There aren’t many great news stories on Ireland’s economy at present but news this evening that the IMF has agreed to the early release of the next tranche of funding from the bailout is encouraging. Their statement approves the release of €1.58bn bringing the total from the IMF so far to €7.2bn out of a final total of up to €22.5bn.
In a statement the IMF pays tribute to the new administration’s decisions on the banks after only a few weeks in office. The IMF suggests that “medium-term availability of Eurosystem financing would support this process” of our banks gaining access to market funding which seems like an endorsement of the medium-term facility mooted by the government and others just prior to the stress-test announcements at the end of March 2011 but which the ECB apparently scuppered.
The IMF confirms we are on track to deliver our promised fiscal adjustments in 2011, that is, it confirms the latest Exchequer statement for April 2011 in which taxes and expenditure were seen to be in line with our Budget. The ESRI last week broke ranks with recent forecasts and suggested our GDP might grow by 2% in 2011, this compared with 0.6% in the EU Spring Forecast, 0.75% in the Department of Finance update in April and 0.9% from the latest Central Bank ofIreland forecast. The problem is that the Budget for 2011 is based on GDP growth of 1.75%, so it may be challenging for us to meet our targets as the year progresses but we have had an encouraging start.
There’s no detailed statement on the delays with recapitalizing the banks (the February 2011 recapitalisation has been pushed back to July 2011) or progress with deleveraging or the sub-€20m loans at AIB and Bank of Ireland which might go to NAMA after all unless these two banks can produce credible deleveraging plans in the next two weeks.
The statement from the IMF concludes “although the external environment continues to be challenging, the authorities are committed to sustained strong program implementation. Supporting these efforts with a more comprehensive European plan would help overcome market doubts, regain market access, reduce the threat of spillovers, and bring about a recovery of the Irish economy” If you were to translate this Diplomatic Speak to ordinary English, you might deduce that the IMF is advocating better EU engagement with our debt problems. The thing is that IMF is unlikely to come out and say that.
UPDATE: 20th May, 2011. The IMF released its staff report covering its first and second reviews today and there was also a press conference call where the European Deputy Director, our friend Ajai “Chopper” Chopra and two of his colleagues fielded questions. It is the first press conference under the new Interim Managing Director, the non-French American, John Lipsky and to me at least, Ajai seemed a little more forward on the need for a common European approach to our bank debt and the need for a medium-term ECB facility. Although IMFer, Craig Beaumont seemed confused about the Ireland’s GDP growth in 2011 – at Budget 2011 in December 2010 the government was projecting GDP growth at 1.75% and the general consensus now is that it will be below 1% which will cause some difficulty. That seems to have gone over Craig’s head. As to the Morgan Kelly suggestion of an immediate balancing of the budget, the IMF considers any accelerated fiscal adjustment will negatively affect growth to the extent that it would not be desirable. The IMF say that in relation to our corporation tax rate, changes are not required in the bailout agreement because ” we did not see such a tax increase as consistent with the overall goals of the program in restoring growth” which seems to me to be as strong a form of words that can be deployed by the IMF. There was nothing on burning bondholders but the IMF did say ” the countries cannot do it alone and putting a disproportionate burden of the cost of adjustment on the country may not be economically or politically feasible. The resulting uncertainty affects not only these countries but through the high spreads and lack of market access it increases the threat of spillovers and creates downside risks to the broader euro area. Hence, these costs need to be shared including through additional financing if necessary”
NAMA Wine Lake 