Monday 26 August 2019

David Chance: 'A more thoughtful IMF steps away from austerity'

Stock photo
Stock photo

David Chance

In the great crash, the International Monetary Fund was a watchdog for austerity and urged cuts to welfare and capital programmes to shrink our massive budget deficit.

Fast-forward to 2019 and the message is very different.

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The IMF has undergone a change in philosophy since the crisis that started in 2008 plunged economies across the globe into recession, bringing hardship to millions who lost their jobs and were then faced with IMF-backed austerity programmes. IMF austerity was compounded by the inflexibility of EU budget rules in adjustment programmes that are now seen to have aided the rise of populist parties in Italy and elsewhere.

Now, in its own words, the IMF's "surveillance and lending operations have increasingly emphasised inclusive growth, including through the use of social spending floors".

That is a welcome change and there was evidence it was in play in the Fund's assessment of Ireland's finances which was published yesterday. While the IMF still urged the Government to get a grip on health spending and to set aside some of the excess corporate tax receipts, it also noted that Finance Minister Paschal Donohoe should boost the economy if there is a hard Brexit and even suggested that bank capital requirements could be lowered to make more lending available in the case of a big hit to the economy.

The case for additional public spending if there's an economic shock is helped by the return of the budget to surplus and by the prospect of a further improvement in public finances to come, according to the IMF.

It also "welcomed the progress in the provision of social housing" by the Government as well as spending that aims to improve infrastructure.

While it is true that spending in areas like health need to be addressed, it is also true that a permanent state of austerity is not desirable and that there is room to manoeuvre, especially with interest rates at rock-bottom.

Irish Independent

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