This book by Liaquat Ahamed (with photos by Eli Reed) provides a “behind the scenes” narrative of how the IMF operates, including a substantial section on its role in the Irish crisis. It is an unusual book, with lots of photos (it is not possible to buy an e-book version) and is collaboration between Writers in Residence, Visual Editions and Magnum Photos.
One interesting passage on page 111 (as part of the book’s coverage of the role of Ashoka Mody):
“During the annual review in 2009, and again in early 2010, Mody urged Lenihan to take advantage of the IMF’s credit facilities and borrow pre-emptively. Mody saw this both as a way of shoring up Ireland’s finances and using the IMF imprimatur to bolster foreign confidence in Ireland. But both times, either Lenihan was not himself persuaded, or he was unable to convince his cabinet colleagues.”
10 replies on “Money and Tough Love: On Tour with the IMF”
The IMF hasn’t really covered itself in glory over the last few years.
This was a comment on the FT site a while ago about CBs but it could equally apply to the IMF
“The ECB has a role, but surely the lesson emerging from the last six years is that central banks can firefight but they can fix very little.”
Chasing the Fed’s dragon has been great fun but the risk of stagnation would appear to be rather high
http://www.ft.com/cms/s/0/c75e83c4-26f8-11e4-a46a-00144feabdc0.html
http://www.ft.com/cms/s/0/da0413f8-27cb-11e4-ae44-00144feabdc0.html
What can the IMF do about it ? It’s probably easy enough to order the leaders of poor countries around but it must be impossible in the core.
Ashoka Mody was prescient but 2009 was too early for the penny to drop. The situation was not bad enough for calling in the IMF.
Keep in mind that the majority of the population including politicians had by mid-2008 believed that the free lunch had been invented.
Eleven months after the onset of the credit crunch the main concern of the ECB was the surge in commodity prices and on July 03, 2008, a day when the Brent crude benchmark hit a record in dollar terms of $145.66, the ECB hiked its main interest rate to 4.25%.
In February 2009, exactly 2 years after the subprime crisis broke out in the US, the Irish unit of Pricewaterhouse Coopers (PwC), the biggest of the Big 4 accounting firms, delivered a report on Anglo Irish Bank to the Brian Lenihan, finance minister.
The report said in terms of realistic bad debt provisions:
Hindsight or not, this was crazy.
Anglo Irish Bank reported a loss of €12.7bn for the 15 months to the end of December 2009 – the largest loss in Irish corporate history – after charging €15bn to cover bad debts.
One lesson from the economic bust is that people who do well in exams to get well-paying jobs in Big 4 firms and big-name banks can also be stupid.
It’s not a surprise that Ashoka Mody’s advice went unneeded as it was then an ignominy for a developed country to get a bailout from the IMF.
Denis Healey, UK chancellor of the exchequer, who had accepted Fund assistance in 1976 was dubbed the “hire purchase chancellor” by Margaret Thatcher – it was quite an insult for government of the the remnant of a one-time empire on which the sun never set.
I was in Germany the past five weeks Frankfurt, Berlin, Lubeck, Heringsdorf. The only Irish products in the Supermarkets were Kerry butter and cheese. Construction public and private has been ramping up for the past three years. Six construction cranes visible from the fifth floor of the hotel at Platz Vor dem Neuen Tor 6, Berlin. This equeals the number visible from my sisters place in Dublin 4 in 2007. Underground rail 5 km tunnel under way in Unter den Linden accompanied by 17 km upgrades to connecting, existing tunnels. As I see it Germany has major public projects in progress. With the cost of funding at historic lows construction now makes perfect sense. It also means that Germany a country with excellent infrastructure will not be in a position to find opportunities that make economic sense in the event that EZ governments agree to ramp up public spending to compensate for manufacturing jobs lost to Asia. I was advised numerous times to avoid Berlin due to traffic congestion caused by construction projects. The Ukraine issue is not causing concern in Frankfurt, they do not see NATO getting involved in a shooting war. It will be a propaganda and economic squirmish with the Ukraine suffering serious economic setbacks in the period Nov. to March followed by a Federal Government being formed. It is understood that Angela Merkel will step up to the bar and pay her fair share to ensure political stability in the newly established Ukrainian Federation.
Germans are feeling the pinch although they still vacation in Majorca, Amalfi Coast, with more now going to cheaper places on the Mediterranean and the Baltic coast. I was told that Ireland is now cheap, particularly holiday cottages by the sea in Kerry, they know about water temperatures and cloud cover. The beaches on the Baltic empty when clouds obscure the sun on days that would be considered good in Ballybunion. The Dublin entertainment district is considered attractive by women under 45 who tell me they go there in groups of 2 to 4 for a few days.
Sanctions are seen as a two edged sword that will not be necessary by mid 2015.
Germany is more surviving than thriving even though there is abundant evidence that the Government is managing responsibly.
@Mickey Hickey
Germany is surviving and quite possibly thriving due to having a fairly sensible Goverment.Our shower of gombeen men will borrow till time runs out but not for infrastructure or hospitals etc oh no siree. They borrow to keep themselves in the luxury they have become accustomed to.No politician left behind,do whatever it takes!Sure tis the best little country in the world to be a politician especially a retired one whose pension cannot be touched. I don’t think I will ever see the day that politicians in Ireland do what is best for the citizens before themselves or their parties.Sad state of Ffairs that these grumpy old men and woman can get away with it.
