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NZ expects to be called on to help with €130 billion Greek bailout through IMF credit lines; Could we be lending over NZ$200 million?

Posted in News

By Alex Tarrant

New Zealand might be called on to contribute anywhere between NZ$50 million and NZ$225 million for the latest Greek bailout through arrangements the government has with the International Monetary Fund (IMF).

There is a possiblity it may even be more than that, given the New Zealand government is in a better fiscal position than many of its global peers - something the IMF takes into account when deciding where to source funding from.

The IMF indicated on Wednesday that it intended to contribute €28 billion of the new €130 billion bailout it has arranged with the European Union for Greece. This is the second time the IMF has lent funds for a Greek bailout. The first time, in May 2010, the IMF contributed €30 billion toward a €110 billion bailout for the Greek government.

While the IMF said it would provide 28 billion euro for the support package, it told Bloomberg 9.7 billion euro of this remained from the first Greek bailout, meaning it would be putting up about 18 billion euro for the second package. This article differs from the one sent earlier in the subscription email, by incorporating the 28 billion euro figure as well as the 18 billion euro figure.

New Zealand has been a member of the IMF since 1961, and has commitments totaling NZ$3 billion to the Fund through cash sitting at the Fund, and two credit lines - promissory notes - the IMF can call on.

Treasury says that although it hasn't been approached yet by the IMF to help finance the Greek deal, given recent public announcements by the IMF, it looks likely that Greece will be drawing loans.

"So, yes, New Zealand might reasonably expect to receive calls through the IMF’s Financial Transaction Plan in the coming months which will include loans that would be destined to the Government of Greece," a Treasury spokesman told interest.co.nz.

"Prior to receipt of such a request from the IMF there isn’t anything to be gained from speculating on size but, based on past performance, any call for contributions in the months ahead involving New Zealand would be based on our quota share and normal burden sharing methodology as per the case of any new IMF loan destined for any recipient government," the spokesman said.

But let's speculate anyway

Interest.co.nz reckons New Zealand's contribution to the bailout could be anywhere in the region of NZ$200 million. But how much we contribute could depend on how the IMF wants to source the cash for the Greek bailout.

The first arrangement New Zealand has with the fund is the regular IMF quota the fund has with all of its 190-odd members. New Zealand's overall quota is for 894.6 Special Drawing Rights (SDRs). Use of quotas for IMF loans are dealt with through the IMF's Financial Transaction Plan, referred to by Treasury above.

An SDR is effectively the IMF's currency, made up of a basket of the US dollar, Japanese yen, euro, and pound sterling. One SDR today converts to NZ$1.87. That means New Zealand's IMF quota is currently equivalent to about NZ$1.677 billion. 

Twenty-five percent of a country's quota always sits at the IMF as the country's 'Reserve Tranche Position', while the remaining 75% are promissory notes the fund can call upon if it needs the funding. If it calls on those promissory notes, they get added to New Zealand's Reserve Tranche Position (effectively showing the amount of actual money NZ has paid to the fund to help finance its activities).

Latest figures from the IMF show New Zealand's Reserve Tranche Position is 281.97 million SDR. Twenty-five percent of New Zealand's quota would be 223.65 million SDR, so 58.32 million SDR worth of promissory notes has also been called upon by the IMF.

That means on top of the equivalent of NZ$528.57 million of New Zealand's Reserve Tranche Position (the 25%), New Zealand is also lending the IMF the equivalent of NZ$109.32 million through those promissory notes.

New Zealand's quota makes up 0.38% of the overall quota resources available to the IMF. If the IMF were to use quota resources to provide Greece with its €18 billion bailout contribution, and if members were drawn upon proportionately, New Zealand might be asked to provide NZ$109 million on current exchange rates for the IMF to on-lend to Greece.

Going on the 28 billion euro figure from the IMF, which includes funds not yet paid from the first bailout, New Zealand might be required to lend the equivalent of NZ$171 million from today to help finance the package, it it pays proportionately from its quota.

But that's not all we're lending

The quota resources are supposed to be the IMF's first point of call when it comes to lending money to governments to help with balance of payment problems. 

