IMF rejects claims Coalition should drop austerity

The IMF has hit back at its former expert on Ireland for demanding the Government drop its austerity agenda.

The global financial organisation strongly distanced itself from the comments made by Ashoka Mody, its former chief of mission to Dublin, after he branded austerity a “potentially self-defeating policy”.

In a crisp response, the IMF said Prof Mody was now retired and there was no evidence to back his economic assertions.

Tánaiste Eamon Gilmore also dismissed Prof Mody’s predictions that Ireland has “about zero” chance of getting European institutions to take on the country’s bank bailout legacy debt.

Mr Gilmore said some economists had said the Government would never get a deal on the Anglo promissory note issue but that the Coalition had proved them wrong.

“At the beginning of the lifetime of this Government, about renegotiating the bailout deal we were told it can’t be done. We have renegotiated the bailout deal. When we sought a reduction in our interest rate, we were told it can’t be done. We secured a reduction in our interest rate, far greater, in fact, than most people expected,” said Mr Gilmore.

The Tánaiste also insisted the Government was not just relying on austerity to get through the recession. “When the Government was formed we determined that the route to recovery could not just be by budget consolidation alone. There had to be a strategy for jobs and growth,” he said.

“That is why we brought in last year a stimulus package. That is why we have brought forward the action plan on jobs.”

Prof Moody warned ministers not to proceed with plans to suck €3.1bn out of the economy in the October budget via tax hikes and spending cuts.

“I would even ask the question why can we not imagine and consider the possibility that for the next three years, as an experiment, there be no further fiscal consolidation,” he said.

The IMF said that the Coalition was on the correct economic course.

“Ireland’s programme, supported by the EU/IMF, has steadily reduced the fiscal deficit from unsustainably high levels through a consolidation effort that is phased over five years,” a statement noted.

While the IMF conceded there had been an “unavoidable drag on Ireland’s growth”, the organisation said “other factors have also weighed on growth, including the notably worse external environment and the efforts of the private sector to reduce its high debts”.

The IMF took issue with Prof Mody’s claim that austerity was self-defeating, insisting there was no evidence to back that up.

Brian Hayes, the junior finance minister, said Ireland had no alternative to austerity.

He said that to follow Prof Mody’s advice would mean “taking a gamble with money we don’t have”.

Mr Hayes also warned that it would be very difficult for Ireland to get money to bridge the gap between spending and exchequer income if it abandoned austerity.

Pearse Doherty, Sinn Féin’s finance spokesman, said Prof Mody was right to say austerity was a failed experiment.

However, Mr Doherty said he did not agree with Prof Mody’s call for a three-year period with no fiscal consolidation.


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