Thomas P. Broughan
Ceist:40 Mr. Broughan asked the Minister for Finance his views on the IMF proposals to deal with the financial and economic crisis in South East Asia; and the cost of Ireland's contribution to these proposals. [5581/98]
Written Answers - South East Asian Crisis.
The IMF has adopted a series of programmes to deal with the current crisis in South East Asia. Ireland supports these programmes and, in particular, those conditions attached to them which are designed to protect the poor and eliminate aspects of the system where these have hitherto operated to the benefit of certain sections of society. There are two aspects to these programmes.
The first is financial. Under the programmes, the IMF, World Bank, Asian Development Bank and a number of bilateral donors are making funds available to those countries which have requested them, namely, Korea, Indonesia and Thailand. In the case of the IMF, funding takes the form of a stand-by facility which can be drawn down by the country concerned on a schedule and on conditions to be agreed with the IMF. This facility is essentially a line of credit. In the case of the World Bank, funding is mainly in the form of technical assistance loans.
The second aspect of the programmes is the policy conditions which go with the financing. These are extensive and are designed to address the immediate crisis, control any contagion effects and deal with the longer term structural reforms which are now seen to be necessary to restore stability and economic growth.
While the design of the IMF supported programmes in these countries reflects both the similarities and the differences in their situations, all three programmes have called for a substantial rise in interest rates to attempt to halt the downward spiral of currency depreciation. All three programmes have called for forceful, up-front action to put the financial system on a sounder footing as soon as possible.
There is also an insistence that the brunt of any budgetary action required to restrain public expenditure should not fall on the poorer sections of the communities.
The programmes are also subject to review in terms of the feasibility of carrying out the policy prescriptions under conditions as they develop and the IMF is taking a constructive approach to the implementation of the conditions. Having said that, the IMF's view is that the problems need to be tackled quickly.
On the financial front, the assistance being provided is not a bail-out. The funding provided is by way of loans and not grants. IMF assistance has been provided in support of programmes that are designed to deal with the causes and consequences of economy wide, structural imbalances and the potential threats these imbalances pose to the international monetary system. Under the conditions of these programmes, commercial banks and private investors are not being protected from financial losses.
Ireland is a member of the IMF and its share in the capital of this institution is about 0.4 per cent of the total. Ireland has not made any contributions to the IMF specifically earmarked for the three South East Asian countries. The IMF contribution to this programme is primarily by way of a stand-by loan which is not a grant and which will have to be repaid. The loan, to the extent it is taken up, will involve the general resources of the fund and consequently a share of the Irish quota, in common with the quotas of all the other members of the fund. The use of the quota in this way does not represent any additional cost to Ireland.
The World Bank finances around 94 per cent of its lending from borrowing on the world market. The remaining 6 per cent of its funding comes from the capital subscriptions of its members. Ireland's share in the bank's capital is about 0.4 per cent.
There would, therefore, be no specific additional cost to Ireland as a result of the IMF and World Bank programmes in response to the Asian crisis.