IMF Concluding Statement on Ireland Post author By Philip Lane Post date June 24, 2010 The IMF has posted the concluding statement on its recent mission to Ireland: you can read it here. Categories In Economic Performance Tags IMF Ireland 28 Comments on IMF Concluding Statement on Ireland ← Capital Spending → Paul Volcker on Ireland 28 replies on “IMF Concluding Statement on Ireland” The note of caution regarding a moderate recovery is warranted. It is difficult to find a balance between prophets of doom and spinmeisters who will declare victory on the first sighting of the sun. What is clear is that the political parties and policymakers have yet to accept the reality of a bumpy international recovery that will not significantly impact the unemployment level for years. This is the first time that I can recall an IMF Concluding Statement for Ireland being published. The fact that the Government has allowed it to be published is a very welcome development. Jobless growth – the capitalist dream. “narrowly-targeted support measures for vulnerable homeowners would limit the economic and social fallout of the crisis” – zero chance of that happening. The little people are not likely to figure when it comes to shelling out the bailouts. “A strategic, but market-oriented, approach should be used to achieve a future viable and competitive banking system.” = more job losses to come in the Irish financial services sector then. “Following recent measures to strengthen the banking sector, a sizeable agenda remains” = even more job losses and bleeding dry of customers, particularly mortgage holders, with interest rate rises to restore balance sheets. “NAMA should schedule an orderly disposal of the property assets acquired” – so property prices will continue to decline then. “Looking ahead, substantial challenges remain” – the unemployed, poor and vulnerable will continue to bear the brunt of years of budget cutbacks still to come that will target benefits, services, children, etc. “But the risk of “consolidation fatigue” and, hence, a fraying of the necessary social cohesion cannot be ruled out.” – good job this isn’t France or they would be out on the streets eh Mr Lenihan? I really must get out of Ireland at the first opportunity. I will be free in September. I hear Australia starts to warm up around that time of year. “More immediate attention is needed to establish a special bank resolution framework” Why immediate? Does “immediate” mean they may need to be use the resolution authoirty very soon? I get the impression the IMF wants the government to restructure the bank debt very soon. Honahan and IMF are both set against any debt relief for Neg. Eq. homeowners – despite the significant risk of defaults. This seems at odds with their tentative notions about a sub-modest, aggregate increase in economic activity (which appears increasing unlikely!). There would have to be a +7% increase per annum in order to deal with the property bubble hangover – and this surely will not happen. Heavily indebted persons do not make good consumers. What will be the effect on the banks of significant write-downs on residential mortgage debts and property valuations now that NAMA II has been ruled out? An Irish language version of NAMA? This debt predicament is a slowly festering ulcer. You treat it – or else! Should be some political movement as we approach the next Gen. Elect. B Peter @Paul +1. I wondered about that too. But its very welcome. The absence of a special resolution regime has been bizarre to be honest. Minister Lenihan announced this morning in the Order of Business that he did not expect to bring bank resolution legislation to the Dail until next Spring. Andrew Worringly vague but very impressive level of government transperancy. Structural imbalances…..Europe could do with this type of open debate. Strategy, commentary, discussion or whatever that was on where NAMA goes from here is disconcerting. It’s a nonsense of course to any SME. Maybe pharmaceuticals, microchips and assorted accessories will see ‘growth’ but the average domestic company is very much struggling. The banks are still keeping up the pressure while NAMA and the upper layers of Irish banks befriends the too-big-to-fail category. One of the companies we operate(d) was summarily told recently to prepare for the sheriff etc over an three month outstanding debt of €192 euros. How many Dublin fold would you feed in One Picos on that? Two? What a shocking report from the IMF! Joseph Do not swallow Marxist thought so easily. I pay you a compliment by this. Capitalists know that they need customers! Who can buy if they are destitute? Peasants and their gombeen masters just want hegemony to assuage their own poor spirits. It is a form of mental illness. Read Henry Ford! A capitalist and an Irishman! Cantillon was just a twiddler! He increased wages so that his workers could buy what they produced! No subsidies fromn the corrupt US mob, called the Feds, for Ford! SaRah CaRey Well it is good to be honest, Sarah! Does it make a refreshing change? Why do you think the banks get funny treatment then? They all wear smart suits and know how to handle the silverware. Are they really a corrupting influence? Lobby is such a neutral word! The Irish economy has to shrink by another 12 to 18% to reach an equilibrium, now that no one wants any credit! More jobs to go. Lots to chat about there! More spin! Aren’t banks wonderful? If only we could have a banking system. Systemic importance. Land is over valued? Really? Australia