Anger should be directed at FF rather than IMF

Ireland received its latest report card from the IMF this week and the message continues to be that the student is doing well but has much more work to do to become an honours student.

As a consequence of this ‘satisfactory’ report, the IMF has agreed to release the next tranche of funding required to run the State. The latest tranche totals €920m, bringing its total disbursement to date to €19.1bn. It is dreadful that Ireland should be put into this position where we are subjected to regular school reports, but that is the reality we created for ourselves.

If one is angered by the suggestions from the IMF, it would be more appropriate to direct that anger at the Fianna Fáil-dominated governments of the past rather than the IMF.

The latest prognostications on the economy from the IMF contain mixed messages for the Government. At one level the IMF is satisfied that Ireland is fulfilling all of the obligations imposed upon it as part of the troika bailout deal in Nov 2010. Specifically the government borrowing requirement looks set to come in at 8.6% of GDP this year; reforms in the financial sector are continuing to advance; a personal insolvency bill was introduced in June; and progress has been made in developing a road map to wean the banks off the costly eligible liabilities guarantee — in other words, the bank guarantee scheme.

However, the IMF is concerned about the risks of the public debt, which is high and still growing; a banking system that is not yet serving financing needs, including the job-intensive SME sector; high household debt; high unemployment that is undermining skills, driving emigration, and compounding financial distress; and the ongoing eurozone crisis.

In short, the IMF is concerned that the risks to economic recovery remain large, with profound implications for the sustainability of debt.

In light of these risks, the IMF is seeking to pressurise the EU leaders to follow up on the statement made at the end of June to break the vicious circle between the banks and the State; to take bank debt off the State’s balance sheet, thereby improving the sustainability of Ireland’s public debt situation.

It argues that the European Stability Mechanism should invest in the equity of Irish banks, thereby relieving some of the funding pressures on the banks. Such a move would be a very important part of creating a situation where the banks can start providing credit again.

There has been a bit of a debate in recent times about the notion of the banks ‘being open for business as usual’. The banking side is arguing that this is indeed the case, but the SME sector in particular is arguing otherwise. Organisations such as Isme should take some solace from the fact that the IMF comes down on its side of the argument.

It cites a number of reports, but particularly the suggestion from the Credit Review Office set up to appeal loan applications that have been rejected, and highlights its advice to the banks that they should “better assess performance fundamentals in processing credit applications”.

Indeed the latest statistics from the Central Bank show that in the year to July lending to Irish resident non-financial corporations fell 3.4%, compared to 2.9% the previous month. New lending to the SME sector excluding financial and property related business was just €459m during the second quarter. Need I say more?

Somewhat controversially the IMF went on to suggest that Irish authorities should now target expenditures such as child benefit, medical cards, the household benefits package, and subsidies on college fees to correct the public finances in a more equitable way.

And then, of course, there is the ‘big’ property tax suggestion. Dec 5 promises to be a very interesting if not depressing day.