IMF at the door? For the sake of the country, open it and usher them in.

Every country throws up its own share of comedic stories in the “you couldn’t make it up category”. Maybe on the world stage the Irish, Poles, Belgians (mostly in France) have come to be stereotypes but in truth they’re present in every country. But take our own in the last week:

Of the of the main stories occupying the media is the Cork-based provocative and opinionated radio broadcaster, Neil Prendeville, who is alleged to have exposed, and then masturbated himself beneath the inflight magazine Cara (meaning “friend” in Gaelic) in the middle seat of the front row between two shocked passengers on either side (one male and one female who happened to be a journalist) and facing two female stewardesses, on an Aer Lingus flight from London to Cork on 19^th October. Neil Prendeville release a statement in which he claimed he couldn’t remember the incident as he had taken painkillers and alcohol, though if it had happened he said, then he expressed his sincere apologies. Gardai are investigating the matter and according to the Irish Examiner “their investigation will take several weeks before a file is prepared and sent to the Director of Public Prosecutions.” The public won’t be surprised that it will take the Gardai a few weeks to investigate a wank – after all they have been investigating for nearly two years a €450m share-support scheme, €7bn loan carouselling at year-end to avoid adverse financial reporting and the concealment of €80m+ director loans at Anglo Irish Bank. Despite Anglo’s HQ being raided by Gardai in February 2009 and two high-profile arrests – on 18th March 2010 (Sean Fitzpatrick, the former chairman and CEO of Anglo) & on 24th March, 2010 (Willie McAteer, former finance director of Anglo), both men were released without charge after 24 hours – no apparent progress has been made with the investigation though recent reporting has suggested that the Gardai might try to present their case to the DPP by the end of this year.

On Friday, the Minister for Agriculture, Fisheries and Food, Brendan Smith announced a scheme to provide assistance in the form of cheddar cheese to hard up families (there are a lot here with 450,000 people on our Live Register representing about 275,000 unemployed and the remainder in receipt of some form of income support). The scheme is not new – up until recently the State used provide some 350,000 kg of butter per annum to the needy. It was decided that cheddar cheese was easier to store and distribute so now we distribute 167,000 kg each year and the announcement on Friday was to confirm that 53,000 of this 167,000 kg would be distributed before Christmas.  Cheddar typically sells for about €10 a kilo in our supermarkets so the one-size 12 x 1kg pack available from five distribution centres throughout the country will have a value of some €120 per household lucky enough to qualify for the permits. In total some 53,000 kg are now being made available for distribution (worth €530,000 in the shops and capable of supplying 4,417 families). The Minister defended the scheme which is supported by charitable organisations but with an expected €6bn of budgetary cuts expected in weeks (with €4.5bn coming from public services and capital spending and €1.5bn in new or increased taxes and levies), the initiative attracted widespread public and political ridicule for being ad-hoc and not part of joined-up thinking.

Of far greater significance was the bizarre announcement by the Minister for Health and Children, Mary Harney, of a one-time offer open for 17 days only of a redundancy/early retirement scheme for the health service – the scheme is to allow 5,000 to take early retirement (if they’re over 50) or voluntary redundancy (no restriction whatsoever) and the projected cost is €80,000 per person (€400m in total). The “offer” will close on 19^th November, 2010 and the offer was roundly criticised not least because it was making a blunt and random cut in the health service (annual budget is 2011 is €15bn out of government current spending of €55bn – appendix 1) without regard for the nature of services that would be cut by a departure of people from unpredictable departments (be they frontline or managerial). The offer lacked any planning of the future service and was a worrying augur for what the forthcoming Budget will contain.

And so to the Budget itself. The Information Note released on Thursday last has had a mixed response. There seems to be broad agreement, though with notable exceptions, that a fiscal cut of the order of €6bn is required in 2011 to help us along the road to restoring our finances to a 3% budgetary deficit in 2014 (from an estimated 11.9% in 2010 – that’s after stripping out the one-off bank bailout costs which otherwise would see us at 32% in 2010). The financing of the bank bailout promissory notes (subject of a separate entry on here later today) caused confusion and resulted in an additional release from the Department of Finance of Friday which showed how the interest and capital repayments on the notes would work. The two-year interest free period (from a Eurostat accounting perspective) amused many and fooled no-one, it was a device to defer €2-3bn of interest into 2013 and beyond. The statement released doesn’t even seem to add up as the total interest shown on the promissory notes is €13.1bn and the total repayment of promissory note and interest is €43.3bn but the promissory notes (including the €0.2bn special shares in INBS and EBS) come to €31.05bn – so it seems that €1bn of debt has disappeared someplace. The DoF has deferred the publication of the four-year plan to the end of this month apparently with many calling foul that this is a device to spancel debate on the detail of how we’re to tax and cut our way to fiscal stability. And just to muddy the water further, there is now a higher degree of political instability where one government supporter has resigned his seat and the government has been dragged through the courts (at a reported cost of €100,000) to allow a seat vacant for 17 months to finally hold a bye-election (in which it is likely to lose as no incumbent political party has won a bye-election since 1982 and the current administration is deeply unpopular). The recent unabashed pork-barreling extortion for votes from Independents will amuse some overseas viewers (see here for Independent deputy Jackie Healy-Rae’s list of demands and here and here for Independent deputy Michael Lowry’s casino dream). Approval of the Budget is far form certain.

