Business

Monday 27 March 2017

IMF won't sweat missed targets, for now . . .

The brains trust that is the Ireland IMF mission team -- economists Ajai Chopra and Ashoka Mody -- are unlikely to have their sleep patterns too disturbed by Ireland's initial failure to hit certain "milestones'' set down by the Washington-based organisation.

Yes the outgoing government has flunked one of the first key IMF tests by not ordering yet another recapitalisation of the banks, but target misses are commonplace in IMF programmes and in the vast majority of cases (though not all) the money still keeps flowing.

The IMF calls it "slippage'' and slippage happens every day in terms of countries missing fiscal targets and other broader benchmarks. Mexico, Romania, Latvia, Greece and Hungary are just some of the countries missing IMF targets in recent years and they managed to keep the taps turned on after some tweaks.

The EU/IMF team will now have to put its faith in the new government to meet the remainder of the targets, with the outgoing administration essentially a government without mandate.

The IMF also drew up the Ireland programme in haste in November/December (amid the grim background of a eurozone debt crisis) and the signs of a rushed job are there to see.

For example, it makes little sense to recapitalise AIB, Bank of Ireland and EBS up to 12pc core Tier 1 capital before completing stress tests of their bombed-out loan books. But that is what the programme demands -- pour the money in first and then see if you really need it.

Ireland, for its own reasons should try and hit the targets, but the credibility of the targets is somewhat undermined by the curious sequencing demanded by the IMF. Like rushed legislation, rushed bailout programmes are rarely good bailout programmes.

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