Is the IMF really the worst that could happen to Ireland Inc?
Saturday September 05 2009
Former Taoiseach Garret FitzGerald has warned that the IMF may have to be called in if the Government fails to create the National Asset Management Agency. But what does this mean -- and how bad would it really be for Ireland?
The purpose of the International Monetary Fund is quite simple; to advise its 185 member states and to lend to them when they are on their knees.
The advice, which emanates from the fund's hulking headquarters on Washington DC's 19th Street, tends to boil down to stop borrowing and sell off government assets. Some members are forced to actually call in the IMF in return for money that will put food on their citizens' tables.
Calling in the IMF is not a figure of speech: when the IMF lends to a country, it also sets up in an office block somewhere in the capital and starts telling the government what to do. As always, he who pays the piper calls the tune.
The IMF is 65 years old this year and has mellowed with age from an idealistic youth and inflexible middle age. Set up along with the United Nations and the World Bank in 1944, it was conceived as a global shock absorber, leaping in with loans and grants to prevent the sort of instability seen in Weimar Germany during the 1930s. Unfortunately, it has not always lived up to those ideals.
Unlike the UN and other global organisations, the IMF makes little pretence at being democratic and is still controlled by the world's richest countries who also supply it with money. An unwritten agreement ensures that the IMF's managing director is always a European although he or she must get the approval of the US.
When former US president Ronald Reagan called the shots, the fund morphed into a sort of right-wing laboratory which demanded that crisis-struck countries revamp their economies from top to bottom -- but these shock tactics effectively destroyed several countries in South America and Africa during the 1980s and left countries in Eastern Europe reeling in the 1990s.
During the 1980s, the IMF was only really used by Third World countries and calling in the organisation was akin to visiting the pawnbrokers -- and often resulted in equally unhappy results. With this record, it is no wonder that somebody like Garret FitzGerald retains an lingering horror of the IMF to this day.
The present global crisis has removed some of the stigma attached to an IMF bailout. So far this year Latvia, Hungary, Romania, Iceland and Ukraine have all gone bankrupt and received full-scale bailouts while Lithuania may well receive one soon. They have done this because the IMF is unbelievably rich. Following a G20 meeting in April, the organisation will soon be able to lend $1trillion. To get some idea of how much $1trillion is, imagine that somebody had begun lending $1m every day since Jesus was born. He'd still be doling out the money today. With firepower like this and a credit crisis, it is little wonder that the IMF is seen by many as a saviour.
Ireland would undoubtedly be a client of the IMF already if we had not adopted the euro but we are a member of the eurozone and the other members of the single currency are almost as eager as our Government to prevent a founder of the euro from receiving a bail-out.
In the meantime, Nama will be funded entirely by the European Central Bank in the short term. The ECB -- a slightly cheaper three-word alternative to the IMF.
- Thomas Molloy