But lately that hasn't been the case due to political wrangling over a proposed 100% quota increase for IMF members. This has meant the IMF has been drawing on another line of credit it has with 40 developed and developing economies called the New Arrangements to Borrow (NAB) facility.

New Zealand signed up to the NAB facility in 2010, promising to provide up to 624.34 million SDR (currently worth about NZ$1.17 billion) to the IMF in times of significant financial crisis if the fund had exhausted all other avenues of funding.

New Zealand's NAB contribution is 0.17% of total NAB commitments. So if the IMF decides to use the NAB facility to source the €18 billion and it calls on members proportionately, New Zealand might be expected to provide NZ$48.8 million.

Going on the 28 billion euro figure, funds sourced proportionately through the NAB might see New Zealand lending NZ$76.7 million.

The Greek deal was finalised during a six-monthly NAB activation window, meaning the IMF would be able to call on the funds even if they were to be drawn upon after the current window ends at the end of this month.

New Zealand is currently lending 42.9 million SDR through the NAB facility (to Portugal), which is equivalent to NZ$80.4 million on current exchange rates.

But could it be more?

But based on past experience, could New Zealand be called on for more than what might be expected if the IMF sources funds through its quota system?

Last year the IMF sourced 8.6 billion SDR worth of funding from the New Arrangements to Borrow facility (even though it had not exhausted quota resources). New Zealand contributed 42.9 million SDR of this - 0.5% of what was sourced by the IMF through NAB funds.

Using this proportion of lending, New Zealand might be expected to provide NZ$144 million for the IMF's Greek bailout loan.

Meanwhile, the IMF included in the latest package for Greece 9.7 billion euro from its first bailout of the nation in 2010. That means we still haven't finished lending money for that package either.

Going on the 28 billion euro figure, and assuming New Zealand might provide 0.5% of the funds, we might be required to lend in the order of NZ$225.6 million.

And it could also be more given the New Zealand government is in a better fiscal position than many of its developed peers - something the IMF takes into account when deciding who to source funding from (see box below).

'Won't say where we get it from'

A spokesman for the IMF told interest.co.nz the fund did not publish details of where resources were drawn from for specific loan programmes.

“Resources for specific fund lending programmes are drawn from quota and New Arrangements to Borrow (NAB) resources in such a way as to achieve even burden-sharing among members and NAB participants over time," the spokesman said.

"However, it is important to note that wherever the resources come from, the risk is borne by the IMF membership as a whole,” he said.

Each country's NAB drawings are published on the IMF's website. See New Zealand's page here.

Loans for the bailout package will get released in tranches over the next few years. The EU on Thursday morning (NZ time) announced the first instalment of EU funds, totaling 39.4 billion, would be disbursed in several tranches.

The IMF overnight said it would immediately disburse 1.65 billion euro to Athens from the second bailout package.

How the IMF decides who pays

See the table below from the IMF's website on how it decides which members to source funding from:

This article was first published in our email for paid subscribers this morning. See here for more details and to subscribe.l

This article differs from the email version, incorporating the 28 billion euro figure as well.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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59 Comments

Why is it called a Greek

Why is it called a Greek Bailout?    Most of the money is going the banks. The Greeks might get 19% which is not going to help them as they can never pay back their debt.

Quite.  Every bailout is a

Quite.  Every bailout is a bailout of the creditors.  Greece won't see a penny of it.

Well,  that makes sense

Well,  that makes sense dosent it ?    we borrow $ 200 million a week to help   pay the IMF. Today is Tuesday , Muldoon is PM and  petrol is 20 centa litre too

1974 Petrol prices in New

1974
Petrol prices in New Zealand double within a year to 30 cents a litre.
And we thought that was bad:)

Well I don't think the

Well I don't think the question is could we help bail out, Greece, but should we? What has the EU ever done for us?
French bombs and farm subsidies, anyone?

Selective memory. Spin

Selective memory. Spin 101?
 
Or a case of 'Not I, said the little Blue Hen'?
 
