The European Commission, European Central Bank, and International Monetary Fund have passed Ireland with flying colours in their latest quarterly review. I’ll post audio of their press conference when it’s available (commenters please drop the link if you see it). The IMF press release is here.
The statement reads that bank reforms are on track, fiscal consolidation is on track, structural reforms are to come, and it’s all good. Lots of touchy-feely language. Those pesky bond markets, and the burning of senior bondholders, weren’t looked too kindly upon in questions, but overall the message seemed to be: Nothing to see here, nothing at all, no to burning senior bondholders, but guess what lads, the next review will be tougher. Stick with the programme.
On twitter, NamaWinelake reported a divergence between the EU and IMF, with Ajay Chopra of the IMF saying he expected to see a more robust approach to burden sharing, while the ECB representative said no, that wouldn’t be happening. Although much can be made of comments like this, the review exercise seems to be, on balance, a qualified success. The government did meet its agreed targets. Whether the exercise enhances our credibility to the point that Ireland can wean itself off EU and IMF funds without a second loan package is another question entirely.
The FT reports on Minister Noonan’s IMF initiative here. I would be interested in reactions to the Minister’s tactics.
The new IMF Country Report is available here. A transcript of yesterday’s conference call following the release of the report is also available (see here). Dan O’Brien provides analysis here. Update: Additional analyses from Colm McCarthy (see here) and Cliff Taylor (article; SBP editorial).
It is encouraging that both the IMF and the European Commission are impressed with the government’s implementation of the programme. The unavoidable fact remains, however, that bond markets are unconvinced on Ireland’s long-term creditworthiness. Not too surprisingly, the IMF is more willing to be critical of Europe’s approach to resolving the crisis. It is becoming increasingly evident that uncertainty about the evolving balance between bailouts and bail-ins is making investors shun Irish bonds. The critical challenge is to convince investors to provide new funds to Ireland, which is now being hampered by fears of being caught up in any future bail-ins. It is also interesting that the European Commission is more open than the IMF to a modest speeding up of the fiscal adjustment. This could be viewed as a high-return investment in reinforcing the credibility of the government’s capacity to see through the necessary adjustments, which already differentiates Ireland from Greece and probably Portugal.
The Taoiseach has emerged to defend the government’s banking proposals. He has been reported as saying:
The proposal we have brought forward is on the basis of the best international advice, including the European Commission and the International Monetary Fund, and we are doing this in consultation with the European Central Bank.
Invoking international support for their approach has been a key element in the government’s PR strategy in recent months. However, these comments seem to me to confuse the actual roles being played by the various international organisations referred to.
One of the elements of the recent IMF Article IV report that I found a bit strange were the claims that the Fund had warned the government about its fiscal policy prior to the current meltdown. For instance, the first page of the report states
Various commentators and the IMF in its Article IV consultations did warn that the seemingly-unstoppable growth masked serious imbalances, including the fragility of public finances.
In his Irish Times article on Friday, however, Jim O’Leary correctly points out that the IMF are engaging in some pretty serious revisionist history and makes some very good points about the flaws underlying estimates of structural budget deficits (weaknesses that I discussed in my recent TCD-DEW talk about potential output.)