IMF chief: Yes you can bounce back
But Chopra hints at fears over our tracker mortgages
Published 30/11/2010 | 05:00
THE head of the IMF mission in Ireland last night insisted the country can bounce back from the economic crisis -- but outlined a swathe of painful measures that must be taken.
And he warned that further losses at the Irish banks could be uncovered, possibly in the area of tracker mortgages and small business loans.
In an exclusive interview with the Irish Independent, the IMF's Ajai Chopra also insisted Ireland would be able to afford to pay back the crippling multi-billion-euro loans it received in bailout funds.
His assessment was echoed yesterday by Europe's Commissioner for Economic and Monetary Affairs Olli Rehn, who also predicted that Ireland would rebound "relatively rapidly" from its current economic woes.
Job losses at the Irish banks are also likely as they are downsized under the IMF/EU deal and the national debt will not peak for another three years.
It came as Central Bank Governor Patrick Honohan insisted there were no more black holes in the banks and he confirmed that Anglo Irish Bank's brand would disappear "within weeks". However, he later stressed that it would take "years" to deal with the bank's loans.
Mr Chopra said there was not enough time to give the banks the all-clear in terms of fresh losses on loans in the two weeks the IMF had spent here.
He had a simple message to critics of the IMF/EU plan who claim Ireland could default on its debts.
"We would not be lending into a situation if we thought it was unsustainable," he said.
Mr Chopra said future interest-rate hikes were something that would have to be watched.
"The mortgage loan pool is large and has to be monitored closely. There are lots of different type of mortgages, for example tracker mortgages," he said.
"Over time interest rates will begin to go up, and one needs to be sure that with these tracker mortgages, people will be able to afford the higher interest rates."
Mr Chopra admitted that the banks would get billions of euro in fresh cash, but there was no plan to ask them to sign up to specific lending targets in exchange.
"I don't think it is viable to just say they need to lend regardless, indiscriminately. That is not going to be good for the economy either."
Earlier, Mr Rehn said the Irish were "smart, resilient and stubborn people".
"They will get over this challenge and the EU is supporting them in that," he said.
"Ireland has hit a very deep economic recession resulting from the financial crisis, which hit Ireland because of its credit boom and real estate bubble.
"But the economy will face up to serious challenges. Ireland has a flexible and open economy, which is capable of rebounding relatively rapidly from this recession."
However, in his autumn economic forecast in Brussels, Mr Rehn predicted the economy would only grow at half the rate forecast by the Government.
The European Commission's latest growth forecasts for Ireland are significantly lower than the Government's.
The four-year rescue plan predicts a 1.75pc boost in economic activity next year and growth of 3.25pc in 2012.
But in its autumn economic forecast, the European Commission said the economy would grow by just 0.9pc in 2011, and a further 1.9pc the following year.
The differences explain why Ireland was given an extra year, to 2015, to reach the EU limit for borrowing of 3pc of GDP.
Sources say the commission believes budgetary adjustment of €17bn would be required to meet the deadline by 2014.
But the Government won the argument that to go beyond €15bn would be politically unacceptable and economically damaging.
The commission sees the deficit remaining above 10pc of output (GDP) next year. At 10.3pc, its figure is more than one percentage point higher than the Government's target of 9.1pc.