Sept. 16 (Bloomberg) -- Ireland plans to spend 54 billion euros ($79 billion) buying real-estate loans to purge the country’s financial system of the toxic assets that are crippling what was once Europe’s fastest-growing economy.

The government’s new National Asset Management Agency, or NAMA, proposes to pay a 30 percent discount on the 77 billion- euro book value of the loans, Finance Minister Brian Lenihan said in a speech in parliament in Dublin today. The current market value of the debt is about 47 billion euros, he said.

“We are here to help the economy and the people by putting our financial system back on track,” Lenihan told lawmakers. “We cannot do that by forcing banks to sell assets at below what would be rational prices for them.”

In what may be the biggest financial gamble in 87 years as a sovereign state, the government will spend about 28 percent of the country’s gross domestic product for 2008 to become the owner of loans for property developments that are plunging in value. Ireland is suffering the worst economic slump of any developed nation since the Great Depression, according to the Economic & Social Research Institute in Dublin.

The strategy is designed to keep alive Bank of Ireland Plc and Allied Irish Banks Plc. In April, the government said NAMA would take on about 90 billion euros of loans.

The price NAMA is paying for the loans will determine how much lenders must write down assets on their balance sheets. Some may need to raise extra capital and the government is committed to making that happen, Lenihan said.

ECB, IMF Backing

Irish Prime Minister Brian Cowen told parliament that NAMA will help solve the country’s credit problems. He said it had the support of the European Central Bank, while Lenihan said the proposals also were backed by the International Monetary Fund.

Enda Kenny, leader of Irish opposition party Fine Gael, called the plan “economic madness.”

The agency will pay for the loans with bonds that the banks can exchange with the ECB for cash.

Last September, Ireland guaranteed about 440 billion euros of deposits and some debts of the banks. It has also pumped about 11 billion euros into Allied Irish, Bank of Ireland and the now nationalized Anglo Irish Bank Corp.

Allied Irish will transfer 24 billion euros of loans to NAMA, while Anglo Irish will shift 28 billion euros of loans and Bank of Ireland will move 16 billion euros, Lenihan told lawmakers. The remainder will come from two smaller lenders, EBS and Irish Nationwide, he said.

To contact the reporters on this story: Ian Guider in Dublin at iguider@bloomberg.net; Dara Doyle in Dublin at ddoyle1@bloomberg.net

Last Updated: September 16, 2009 16:04 EDT