IMF urges ESM funds for Irish banks

(WASHINGTON) - The IMF urged the European Union Wednesday to allow its stability fund to invest in Irish banks as it freed up fresh funds for the country's restructuring program.

IMF deputy managing director David Lipton encouraged the move, floated two months ago, to have the European Stability Mechanism to invest directly in key Irish banks to alleviate the pressure on government finances.

"Ireland's rapid return to market financing... confirms the benefits of steps to improve Ireland's debt sustainability and break the vicious circle between the banks and the sovereign," Lipton said in a statement.

"Timely agreement on such steps, especially ESM investments in the equity of Irish banks, offers real prospects for Ireland to durably exit its reliance on official financing, benefiting Europe as well as Ireland."

The International Monetary Fund released another $1.15 billion of its bailout lending to Ireland Wednesday after the country passed a performance review in its three-year economic bailout program.

"Despite considerable headwinds from an adverse global economic outlook and the ongoing euro area crisis, the Irish authorities have pressed forward with implementing their economic program," the IMF said in the statement.

"All end-June 2012 performance criteria and indicative targets for the seventh review were met, and two structural benchmarks were observed, including a benchmark for end-September on the introduction of a fiscal responsibility bill to parliament."

The funds are part of the 85 billion euro ($106.9 billion) 2010 rescue package for Ireland from the IMF, European Union and Britain, Sweden and Denmark.

"Half way through Ireland's extended arrangement, the Irish authorities maintain strong ownership and implementation of their adjustment program. All program targets for end June have been met," said Lipton.

He pointed out that the country has been able to return to sovereign bond markets since July, and that Irish bond yields have declined significantly in response to its restructuring.