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International Monetary Fund's managing director Dominique Strauss-Kahn delivers the Opening Plenary Session speech at Daejeon Convention Center, July 12, 2010 in Republic of Korea.
Irish Economy: The challenges facing the Irish economy may or may not require
the intervention of the International Monetary Fund (IMF) in coming years.
However, despite the gravity of the crisis and the patent evidence of a failed
governance system with its limited accountability in a culture where the buck
stops nowhere, there has been no evidence so far that the political elite is
willing to embrace significant reform. Why should IMF intervention be viewed as
'scary' when it maybe the best hope for Ireland to become a model economy
comparable with those of well-run countries such as Austria, Denmark, Sweden and
At the Economic and Social Research Institute's (ESRI) Budget Perspectives
conference last Tuesday, UCD economist Joe Durkan said the idea of the IMF
imposing its will on Ireland was "scary."
Durkan said he had seen the organisation at work in Nigeria and he was
“scared” by what it might do here. The organisation tended to impose changes
without having an understanding of the society on which it was imposing those
Speaking to The Irish Times, he said he did not have much faith in the
European Commission either. “They don’t have the people. The best people who
know what to do about Ireland are here in Ireland.”
On local knowledge, that is of course true but with 450,000 on the Live
Register (this includes about 60,000 part-timers) compared with 156,000 in
January 2007, the big question is on the likelihood of having a change from the
muddling through approach so far.
Give a dog a bad name and hang him as the
The IMF has been fairly criticised in the past for overdosing the patient on
harsh measures and last July in Daejon, South Korea, the Fund's managing
director Dominique Strauss-Kahn said that while IMF’s measures in response to the
Asian crisis of 1997/98 yielded substantial fruits in many nations of the
region, it was perhaps possible to do it in a less painful manner. At the time,
he said the Fund placed interest on all sectors but now it focuses on the causes
of the crisis and has supplementary policies such as adding conditions to
protect the socially weak.
During the current crisis, under the leadership of the former French finance
minister, the Fund has regained its important role in the global economy.
We consider below a number of relevant points:
1. The case of Greece provides a useful reference point:
Credit must first go to the Greek Prime Minister
George Papandreou for his candid acknowledgement that his country has been
endemically corrupt with a sclerotic system of closed shops which have destroyed
the competitiveness of the economy.
"In a study done last year, the OECD described
government-run Greek hospitals as deeply corrupt. It concluded that we could
save 30% of the costs, which is enormous....In Germany, a stent for heart
operations costs about €500. In Greece it costs €2,000 to €2,500. The fault lies
with corruption," Papandreou said in
an interview with Der Spiegel magazine last February.
Finfacts said last May that the best course of action for Greece was not to
have an immediate debt restructuring but to bring in the IMF to assist in
pushing through structural reforms of the economy.
With the support of €110bn from the IMF, the European Commission and the
European Central Bank, the budget deficit has been halved and is currently below
8% of GDP (gross domestic product). The 2011 budget provides for a 7% of GDP
deficit target versus 7.6% in the original IMF/EC/ECB plan.
Greek 10-year bond prices have risen 10% with yields falling 13% since June;
Parliament supported a controversial law last month to open up the country's
freight sector to competition, despite fierce opposition by truck owners. The
next battle will be with lawyers, pharmacists and civil engineers.
A privatisation program has been announced; Qatar and China are planning
investments in Greece and there is more than €20bn in EU structural funds in the
The IMF’s projections show that Greece will have a debt to GDP ratio of about
145% in 2012 and last weekend, Dominique Strauss-Kahn signaled that beyond 2012,
IMF will continue its lifeline : “If the Europeans decide to do
something, we certainly will do the same thing.”
Jacob Funk Kirkegaard, economist at the
Peterson Institute for International Economics in Washington DC, said on
Tuesday that as the first program was negotiated at
the height of the Eurozone debt crisis
in May 2010, at a time of fears of
sovereign contagion and spillover
effects across the weaker Eurozone
economies, care was taken to avoid
haircuts or losses for holders of Greek
debt. The purpose was to avoid
undermining market confidence in
peripheral Eurozone debt. Since then,
however, a series of constructive policy
measures in Eurozone members, most
noticeably Spain, will likely lift the
risk of market contagion from round two
of the Greek debt crisis. The risk to
the systemically important Eurozone
countries (excluding small members like
Portugal and Ireland) is likely to be
far more limited well into 2011, when
this discussion will accelerate.
mid-2011, EU governments and the IMF may
be far less reluctant to impose losses
on remaining private holders of Greek
sovereign debt than they were in May
2010. As illustrated by the bankruptcy
and emergency federal loans for General
Motors - - which occurred after the height
of the financial panic in late
2008 - - governments are more willing to
impose losses on financial participants
in times of relative calm. This is
likely to prove true in the European
Union, too, even if it won’t necessarily
be pleasant for the two weakest Eurozone
members, Portugal and Ireland."
2. Business as usual in conservative Ireland:
The lack of Irish interest in structural reform is striking despite an economic
crash that has brought misery to tens of thousands of people.
The governance system has failed miserably but it is safe from reform.
Taoiseach Brian Cowen has been focusing, if that is a reasonable description,
on dousing a fire he had helped start; the main Opposition Party Fine Gael has
proposed some institutional reforms which created a firestorm reaction from the
potential losers of privileges and the Labour Party's big idea is a 4-year
gabfest on the Constitution.
Of the 216 members of the Oireachtas, the public would be hard
pressed to name more than 5 who have provided an inspired vision for the future
and dared challenge a people who had foolishly bought into a Celtic Tiger
fairytale, that in the words of Finfacts in 2005, was a structure built on
Parties have issued headline aspirations on jobs but there is no evidence of
recognition of the challenges ahead as the conventional model of globalization
Labour Party leader Eamonn Gilmore has ruled out a property tax and welfare
changes and pledged not to hit "middle-income Ireland."
Gilmore is Ireland's most popular politician and he will very likely be
either Taoiseach (Prime Minister) or Tánaiste
(Deputy Prime Minister) after the next general election.
If the former trade union official does not
have an agenda of serious reform on entering office, he could become another
Bertie Ahern, who as Taoiseach, never made a tough decision.
It is not only the political elite or the vested interests who lack an
appetite for change.
Even tenured academics who may tackle sacred cows at a safe distance, keep
silent about the gravy train in their midst.
Last month a report from the Comptroller
and Auditor General showed that it has been
an exception in universities for both academic and non-academic staff to retire
without additional pensions years allocated, at a substantial cost.
The university pension fund deficits amount to about €630m led by Trinity
College at €315m.
The majority of Irish private sector workers have no occupational pensions
and those who do face the prospect of meagre payouts, while the C&AG's report
showed that at NUI Galway, one individual could approve additional years,
paid from tax funds.
The official response from the university was: "custom and practice and
legitimate expectation dictate that added years form part of the terms and
conditions of employment. There is in practice, effectively no discretion
available to the Governing Authority in respect of existing staff."
Should beneficiaries of care services, have "legitimate expectation'?
And the response from academics?
During the boom, avoiding taking a stand against the convenient
conventional wisdom was the rule and clearly endures.