The International Monetary Fund (IMF) approved a 22.5 billion euros loan for Ireland on Thursday and said it was open to re-negotiating parts of the bailout package with a new government provided its overall targets were adhered to.
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 euros 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, Ajay Chopra, deputy director of the IMF's European Department, 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.
Chopra, who negotiated the bailout with officials from the European Union, 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 European Union 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.
The 85 billion euros bailout, with includes 45 billion euros in loans from Europe, covers Ireland's borrowing costs for the next three years but Chopra said Dublin would tap bond markets once the conditions were attractive.
We would hope that the market rates begin to adjust in time and as soon as they do, and that there is an advantage to borrow from the market rather than from the EU/IMF, I have no doubt Ireland will do so.
Ireland's government said it would start tapping the loans early next year.
(Reporting by Carmel Crimmins and Padraic Halpin)