is cutting numbers as too many of the “wrong sort” are getting in. Believe it or not, therte has been an over expansion in educational establishments as some occupations got automatic entry into the lucky country! No longer! They were the wrong colour and had no capital. We also dumped one of the most impressive Prime ministers ever! He was a wowser and a p*ick who wore out his staff, but he gave it 110%. The mining magnates got him. When these blokes worth billions each, get pollsters and advertizing going, then Brutus steps in. One of them went down in the Congo, an ally of Kevin07. Coincidence? Maybe. But $10,000,000,000 a year extra tax may have that effect! So peasants exist everywhere. But we are waiting…. “Mindful of the moral hazard risks, narrowly-targeted support measures for vulnerable homeowners would limit the economic and social fallout of the crisis. With their bolstered capital, banks could absorb the initial costs, perhaps basing themselves on the welfare system to identify eligible beneficiaries. This process will be aided by an overdue shift to a more efficient and balanced personal insolvency regime.” Would the IMF get away with such a statement in the USA eg Nevada annual repossessions 180,000 in a State with a population of 2.7m, here we’re < 500 with a population of 4.5m. If the IMF’s medicine is rejected in the home of economic superpower, why should we get feed this insulting claptrap? The government needs reform insolvency laws and then the realities of mass unemployment (13%), mass negative equity (Enda Kenny said in the Oireachtas this week that 300,000 homes were in negative equity, more verifiable sources suggest it’s around 200,000 with an average of 40,000 negative equity), mass housing oversupply, possibly dropping population (Maith an buachailli agus cailini at the ESRI for not flagging that one up ) need all be confronted. The IMF suggestion, if widely implement, may lead to stasis in the residential property market for a decade – no wonder they wouldn’t have the cheek to make similar suggestions at home in the USA. @ Kevin O’Rourke CPB Netherlands says world trade volume fell in April, presumably after restocking eased. Japan’s export growth has also eased in recent months. The situation of the rich economies remains very fragile. There was an interesting report published last week by the OECD confirming the historic shift to developing and emerging economies with their share of global GDP expected to rise to almost 60% in 20 years. The rise in trade between the non-advanced economies is an interesting development and there is a lot of potential. I recall Peter Mandelson saying some years ago that 70% of the tariffs paid by developing nations are to other developing nations. Irish economists should do research on the export sector as armchair policymakers are at sea as the big changes are underway on land. Developing and emerging countries are likely to account for nearly 60% of world GDP by 2030 Pat, what do you find shocking about the IMF report? Is it it shocking pesimistic or shocking that the actions taking by government are praised by the IMF. Me I’d tend to side with the later but I’d be interested in other people’s thoughts. I’d also be interested in what an Argentinian or South-East Asian would feel about glowing praise from the IMF. Why have the IMF failed to address or at least acknowledge their failings in reports on Ireland’s and the world’s economy post 2000. The IMF primary concern is in a stable open international economy, therefore devaluations and defaults have to be avoided at all costs. Afterall social injustice is a ‘price worth paying’ @Michael H, “Irish economists should do research on the export sector as armchair policymakers are at sea as the big changes are underway on land.” The parts of the Irish export sector that are capable of, and most likely are, responding to these developments are under external control and not, to any great extent, subject to domestic policy direction; the parts that might be subject to policy direction are, most likely, doing their own thing and avoiding the usual cackhanded interventions or exploiting these interventions to steal a march on others. “What is clear is that the political parties and policymakers have yet to accept the reality of a bumpy international recovery that will not significantly impact the unemployment level for years.” The model is banjaxed. This is the problem of the bank guarantee- everything was supposed to have stabilised by now. “There would have to be a +7% increase per annum in order to deal with the property bubble hangover – and this surely will not happen. Heavily indebted persons do not make good consumers.” They are better consumers if they have jobs . With jobs they also pay taxes. “The Irish economy has to shrink by another 12 to 18% to reach an equilibrium, now that no one wants any credit! More jobs to go. Lots to chat about there! More spin!” “There was an interesting report published last week by the OECD confirming the historic shift to developing and emerging economies with their share of global GDP expected to rise to almost 60% in 20 years” As the neoliberal economic model is banjaxed Ireland needs a look at all ways out of this hole. Following the dictates of the bond market means high unemployment and probably continual eruptions of crisis. The main question to me is whether 9% unemployment out to 2015 is inevitable. As the developing economies are forecast to grow couldn’t Ireland cobble together a set of policies