Funny, you strike me as the type who aspire to drive a beamer.
 
But in reality, some of us have been discussing the need for debt-forgiveness for some time. Sure, it's rough justice, but there ain't the grunt left on the planet to clear the debts as well as maintain the biggest BAU we've ever run, and attempt to grow as well.

Indeed if memory serves me

Indeed if memory serves me well, when Muldoon was on the board or some such apptment to the World Bank I think he called for debt forgivenness (i.e. a global restructuring of debt) given the impossible situation of much of Africa and Latin/Central America at the time.
 
 

What a farce...almost as bad

What a farce...almost as bad as sending victims to prison as punnishment for being bashed...
Remind me..why did our fathead moronic govts decide we should join the IMF! Who was the fool who thought it would be a great idea?

Who was the GOVt of 1961

Who was the GOVt of 1961 Wooly..?

Oh that's right Wolly it was

Oh that's right Wolly it was Holyoake and Marshall that signed us up to the IMF...had you forgotten...?

Wooly..?RUOK Wooly......you

Wooly..?RUOK Wooly......you did know that,..... I take it ,or was that not your Administration.....were you one of Rob's Mob...? can't recall help me out here.....dude.

Thank you very much....two

Thank you very much....two tossers from the past....now I have to wipe the memory again...
I do recall voting for him once...that was enough...didn't think much of his office..funny shape...but then so had Rob...!

Good O matey.....when

Good O matey.....when deleting any uncomfortable memories it's always best to chant a happy mantra...such as say...hum a few bars of  Singing in the Rain.
Yes and interestingly enough we had no unemployment problems or debt issues at the time.........go figure eh..?

1962 - The yeah NZ inc went

1962 - The yeah NZ inc went into IMF receivership.
 
Gold handed over the same year to secure loans!
 
NZ inc = Under IMF receivership!

Thanks LloydM1.... I was

Thanks LloydM1.... I was uh..... just clarifying that for Wooly....
The implementation of the G7 consortium to which the IMF are beholding and so down it trickles and up it flows.

And the date I meant was of

And the date I meant was of course 1961!

We borrowed at a higher

We borrowed at a higher interest rate and re-lend them out at to the IMF at a lower rate.  Hey this could be a script for the next Homer Simpson with special guest JK... dooh! 

Watch as Greece morphs into a

Watch as Greece morphs into a Mediteranean version of North Korea. The population will opt out of engagement with the rejected 'leadership' and turn their backs on the unreal economy to slowly suffocate all the life out of any 'best laid plans'. How stupid for a bankrupt country to be buying submarines they cant afford to own. Why would you want to contribute to that.

Blame the Germans and French

Blame the Germans and French for their submarines, tanks and fancy fighter jets.
Cheap olive oil is one postive note coming out of this saga 

I believe... Offcut, the

I believe... Offcut, the submarines were for the outgoing administration to hide in untill things simmer down a mite,....you will note on the plans a Ballroom complete with silver service.....had to fore-go the Chandelier though....there's a recession on you know..!

Send not to know for whom the

Send not to know for whom the bell tolls,  It tolls for thee.

..... cheers mate  !    .....

..... cheers mate  !
 
 ..... very good of you to serenade the Gummster clan as we chow down on our olive & feta cheese sandwiches ....... pass the ouzo , Mummy Gummy  !

It's not the Greeks that

It's not the Greeks that we're bailing out , is it ...... it's a bunch of banks , mostly German & French , who threw the risk management book out the window in their zeal to gain rich rewards from lending to profligate states , such as Greece .......
 
.... and what wonderful message will these banks and bond-holders learn from this ?
 
Irrespective of how foolishly we behave in our quest for above market returns , some well meaning sheeples in the south pacific will assist in bailing us out !
 
Yippeeeeeeeee !.... there truely is a " free lunch " , Kiwi lamb ......

Sure it's a scam, but when NZ

Sure it's a scam, but when NZ goes under the Greeks working the feta plantations will chip in to bail out the Aussie banks.
 

...... feta plantations ?

...... feta plantations ? ...... I thought feta comes from the goo gathered by squeezing out  the carpets of  fitness-centre floors  ......
 
