Government off to 'strong start' on bailout
Published 21/05/2011 | 05:00
IRELAND is off to a "strong start" in implementing its IMF/EU bailout programme, reaching virtually all of the targets set for the country last December.
In a broadly upbeat assessment, the IMF said the Government was unlikely to "waver'' in hitting any future targets either.
"We are confident the Irish authorities are up to the task,'' said Ajai Chopra, deputy director of the IMF's European department.
While saying the risks to the bailout are higher now than in December, the IMF said the Government was making the right cuts and was also fixing the problems in the banking system via a giant recapitalisation programme.
Chopra strongly rejected the idea -- as proposed by some Irish economists -- of speeding up attempts to cut the deficit. Chopra said this would simply lower growth even further.
Among the future risks to the bailout plan are slower growth, higher unemployment, further ratings downgrades and the European debt crisis, it said.
The IMF said these were leaving Ireland with higher borrowing costs than were sustainable in the long term.
"The programme is on track, yet challenges remain and the external environment has become more adverse, hence steadfast policy implementation is key,'' said its latest report on Ireland's progress.
The stress-test exercise of March was effective, the IMF said, but conditions had worsened in the bond market since then, it added.
"Although bond spreads declined significantly following the authorities' end-March banking announcements, they have since risen to new highs, and Ireland's sovereign and bank ratings have been further downgraded,'' the report pointed out.
Crucially, the access of Ireland and its banks to the international markets remains "elusive'', said the organisation.
"Reliance on Eurosystem liquidity support has risen to about €145bn at end-March 2011, including Emergency Liquidity Assistance (ELA) provided by the Central Bank,'' it said.
Irish banks cannot get funding even with a guarantee, it added.
If there is a more comprehensive series of supports from Europe, sentiment could turn around, the report suggests.