But why the IMF? Firstly it’s not as if the idea is totally alien, even if the Minister for Finance denied that his trip to the IMF in Washington last month (his first since becoming MfF in May 2008) was anything but routine. It would be tantamount to gross incompetence if the DoF was not at least contingency planning for a bailout by the IMF even if they remain tight-lipped about the possibility, no doubt not wanting to undermine confidence in the country.

Without the IMF, would a different administration with a change of political parties help? I don’t think so. As unpopular as the ruling Fianna Fail party is, the MfF, Brian Lenihan, still retains relative popularity even if his management of the crisis has been anything but sure-footed. The two main Opposition parties don’t give the impression of having candidates for the job that would be much better, the Fine Gael Finance spokesperson Michael Noonan is a (here’s my own view) fine politician and a gifted orator but he is hardly the most talented financial operator, their erstwhile finance spokesperson Richard Bruton would probably be a better choice but he ended his chances when he launched an unsuccessful “heave” (coup) to remove party leader, Enda Kenny during the past summer. The Labour Finance spokesperson Joan Burton has been the most vociferous opponent of government policy during the crisis but my personal view is that she would not be the order of magnitude better than the present incumbent needed to get us out of this mess. Regardless of the political party with its name on the minister’s door, it will be the same civil service in support – the civil service that has been seen to be inept during much of the current crisis, unable to research accurate information or produce credible forecasts. There seems to be a dreadful lethargy in the civil service which appears obsessed with process yet unconcerned about end results – a good example would be the rambling and incoherent report by the Comptroller and Auditor General into NAMA during the week.

The best reason for inviting the IMF in is that they will conduct a root and branch investigation into taxation and spending – we stand a better chance that the weeds will not just be cut, they will be rooted out. Our Taoiseach is unlikely to remain in the top five highest paid prime ministers in the world. Former Taosigh might lose benefits (I was saddened at the recent interview of former Taoiseach Garret Fitzgerald on the under-rated Vincent Browne show on TV3 where he said he wouldn’t be giving up his ministerial car “that is a situation and I have no control over that [Vincent Browne – do you think that is ridiculous?] I can understand people being unhappy with it, the expenditure but I can’t intervene in that matter”). These are high profile though low value examples of what many perceive as excess and waste, but hopefully the IMF would not stop before any sacred cow in considering cuts.

Of greater significance is that at the start of this year, the government entered into a deal with the unions representing the 350,000 (20% of the total employed workforce) public sector employees and effectively took compulsory redundancy and salary reductions off the table as future options. There was supposed to be a quid pro quo of industrial relations peace and reform which might see services being delivered more effectively – whilst the former has happened in the sense there has been no industrial action, there has been no apparent movement on the latter. Ireland is still seen in terms of insiders and outsiders where tribal connection is seen as vital to advance and with a population of 4.5m the country is still a small place where everyone knows everyone else. There are too many sacred cows, be it the minimum wage (generally €8.65 per hour), unemployment benefits (€196 per week or GBP 170), State pensions (state contributory pension of €230 per week and the state non-contributory pension of €219 per week, which together are paid to a total of 368,000 pensioners), archaic and protected allowances, quangos stuffed with political appointees, ministerial pay expenses and pensions, lack of transparency on spending and salaries, the 12.5% corporation tax rate, the list goes on and on. IMF intervention would see adjustments that were efficient, timely and in my view “fair”.

The IMF would not be a panacea and they will not be entirely peopled with world-class staff and they will make mistakes and they will be summary in some of their decisions. But they wouldn’t completely control the changes needed to bring the country back to fiscal stability – there would be choices and there would be some debate. So if the 12.5% corporation tax rate is seen as vital to Ireland’s competitiveness, then presumably we can produce a Laffer Curve to justify the 12.5% rate and debate that with the IMF. The IMF will however be broadly competent, will be capable of producing plans based on accurate information which will be credible and can pursue common-sense policies with a degree of independence not available to any political party.

Our bond rates still seem to suggest that a default or intervention is expected. It might be that the four-year plan later this month offers more credibility to our chances of managing our destiny without intervention. I don’t think it will.

Will somebody get that door?

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