Irish debt reduction of 1990s can't be repeated, says IMF
THE world can't learn much from Ireland's "remarkable" ability to reduce debt during the 1990s, the International Monetary Fund (IMF) has said in a report on large-scale debt reduction across the planet over the past century.
Ireland "stands out" from other countries when it comes to debt reduction in the 1990s, but "this remarkable decline was driven mainly by the very high growth rate resulting from the process of catching up with the other European economies" as Ireland moved from an agricultural society to an industrial one, the IMF says in a report on lessons from the past.
"We therefore have not included this episode in our case studies because it does not seem repeatable by countries currently dealing with high public debt."
The Washington-based think-tank concludes that the weak global economy will make it more difficult for countries including Italy and Greece to follow Canada's lead in the 1990s and reduce debt.
The external environment has been an important element for nations that embarked on fiscal plans, the IMF said, drawing on lessons from six developed countries' responses to high debt levels at different times in the 20th century.
Governments with high debt levels today face a world of "widespread fiscal consolidation efforts, deleveraging pressures from the private sector, adverse demographic trends, and the aftermath of the financial crisis" that's unlikely to provide support, the IMF wrote in a chapter of its World Economic Outlook.
The study gives historical perspective to efforts currently under way in the euro area to end the debt crisis.
At the epicentre of the turmoil, with its economy contracting, Greece is trying to bring back its debt ratio under 120pc of GDP by 2020, from more than 165pc last year, as part of an international bailout package.
The IMF study said that progress in the euro region may be limited until issues around the monetary union and the financial sector are addressed. By contrast, conditions in the US are in place for fiscal consolidation.
The chapter called 'The Good, the Bad, and the Ugly: 100 years of Dealing with Public Debt Overhangs,' looks at what happened in countries where debt rose beyond 100pc of GDP and focuses on the UK after World War One, the US after World War Two, and Belgium, Canada, Italy and Japan in the 1980s and 1990s.