Business Irish

Tuesday 24 April 2018

The interview: 'There is no politics with the IMF, just pragmatism'

An Irishman who spent much of his life working for the IMF tells Brendan Keenan he was shocked to see the IMF arrive here, but believes the Irish rescue could be a success story

IT must be a strange experience for the men and women of the International Monetary Fund (IMF) to find themselves portrayed as the good cop in the EU/IMF rescue of Ireland.

It was not like that in the panicky days of last December. The threat of IMF intervention was treated like the imminent arrival of Genghis Khan and his hordes. Beyond the media hype, there was genuine fear for their livelihoods among many ordinary people.

Three months on, and it is the European Union in general, and Germany in particular, who are the villains of the piece in the public mind. The once-dreaded IMF hardly gets a mention.

This is just as ridiculous as the original inflated fears about the IMF, but one man who should know is not really surprised. Donal Donovan spent his working life with the Washington-based Fund -- which tends to be the norm.

"The IMF like to hire straight from college so people haven't built up connections in their home country," he explains.

Like real cops, who always used to be stationed outside their home county, IMF officials don't work on rescues in their home country.

Donovan spent much of his career dealing with Africa, which is where most of the fear and criticism of the IMF's actions spring from. But he was also involved in the IMF's three biggest crises, until now, in Argentina, Russia and Asia.

He cannot, though, recall any direct parallel to the joint EU/IMF rescue packages for Greece and Ireland. They arose partly because the scale of the bailout loans would have exhausted the IMF's funds, and partly because European leaders did not want the US-based IMF being the sole lender of last resort to eurozone countries.

"The nearest parallel might be the involvement of the US with the IMF in the Latin American crisis of the 1980s, with things like the 'Brady bonds' to restructure their debt," he says.

"I was never convinced that the EU would be able to handle it on is own. The scale of the problem meant the IMF would be needed."

But he thinks it almost inevitable that Irish hostility would be directed more towards Brussels and Frankfurt than Washington.

"If you borrow from your nextdoor neighbour, it can cause significant strain to the relationship if you don't feel you're getting fair treatment. That's the EU where Ireland is concerned. Borrowing from the IMF is more like dealing with a distant bank manager."


"There does seem to be less rancour towards the IMF and more hostility towards the EU, even though it is putting up most of the money."

The carefully-chosen bureaucrats of the IMF have other advantages over the institutions of Europe, he feels.

"Mr Chopra and his people came, and did their business, and went," he says. "They are very pragmatic and there is no politics. It is different with the EU, which is a political construct and you get leaks and too much talk."

Even so, he admits to a sense of shock seeing on TV his former colleague Ajai Chopra arriving in Dublin. "You don't expect IMF intervention in a highly-developed country with sophisticated institutions.

Attitudes could yet change. Because the EU is more political, it might be persuaded by the new Government to be more lenient towards Ireland. The IMF, on the other hand, provides loans so that the targets on the budget deficit can be met.

Donovan has no doubt that, if needs be, it will put its money where its mouth is. Or, to be more precise, not put it.

"It is not uncommon in these rescues for the IMF to withhold money if the three-monthly targets are not met. The board must approve the payments and the staff won't write the cheque unless things are on track.

They will say, 'We can't put that to the board until the slippage is made up.'"

Donovan now does some part-time college teaching in Limerick, along with some journalism, and has served on two of the banking inquiries. He shares what is often seen as the core IMF culture: that getting the government finances right is the central plank of any plan.

"I've been involved in many cases where a second, and more, deals were required -- sometimes short, sometimes long. It's when the momentum for adjustment is lost that everyone may decide to call it quits on the rescue.

"Ultimately, that's what happened in Argentina and what happened in Russia. But I'm not alarmist about Ireland. I think it has the ingredients to be one of the IMF's most successful interventions.

"There will be a year or two of hard political choices. But taking them could produce a remarkable change in sentiment towards Ireland. It's at that point that you can think of debt restructuring or looking for easier conditions from the IMF. But it will be reluctant to agree to that before those hard decisions are implemented," Donovan says.


A closing of the deficit, followed by some debt restructuring, can set off a 'virtuous circle' of falling interest costs and rising incomes and spending. "We have seen how things can turn quickly -- in Ireland in the 1980s, and Britain after the IMF intervention in 1976."

That was the last time a rich north European country had to call on the fund, and, Donovan believes, it shows why an international organisation is needed. "The US had been supporting sterling but it is politically difficult to use your money to help another country.

"Even though the US is the biggest contributor to the fund, it suited them to eventually tell the UK it would have to go to the IMF.

"You need an anonymous multilateral groups to do things it is not possible to do bilaterally, because of the damage it could do to relations between countries."

The parallels with the difficulties of the German and other governments in supporting Ireland and Greece are obvious. In that sense, the proposed EU permanent rescue mechanism can also be seen as an attempt to take electoral politics out of the process.

Normally, it is politics in the recipient country that are poisoned by IMF interventions. Critics say people have starved in Africa and Latin America and been deprived of vital education because of draconian conditions imposed in IMF rescues.

Donovan spent most of his IMF career dealing with Africa. He acknowledges the problem, but rejects most of the criticism.

"These are poor countries and people are very dependent on state subsidies on things like food, and many earn their living in government sinecures of various kinds. So there is real hardship if governments have borrowed so much that the public finances have to be corrected.

"Such criticism of the IMF often assumes it has resources which just aren't there. It is looking for a world which just isn't feasible. I would see the IMF as slightly right of centre in its policies, but only slightly."

Even so, given his experiences elsewhere, he was a bit surprised that Fine Gael was the main winner in the election and that there wasn't a bigger swing to the left.

"I would have expected a major shift, but people are still in the middle, with no radical departure. Irish people seem to be more conservative -- or perhaps pragmatic -- than I would have thought."

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