The Beast
Rating? No grazie!
By Tom Barkley
Of DOW JONES NEWSWIRES
WASHINGTON (Dow Jones)-- An International Monetary Fund loan to Greece would be an interest rate bargain compared to what the beleaguered European country faces from the bond markets.
Greece would pay less than 4% in a traditional IMF stand-by arrangement, compared with the 6.5% interest the government would likely have to offer bond investors.
The IMF could charge even less, about half that rate, if Greece were to request a loan amount under EUR5.57 billion - the nation's limit for such lower-interest loans.
But given that the country is facing a total of nearly EUR23 billion in debt obligations over the next couple months, it would likely have to request "exceptional access" to IMF funding and pay a higher interest rate of 3.25% plus loan fees.
Tacking on the fees, Greece would likely pay an initial interest rate of somewhere around 3.75% or 3.85%.
The IMF charges interest based on the rate of its special drawing rights, or SDRs, a quasi-currency used for IMF reserves. The rate is low now, but is likely to rise because it is based on benchmark rates in the U.S., U.K., euro zone and Japan.
Greece would initially pay interest of about 1.25% if it borrows less than EUR1.86 billion a year, or a total amount of EUR5.57 billion in total. But for bigger loans, Greece would pay an extra 2 percentage points on a portion of the loan.
As IMF loan rates rise along with rate hikes, Greek sovereign debt would also be impacted by any European Central Bank rate increases.
The 1.25% rate the IMF charges on typical stand-by agreements has been the average level since November, and is down from 1.27% between August and October 2009. The rate started falling sharply with the onset of the financial crisis in late 2007, having averaged 5.55% in the summer of that year.
Of DOW JONES NEWSWIRES
WASHINGTON (Dow Jones)-- An International Monetary Fund loan to Greece would be an interest rate bargain compared to what the beleaguered European country faces from the bond markets.
Greece would pay less than 4% in a traditional IMF stand-by arrangement, compared with the 6.5% interest the government would likely have to offer bond investors.
The IMF could charge even less, about half that rate, if Greece were to request a loan amount under EUR5.57 billion - the nation's limit for such lower-interest loans.
But given that the country is facing a total of nearly EUR23 billion in debt obligations over the next couple months, it would likely have to request "exceptional access" to IMF funding and pay a higher interest rate of 3.25% plus loan fees.
Tacking on the fees, Greece would likely pay an initial interest rate of somewhere around 3.75% or 3.85%.
The IMF charges interest based on the rate of its special drawing rights, or SDRs, a quasi-currency used for IMF reserves. The rate is low now, but is likely to rise because it is based on benchmark rates in the U.S., U.K., euro zone and Japan.
Greece would initially pay interest of about 1.25% if it borrows less than EUR1.86 billion a year, or a total amount of EUR5.57 billion in total. But for bigger loans, Greece would pay an extra 2 percentage points on a portion of the loan.
As IMF loan rates rise along with rate hikes, Greek sovereign debt would also be impacted by any European Central Bank rate increases.
The 1.25% rate the IMF charges on typical stand-by agreements has been the average level since November, and is down from 1.27% between August and October 2009. The rate started falling sharply with the onset of the financial crisis in late 2007, having averaged 5.55% in the summer of that year.