@ Michael
“One lesson from the economic bust is that people who do well in exams to get well-paying jobs in Big 4 firms and big-name banks can also be stupid.”
Especially when the system assumptions break down. Herd thinking is a fact in all walks of life.
And it’s not clear either what the new common sense is
http://www.ft.com/intl/cms/s/0/12ae0580-26d0-11e4-bc19-00144feabdc0.html
“.. For most of the past three decades central bankers have assumed that allowing inflation to overshoot would lead to explosive upward spirals in prices. By contrast, overshooting on unemployment was assumed to have little lasting effect. The risks were seen as asymmetric. No chances were to be taken with inflation for the sake of employment.
It has become clear, however, that those assumptions should be reversed under conditions of persistent low inflation and slow growth. “
@seafoid
My mother had a saying she used frequently when referring to bureaucrats, bankers, veterinarians and doctors. “May the Lord sweet Jesus and glorious St Paul the holiest one of them all, save us from over educated geniuses”.
At one time she was using the saying “dem effin priests are now worse than the politicians, hand out every time you see them”.
A plaque noted at HQ IMF:
‘We are viewed as the ‘good cop’ in Ireland.’
Jeez! Must have been rough; who were the other ‘bad cops’?
@ mickey
Interesting snippet in the IT re Albert Reynolds today
http://www.irishtimes.com/news/albert-reynolds/what-made-reynolds-as-a-politician-also-undid-him-1.1904277
“His period as taoiseach from February 1992 until December 1994 coincided with the end of the beef tribunal – an inquiry that led to an acrimonious falling out with his first coalition government partners, the Progressive Democrats. During that time, two other crises erupted.
The first was the X case, which concluded with a Supreme Court decision that a 14-year-old girl who was a suicide risk could have her pregnancy terminated. The second was the controversy surrounding delays within the attorney general’s office in relation to the handling of the extradition of a paedophile priest, Brendan Smyth.”
Those 2 issues are still toxic and it didn’t matter how holy or how educated anyone dealing with them was
@Michael Hennigan
“One lesson from the economic bust is that people who do well in exams to get well-paying jobs in Big 4 firms and big-name banks can also be stupid.”
I think that you are being overly generous there. The problem is not that these people are stupid. There are three problems as I see it:
1) Accountants, financial advisers and sometimes lawyers are heavily incentivised to stretch and breach the boundaries on behalf of their clients, or to suggest how it can be done. The boundaries most stretched are tax laws followed by company law. The pyramid structure of larger professional services firms reward aspiring partners for fee income and their share of client loyalty.
2) There is little or no accountability for accountants. It is just too expensive for private citizens to mount a legal case to bring a large accountancy firm to heel. I am not aware of any regulatory sanctions having been implied for giving in to the incentives.
3) Accountants, like everybody else, time discount risk excessively. There is also a “if you’re not in you can’t win” mentality. Worrying about partner liability is a bit irrelevant if you are not going to make partner without doing what is necessary to get the fees in.
These comments are not intended to condemn accountants. Like the builders of the 1980s they can only be expected to play the game of life according to the rules laid out for them. 99% of them are not the architects of the system. It is all very well for the hurlers on the ditch to condemn them for not achieving the notional levels of integrity that the ditch hurlers perennially suggest should apply. Such hypocritical ‘holier than thou’ chat never includes solutions.
The fact that there is a professional industry part of whose raison d’etre is the circumvention of the spirit of the law is a major problem. This problem extends beyond Ireland. It is a major contributory factor to unequal wealth distribution as these people are only employed by the wealthy in the vast majority of cases. As such it is a significant political and economic issue.
Sickeningly, the only proposal in Ireland is to create multidisciplinary firms which will make things much worse. Also, international commentators previously opined that Ireland had pursued the path of being a financial wild west, i.e. actively encouraging this bad behaviour in an international race to the bottom. One wonders whether the people who decided on this Machiavellian/exceptionalist policy did so after fully considering and understanding the major political and social issues at play. Do they consciously decide our nation should stand for nothing, or are they simply ignorant? I suspect that either analysis would again be overly generous. It is most likely that they were both ignorant and Machiavellian, and not just one or the other.
@zhou en lai
“International race to the bottom” is right on the money. In Ireland we have flogged the corporate tax issue to death. We now have individuals and companies shopping for professional opinions that lend them a cloak of plausible deniability.
Burger King in the US is negotiating a tax inversion deal with Tim Horton’s of Canada. Obama is engaging in the mock outrage gambit and pulling the patriotism card. The tax rates are US 37% and Canada 26%. There was absolutely no need for Ireland to go to 12.5% and then 2%.
A few weeks ago I saw an article in the business press that referred to Ireland as being lightly regulated and relatively transparent with Bermuda being a true tax haven by being opaque and lacking regulation. I thought that was a reasonably accurate description. Being the cute hoors we are we still stay a hairs breadth on the legal side.