Analytical Chapters from New IMF WEO

The Good, the Bad, and the Ugly: 100 Years of Dealing with Public Debt Overhangs

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4 replies on “Analytical Chapters from New IMF WEO”

Interesting that Ireland post ’86 was pretty much the best reduction of debt outside a war period. This is regarded as irrelevant as it involved a catching up, which it did. But it also involved bringing more people into higher value employment which is possible to some extent in modern Ireland if the international economy ever recovers.

The backdrop for Ireland was quite a bit brighter the last time; there was the Lawson boom in the UK; the US high tech sector was revving the engines for takeoff; then in 1991, maybe in answer to prayers, manna arrived from mainly Germany that was worth 6% of GDP. Ireland had a 30 year record of FDI to appeal to the yollies eager for platforms in Europe.

In the past 10 years (2002/2011), at 29,000 there has been zero growth in jobs in indigenous high tech/life sciences firms while the number in FDI high tech/life sciences firms is down 3K to 102,000.

The bust had no significant impact on the trend.

Deirdre Somers of the Irish Stock Exchange asked the Government this week to promote €1bn Irish companies.

However, it’s when Irish firms grow to that size that they tend to have reduced impact on the local economy.

Greencore, the former Irish state sugar company, decamped to London and its main activities are in the US and UK. It had planned to become a property developer in Ireland until the bust.

DCC has at least 70% foreign ownership and I would guess that Smurfit Kappa, the Irish-Dutch group, has a level of about 80% (this data isn’t published.)

Elan, founded by an Irish-based American expat in 1969, moved its primary listing to NY and sold its Athlone plant. Like CRH, it’s foreign ownership is about 90%.

At the other end, any young tech firm with potential is likely to be snapped up by an American firm before it scales up.

On a brigher note, this being Arthur’s Day, the local brew beckons, absent a Liffey tang!

The summary will bear repeating whenever someone apparently serious denies the need for sustained adjustment.

“Throughout the past century, numerous advanced economies have faced public debt burdens as high, or higher, than those prevailing today. They responded with a wide variety of policy approaches. We analyze these experiences to draw lessons for today and reach three main conclusions. First, successful debt reduction requires fiscal consolidation and a policy mix
that supports growth. Key elements of this policy mix are measures that address structural weaknesses in the economy and supportive monetary policy. Second, fiscal consolidation must emphasize persistent, structural
reforms to public finances over temporary or short-lived fiscal measures. In this respect, fiscal institutions can help lock in any gains. Third, reducing public debt takes time, especially in the context of a weak external

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