IMF expert warns Lenihan to 'seek bailout now'
Published 14/11/2010 | 05:00
A FORMER chief economist at the IMF has warned that Brian Lenihan must immediately ask the IMF for a bailout or risk bankrupting the Irish state.
Simon Johnson, Professor of Entrepreneurship at Massachusetts Institute of Technology and a member of the Congressional Budget Office's Panel of Economic Advisers, has a stark message for the Irish Government.
"For the sake of the Irish people, it's time to go to the IMF. If you go in now and if you go in with your partners, you will get a good deal. You may not get such a good deal next week. It would have been a much better deal if they'd gone in February because Ireland wouldn't have had to go through all this discretionary tightening along the route."
While he agreed with the Governor of the Central Bank, Patrick Honohan that the IMF might not change the policies already being implemented by the Government, he warned that this situation would not last.
"It's not untypical that countries wait too long and find themselves in more desperate straits. If you bring the IMF in this weekend, then Mr. Honohan is exactly on target, but the longer you wait, the longer the politicians prevaricate, the worse it's going to be for everyone."
After spiking to 9.25 per cent on Thursday, the cost of borrowing fell sharply on Friday as German suggestions that bondholders should share the pain of defaults was clarified. Short sellers have targeted Irish debt, driving prices lower.
However, fears over Irish banks holdings of debt continued to weigh heavily. The Government is thought to be actively promoting the sale of Irish banks to overseas interests, with Chinese and Canadian banks seen as potential buyers. However, analysts have indicated that this might be difficult given the uncertainty over the economy and housing markets.