Tuesday 23 January 2018

Coalition 'gained credibility' for its response to crisis

Emmet Oliver

Plaudits from the world's most influential economic body don't come around very often for most governments, including our own.

But yesterday's IMF annual statement on Ireland includes the ultimate plaudit any government could wish for.

"Irish policymakers have gained significant credibility,'' purrs the IMF in comments which will delight Finance Minister Brian Lenihan. The Washington-based organisation is broadly happy with Ireland's budgetary position after almost two years of painful spending cuts and tax rises.

The use of the word "credibility'' in particular is important, because that is precisely the commodity the Government lacked when it started making the painful cuts back in 2008.

At that point the bond market was worried about the banks, the public finances and the Government's own backbone. Now the IMF says these concerns have been dealt with and the actions taken were the right ones. "These actions have reassured the global policy community and international financial markets,'' it says.

Despite gaining desperately needed "credibility'', the challenges for the Government remain immense. For example, the IMF forecasts that unemployment will still be lingering at 9pc by 2015.

This will be the permanent legacy of the housing bust and the bad economic decisions made in the five years leading up the recession.

Another legacy is the levels of personal debt in the economy. Everyone would like to see this legacy issue dealt with and the IMF claims the banks are now so adequately capitalised that support measures for homeowners should be considered. This is a populist message, but not one the banks will want to hear.

There are €148bn of mortgages in the system and any attempt to write down even a small portion of this would pose serious financial challenges for lenders, both domestic and foreign-owned.There are plenty of unpalatable ideas in the IMF report for Irish banks.

The idea that bank levies should be considered will alarm the lenders, even though such measures are being considered internationally.

This measure and some of the others show that the IMF is impatient to see Ireland move beyond crisis mode.

For example, NAMA should start selling properties in an "orderly disposal'', it suggests.

Yes, this will send prices down sharply, but at some point the government will have to "normalise'' the property market, the organisation insists.

While the whole point of NAMA is to hoard properties, the IMF seems to believe that ultimately it is unhealthy for the State to sit on such a large overhang of property.

However, any such sales are again likely to prove unpalatable for the banking sector, which is already struggling from the property price plunge which began in 2007.

Irish Independent

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