THE INTERNATIONAL Monetary Fund (IMF) told the Government that the definition of “long-term economic value” on bank loans in the draft Nama Bill was “masterful” as it was “sufficiently specific” and “sufficiently vague” to allow “appropriate flexibility”.
Steven Seelig, an adviser at the IMF, made the comments in an e-mailed response to a request by the Department of Finance for his opinion on the draft National Asset Management Agency Bill published last August.
“It is both sufficiently specific and sufficiently vague to allow appropriate flexibility. I hope you can retain this language,” said Mr Seelig, an expert on “bad banks”, in a private e-mail to department officials sent on August 25th.
The e-mail was among records released to The Irish Timesunder the Freedom of Information Act relating to representations made to the department on Nama.
The Government has said the current market value of €77 billion in bank loans to be bought by Nama was €47 billion but that the State would pay an estimated €54 billion after applying a “long-term economic value” to some loans.
Mr Seelig said he assumed another section of the draft Bill had been “introduced to gain political support for the Bill but it does introduce another opportunity for legislators to make significant changes to Nama’s operations”. The section relates to the laying before the Oireachtas changes which the Minister for Finance may introduce to adjust the long-term economic value of loans and the properties backing them. The section was left unchanged in the final Bill passed by the Oireachtas last month, while the changes to the section described as masterful were minor in nature.
Mr Seelig said: “Overall, it looks pretty good. That is not to say that there will not be considerable debate about the role of Nama and the anticipated cost to the taxpayers.”
Given “the heavy focus on land” in the later part of the Bill, he said he would “not be surprised to see some efforts to add restrictions on land use, or alternatively for specific uses, added”.
In the US, restrictions on affordable housing and sales were added during political debates “that would harm values in certain states”, Mr Seelig wrote. “Politically this is something that you should be aware of.”
In another letter, dated May 11th, 2009, Trinity College professor Patrick Honohan suggested that the Minister for Finance should try to find a “foreign official equity investor” to put €1 billion into the banks once Nama buys bad loans.
Dr Honohan, who has since been appointed Central Bank governor, told the Minister in a letter marked “confidential” that the European Investment Bank (EIB) could be an investor in the banks.
“Trying to think outside of the box, one possible alternative is to try (including through political channels) to get a foreign official equity investor (eg the EIB?) to put in even €1 billion in equity into the cleaned-up banks,” he wrote.