to take advantage of this? There are many people with skills in Ireland who might be unemployed out to 2015 but whose skills are in demand elsewhere. If the bond markets won’t lend couldn’t other sources of funding be used? The pension schemes of Ireland are not in great shape but if there’s no decent growth until 2015 their assets aren’t going anywhere. Couldn’t they set up an innovation fund to hothouse job creation ? Or is the country just doomed regardless? Mervyn King is starting to sound very alarmed about the possibility of a European bank or sovereign going into default, running around telling UK banks they need to do more to cover themselves – and quickly. I shouldn’t imagine the collapse of say, AIB, would worry him but a PIIGS country such as Ireland calling in the IMF (oops, sorry, one of them has already!) would… 4. The improved global outlook will help, but to a limited extent. With some reversal in the earlier loss of competitiveness and improvements in the global economy, exports will lead the recovery. But spillovers to the domestic economy will be limited because of exports’ heavy reliance on imports, their tendency to employ capital-intensive processes, and the sizeable repatriation of profits generated by multinational exporters. What improved global outlook are they talking about? The IMF is a criminal organisation propping up the US/Anglo thieves. Their mellifluous prating only soothes the doomed tenured class. The rest of us need to see the end to this disaster soon. The Scandinavian Euro will emerge sooner rather than later and Ireland is OUT. We need gold, gold, gold. We need to get it anyway we can and then smash the banks. Our friends will hate us for a while, especially the British as we will have caused their financial system irreparable damage. But better we take the hit now than linger in an agonizing and slow death. If we escape the fiat deathtrap before others we can survive this and prosper. Otherwise slavery under a foreign hegemony. We need more allotments up and running. @ Jagdip, You’re quite correct. The Irish banks are trying the same workout process as they deployed for developer debt – make it someone else’s problem. I would like to see more detail on the IMF’s thinking. What exactly does “narrowly-targeted support measures” mean? If the IMF comment was made on the assumption that the main banks were aggressively foreclosing, then it makes sense to explore measures that may keep people in their houses. Listening to some of the media’s excited commentary would encourage you to apply for some equity release, squirrel it away and await forgiveness. Perhaps IMF staff are overly influenced by the few meetings they have when they visit. How many dedicated staff do the IMF have for assessing Ireland? @ Paul Hunt I was thinking in terms of getting some reality into the debate rather than wards of the State such as univesity presidents promoting entrepreneurship or the types who stupidly say: all we need is x% of the 1bn Chinese consumers and we are in the money. @ Niall After all social injustice is a ‘price worth paying’ If you wish for perfection in multilateralism, you should join the GW Bush appreciation society. History will always deliver examples to support particular views; Dominique Strauss-Kahn doesn’t exacly fit the caricture of he acpitalist running dog! @ Jagdip and Ahura ‘The IMF suggestion, if widely implement, may lead to stasis in the residential property market for a decade – no wonder they wouldn’t have the cheek to make similar suggestions at home in the USA’ Stasis in the Irish property market is perceived by the local PTB as a least bad solution. It buys time for some more obfuscation. Housing on this little island is, and always was, politically charged. My owin’ Irish home. The banks and the FF TDs need something to shelter them from the gale of mortgage defaults that’s blowing up. @ Kevin O’Rourke ‘This is the first time that I can recall an IMF Concluding Statement for Ireland being published. The fact that the Government has allowed it to be published is a very welcome development’ If you want to say something controversial, have someone else say it for you. The IMF didn’t ‘notice’ that there was a property bubble in Ireland, so no surprise to find them obligingly slipping in a few Irish solutions to the Irish problem. Bonus exercise: how many of the Blanchard 10 commandments for fiscal consolidation does Ireland meet? 1. “Irish policymakers have gained significant credibility.” Credibility with whom? The bond markets and the funds we need to purchase our government debt? I don’t notice any change in sentiment to Ireland and they certainly have not gained any credibility from their own people. 2. “The weaning of the banking sector from public support and its eventual return to good health will proceed at only a measured pace.” Looking forward to this lazarus like resurrection and so must Alan Dukes. ” A Modestly-Paced Recovery” Would that be a jobless one? 3. “Ireland is likely to emerge from its output contraction into a period of relatively modest growth potential and high unemployment”. Growth potential with no jobs recovery and what good will that be to the country? 4. “The improved global outlook will help” The U.S. is facing a double dip in housing and the loss of 2 million government jobs by year end. China has not got an internal market and will not have one for another 10 years. What happens if the repatriation of profits becomes a repatriation of MNC’s as is likely. 