Ireland Aims to Be First to Exit Euro Rescue

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October 07, 2011, 11:39 AM EDT By Dara Doyle and Margaret Brennan

(Updates with credit-default swaps in ninth paragraph.)

Oct. 7 (Bloomberg) -- Ireland aims to be the first of three bailed-out euro-area countries to exit their rescue program, Irish Prime Minister Enda Kenny said.

Kenny said the government wants to sell debt in 2012 and intends to be in the market “as soon as possible.” Ireland will “in time be upgraded by the rating agencies,” Kenny said.

“Of all the countries in difficulty, Ireland leads by example,” Kenny said in a Bloomberg Television interview in Dublin today, adding that the nation is best positioned to be the first to “wave goodbye to the IMF.”

The government, which needed help from the International Monetary Fund and European Union last year, is planning as much as 4 billion euros ($5.4 billion) in savings next year to cut its deficit further. Ireland was forced out of credit markets as debts at its banks became too large for the state to handle.

Kenny said he expects to beat the 2011 budget deficit target of 10.6 percent of gross domestic product set by the IMF and EU. Ireland’s shortfall, excluding capital injections into its banks, declined by more than 3 billion euros in the first nine months of the year, according to the finance ministry.

Ireland’s 10-year borrowing cost, which reached 14.22 percent in July, has dropped to about 7.70 percent. It was the second euro country to need a rescue, getting 67.5 billion euros, after Greece’s 2010 package. Portugal was forced to seek emergency aid in April.

‘Right Direction’

“We’re down 5.5 points in the yields which is very good, and heading in the right direction,” Kenny said.

The government has an investment-grade BBB+ rating from Standard & Poor’s, while Moody’s Investors Service has it at Ba1, the highest non-investment grade. Ireland expects to pass the next review with its bailout partners this month, Kenny said.

Credit-default swaps insuring Irish government bonds rose 10 basis points to 710 as of 2 p.m. in London, according to CMA. That implies a 46 percent probability of defaulting in five years.

Kenny, who came to power in March, is seeking to reduce the government’s deficit to 3 percent of GDP by the end of 2015. Finance Minister Michael Noonan said yesterday he expects that a cut in the interest rate of country’s bailout loans will save the state about 9 billion euros.

Ireland’s central bank cut its growth forecast to 1.8 percent on Oct. 4 from 2.1 percent as consumer spending falls and export growth declines. The Dublin-based central bank urged the government to frontload budget cuts to protect its finances from “negative shocks.”

‘Exemplary’

Antonio Borges, the IMF’s European department head, said Oct. 5 that Ireland’s implementation of its rescue program is “exemplary.” The state’s steady achievement of its program goals is “exactly right,” Borges told Dublin-based broadcaster RTE in an interview, adding that Ireland remains vulnerable to a global slowing of growth.

The International Monetary Fund said Sept. 7 in its base scenario it expects Ireland’s general government debt to peak at 118 percent of gross domestic product in 2013, equivalent to almost 200 billion euros. That’s up from 25 percent of GDP in 2007.

“We’re going to meet all our targets,” Kenny said. “So we don’t contemplate default. We want to pay our way fully and completely and we will do that.”

--With assistance from Finbarr Flynn in Dublin. Editors: James Hertling, Andrew Atkinson

To contact the reporters on this story: Dara Doyle in Dublin at ddoyle1@bloomberg.net; Margaret Brennan in New York at mbrennan25@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

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