in assisting the State in its path to recovery. I, and the Irish Government, would like to thank all parties to these discussions for their constructive approach and positive engagement in this regard.
I would also take this opportunity to urge caution even in spite of today’s success. The State still has a very sizable Exchequer deficit of public spending over revenue of €15.8 billion. If we want a State that supports the creation of jobs, we must continue on the path of closing this gap over time. While this arrangement reduces the amount of our national debt repayable in 2012 it has no impact on the measures introduced in Budget 2012. The Government’s primary objective in this regard is to reduce the general government deficit to meet the 8.6% deficit target in 2012.
While this development in relation to the end March payment is a positive development we must keep our eye on the greater benefits which would derive from the re-engineering of the promissory note and also the potential improvements for the continuing banking sector which could also stem from the ongoing technical discussions.
It is for these reasons that we must look at the recent developments as what would be an initial step to facilitate a project where, if we are successful, it will be in the medium term rather than immediately. These discussions will continue and the Government is focused on developing an alternative solution to the promissory note arrangement in IBRC. The ongoing discussions may also explore options to refinance the long term Government bond issued in settlement of the March 31 payment. We all want to arrive at a successful conclusion that is in the interests of Ireland and the EU.