Sure as hell smells 'like it .......

That's disgusting GBH ...the

That's disgusting GBH ...the splits will never again hold any appeal as a result of this vision you have imprinted on my brain.

When the IMF come insearch of

When the IMF come insearch of the golden chalice .....
Tell them "we already got one"

From Eric Crampton If I owned

From Eric Crampton
If I owned a bunch of property and were going into default on some debts, the guys to whom I owed money might ask me whether I ought to consider selling some of those properties to pay my bills. And, if my kids were starving because of the austerity I'd otherwise had to impose on the family budget to keep the bondholders at bay, why wouldn't I consider a bit of asset divestiture?

Greece has somewhere around 6000 islands in one of the most beautiful parts of the world. Islands of legends and Greek Gods and stuff. Islands that, you'd expect, would be worth something to somebody. Some of them are privately owned and do trade. Here's one place you can go to buy one.
http://offsettingbehaviour.blogspot.co.nz/2012/03/assets-and-default.html

Oh yeah saw that and

Oh yeah saw that and considered them - but they didn't have anything in my colour.

Ah... a few hundred million -

Ah... a few hundred million - the govt overspends by more than that each month... My question would be with Portugal finances a year behind Greece and Italy the folloowing year and Spain the year after that - then it will be others - Austria, Hungry, UK and finally USA... what sort of all up cost are we looking at NZ contributing here? NZD50 billion? NZD100 billion? mmmm I'll bet that whatever NZ contributes compared to what's coming later will be tiny... Time to leave the IMF...

We are selling our SOE's to

We are selling our SOE's to bailout the world.  BFD.

Just print the worthless

Just print the worthless fiat, and give it to them.  It's not like any of this can ever be paid back.

In all cons, follow the cash

In all cons, follow the cash to find the crooks.  Where is all this magicaly created money  coming from and ending up.  ?->debt on all the governments of the world -> IMF-> Greece-> Banks->?
Is this just some sort of big money go round with a bunch of super crooks clicking the ticket as the debt goes round?
If this is not bad enough I dont believe all this money will solve the fundamental problem.  The Euro common currency can never work and a large number of members will be forced into this situation and require continuous bail outs untill somebody sees sense and pulls the plug on the whole concept of a common currency.

Not to worry we'll get the

Not to worry we'll get the money back when the IMF bails us out, at 300 million a week won't be long now! 
Just another example of the absurdity of the world economic situation and the importaince of investing out side the influence of the political clowns. http://j.mp/zU2zMG

After we've borrowed more

After we've borrowed more money to bail out the Greeks, can they please borrow some more money to bail us out?

Have a Kitkat Iain....your

Have a Kitkat Iain....your world is being controlled...best action to take is not to borrow money!
Same message ought to have been cut into the concrete walls of the Beehive, so the fatheads could have a reminder every day.
 
 

All good stuff Iain...but you

All good stuff Iain...but you are like the bloke who fails to realise fence posts normally require a hole..!...and so you make no comment about the 'hole' the NZ govts had dug for the NZ economy...a hole they had to borrow to fill..
So back you go and suss out how that hole was dug Parky....because the same stupid brainless govt behaviour over the last few decades has simply made the hole deeper.

Course you did Iain....you

Course you did Iain....you just left it out of that other long comment.
No hole means no need to borrow...no debt means prosperity is not stolen by banks.
So back to the point...the only way is to encourage people to avoid the bank drugs. The same is true for English, but he is saddled with the electoral farce and has to buy enuff votes to stay in office every 3 years.
NZ is destined to remain in the hole because credit is a way of life...either get used to it or bail out of the game.
 
 

So if everyone got out of

So if everyone got out of debt, assuming you are a saver then you would be happy with a negative return on your savings (that is, like the Swiss, you would be charged for having money in the bank?)
No debt means no interest income so banks would have to charge you the exact cost of holding and transacting your money?
Banks are not going to give you interest on your money if they can't lend it out as recieve income.
 
