General Motors CEO, Ed Whitacre announced on Wednesday that the automaker had successfully repaid its $5.8 billion bailout loans, “in full, with interest, years ahead of schedule.”

Considering that the industrial giant was in bankruptcy mere months ago, you might be wondering: where in the world did GM get the money to repay its loans five years ahead of schedule?

In short, the $5.8 billion came from a $16.4 billion escrow fund set up by the federal government during GM’s bankruptcy proceedings.  Although it that may sound like GM simply moved taxpayer bailout money from one pocket to another, the answer is somewhat more complicated.

The escrow fund was created last year by President Obama’s automotive task force to safeguard the government’s $50 billion total investment in GM.  The team estimated how much money the company would need to continue operating profitably and alloted an additional $16.4 billion of operating capital in case the economy unexpectedly worsened.  An escrow account was used so that the government could keep strings attached to the money.

One string required that the Treasury had to be consulted before any funds were withdrawn.  Another required that any funds remaining after June 30 2010, had to be used to pay off the initial loan.

Before Whitacre’s announcement on Wednesday, the escrow fund still had $11.3 billion remaining.  $2.4 billion had been used for a prior loan payment and $2.7 billion had been used in the bankruptcy proceedings for automotive supplier and former GM spinoff, Delphi.

Investors see the early payoff as a sign that GM has confidence in its restructuring and in the improving automobile market.

The automaker had $22.8 billion in cash on hand at the close of 2009.  Even with $10 billion allocated to new product and threats posed by its under-performing Opel division in Europe, GM appears to be in good shape to weather the last of the economic storm.

What remains to be seen, however, is whether or not GM’s recovery and eventual IPO will be sufficient to pay back the government’s remaining investment, which resulted in a 60.8% equity stake in the reborn company.

At the very least, the General is $5.8 billion closer to shedding the “Government Motors” moniker.