5. “home-grown imbalances” echo’s of Honohan’s ‘home grown crisis’ but in more vague flowery language. Then we get this sentence, “But deflationary tendencies would raise the real debt burden of highly-leveraged businesses and households, impeding growth.” Ah, yes now you guys are starting to get it! 6. “Restoring the Financial Sector to Healthy Functionality” If this were the case at all, it is closing the stable door after the horse has bolted over the cliff, he is not down the field, he is never coming back! Get used to it! NAMA was supposed to get banks lending again right? Well it seems a long time ago but that is what we were told every second day! Only game in town, will get banks lending, will restore banks financial health etc. 7. “NAMA should schedule an orderly disposal of the property assets acquired aimed to reduce the large overhang of property in state hands, restart market transactions and, thus, help normalize the property market.” What happened to all the LTEV stuff? I thought the assets were to be held to avoid fire sales? Why is there now a need for fire sales? Seems like they are saying lets draw up the lists of fire sales and soon. Is the hotel business the pub business and the green field site business not going well? But wait the second tranche has not even been transferred. 8. “With much progress achieved in creating a framework for future stability, more immediate attention is needed to establish a special bank resolution framework.” Well hang on a minute, we have done nothing yet we have had a few reports and appointed two outsiders in Honahan and Elderfield. Well Elderfield is kind of an outsider in my book and I have yet to check out his Northern Rock credentials. We have yet to see the beef. Yes, there was the Quinn move but not much else and that could very well have been flash in the pan to announce his arrival. 9. “The authorities moved early to establish a balanced consolidation plan and have stayed on course. ” The words an “imbalanced consolidation plan” one that torched the real economy at the expense of insolvent financial institutions, would be more honest. And there are no buyers for their shares or the banks themselves. Staying on course will be determined by who buys our bonds 5.3% is not sustainable. 10. Looking ahead, substantial challenges remain. Following the already sizeable consolidation in 2009 and 2010 ” We will still end up borrowing 20bn plus this year so where is all this fantastic consolidation? “Sustainable expenditure savings will be central, including through efficiencies in public services. Broadening the tax base for revenue enhancement will also be necessary.” That would be the Croke Park agreement they are talking about?” The broadening of the tax base would be the implementation of a raft of stealth taxes and not so stealth taxes such as property tax? Which will lead to further deflationary pressures on top of the slashing of capital programs and a further desire to hold as little property as possible and maybe even move money out of property despite fire sale prices and invest it abroad. 11. “The authorities should also seriously consider adopting a fiscal rule that creates a public metric for sound public finances” Like they did with benchmarking? They have the templates! “…. and a technocratic fiscal council to advise on risks underlying public finances.” Such as exploding debt servicing, tackling the 112bn of unfunded public sector pensions and the possibility that Germany will leave the EZ and let the remaining soft currency area get on with what they do best which is borrow to overpay government and creating inflation with their very weak currency. Overall the whole report is just a pointless exercise. It is just an international version of many of our own useless ERSI and our many other Quango’s. The DoF and a multi-year, medium-term resource and budget framework? mmm……has the Art. VI review and consultation team applied any context for the basic institutional considerations and technical capacity requirements, (both human and physical in the DoF), not too mention the PFM-related prerequisite conditions involved in introducing and absorbing a MTBF / MTEF approach within a public service financial and economic management change programme? Tread carefully …of mountains and molehills : http://blog-pfm.imf.org/pfmblog/2008/09/hype-and-realit.html I keep reading stories about how much money has ‘left’ Greece since their troubles came into the spotlight i.e wealthy people moving their savings out of Greek banks and off to the US/Germany/Singapore/etc. or moved up the road into a non-Greek bank. Do we know how much money has ‘left’ Ireland and Irish banks in the past 12 months? Anyone got any figures? I moved mine out well over a year ago (though sadly, I’m not wealthy and they probably won’t miss my drop in the ocean). From the IMF’s conclusions: “5. Moreover, home-grown imbalances from the boom years will act as a drag on growth. The unwinding of these imbalances—arising from rapid credit growth, inflated property prices, and high wage and price levels—will limit the upside potential.” That’s a problem and a half. The ‘not so clever people’ that over leveraged themselves are heavily indebted to banks -> the banks need them to pay that money back for it’s deposit book -> there is an incentive to keep the ‘not so clever people’ in jobs and getting the promotions so they can continue to pump money into the banks. And then these same people will have the nerve to be elitist.. Privatize! Comments are closed.