 

You hit the nail on the head

You hit the nail on the head Wolly, whereby the pollys being 'saddled with the electoral farce, having to buy enough votes to stay in office every 3 years'
What will it take for us to make positive change to our democratic system ..... Oh yes, a revolution, pencil that in some time soon.

Next up Portugal...followed

Next up Portugal...followed by Spain....and Italy....by then our loans to the piigs via the IMFarce should total about 3 to 5 billion...and cost taxpayers about 400 million to finance...but hey no worries cos we can borrow it from the the banks which borrow it from the ECB at 1%..
This is phase two of the great scam...first it was socialise the private debt of the banks...now it's pass the debt down the line to the lesser debtors...that's nz...up and coming....borrowing like mad to catch up...wannabe a piig...
Hey Bill English...gotta brain?...here's a thought...since NZ was able to sign up to join the IMFarce....we must also be able to sign out and walk away before any more damage is done by you lot to us lot simply because you lot aint got the guts to say "stop"
 

Wolly, I am wondering where

Wolly, I am wondering where you get 3-5 billion. Both Berlin (germany finance ministry now saying to prepare for Greek bailout #3 aside) and the Hague estimate it will take 3-4 trillion (constantly going up from previous estimates mind you) to fix just the 6 nations in sth europe in trouble... seems a little on the light side to me...?

Hmmmm....it is certainly a

Hmmmm....it is certainly a stupidity that the NZ govt lacks the courage to tell the IMFarce to eff off. I would have thought the behaviour of the deposed Frog was sufficient evidence of an IMFarce out of control.
If English borrows to feed the IMF to bail out the piigs....that will be the start of the end for this govt. No credibility at all. Shameful bootlicking is all it is.
After Greece comes Portugal..then Spain...then Italy...and Ireland somewhere in the midst...
I would have expected a screaming outrage in the media over this...fool me...to expect the NZ media to even grasp the facts.
 

Snippy the only action

Snippy the only action peasants can take is to walk away from the drug dealers...don't borrow money.
I reckon only 3% of the pop has both the understanding of that and the capacity to walk away....so the remaining 97% will carry on regardless...that's enough to keep the ponzi going.
Therefore it comes down to recognising that you have to look after you.!
 

But more are learning

But more are learning Wolly.
I was speaking to a guy yesterday.  He makes widgets, 90% exported.
Before the GFC he had moderate borrowings and the banks were trying to entice him into more debt. Then the brown stuff hit the fan in late 2008, and the banks decided he should pay back his borrowings ASAP.
So he did, pared back a bit, and paid them off with cashflow.
And now the same banks are back, telling him what a great guy he is and how he should borrow again.
He told them to eff off.  So perhaps the GFC did have a silver lining in some way.
Some will learn from experience, some won't.

He will do well moa man...as

He will do well moa man...as will all the others who tell the banks to shove it.

And a different slant to the

And a different slant to the  'mud wrestling politicians' of today.  Nothing new in thefact that they are merely puppets on a string but provides interesting historical view from about 1917;
 The Egyptian Pharaohs, the Babylonian rulers, the Asiatic rulers — they were initiates. Then the priest-type emerged as ruler and the priest-type was really the ruler right up to the Reformation and the Renaissance. Since that time the economist has been in command. Rulers are in fact merely the handymen, the understrappers of the economists. One must not imagine that the rulers of modern times are anything but the understrappers of the economists. And all that has resulted by way of law and justice — one should only study it carefully — is simply a consequence of what economically oriented men have thought. In the nineteenth century the “economical” man is replaced for the first time by the man thinking in terms of banking, and in the nineteenth century there is created for the first time the organization of finance which swamps every other relationship. One must only be able to look into these things and follow them up empirically and practically.
 
 
 

Indeed. And there never was

Indeed. And there never was an empire which didn't meed it's zenith, then decay. That goes for 'types' as well as for 'cultures'.
 
Every one met a point where they were unable to deliver what was promised, mostly through ultimate scarcity, and at some point, whether via Vandal or Guillotine, they went down.
 
Interesting you mention priests - belief is all that is holding the current set-up together too.