IMF call to adjust cuts ‘does not apply to us’
The Government has said it will continue to cut €3.5bn out of the economy next year, although the IMF is telling countries to change their targets when growth is worse than expected.
However, IMF managing director Christine Lagarde told journalists their advice “clearly applies to pretty much all countries, particularly in the eurozone”.
Her chief economist, Olivier Blanchard, who did the analysis on why the IMF was getting it systematically wrong for decades and especially since 2009, said: “If growth turns out to be worse than expected, then the country does not have to take additional fiscal measures, which could make things worse”.
The IMF halved its growth forecast for Ireland for this year to around 0.4% from 1.9% predicted last year as consumers and investors cut back on spending, leaving exports as the main source of growth.
Mr Blanchard, speaking at the IMF’s annual congress in Tokyo, said that their advice is always that “this is a marathon, not a sprint. This is going to take many years. Steady and slow wins the race. It is still very important to have credible, medium-term plans because then you can go more slowly at the beginning than otherwise”.
The Department of Finance said it was committed to reducing the deficit to below 3% of GDP by 2015 and was on track to meet the deficit target for this year of 8.6%.
“In Budget 2013, an adjustment of €3.5bn will be introduced. We structure our budgets to be as growth-friendly as possible and have introduced a range of measures to support well performing sectors and rebuild others… all forecasters expect Ireland to grow for a third consecutive year in 2013.”
The department added that cutting the deficit as planned was increasing investor confidence and reducing the cost of borrowing as the country returns to the markets.
They pointed out that the IMF, in its Apr 2010 forecast, had under estimated growth for Ireland for 2010-11, and had based their study on the effects of austerity on this forecast. “It is incorrect to attribute the IMF’s general conclusion to one specific country and if applied to Ireland, it would find that Ireland does not conform with the average.”
It added that “much austerity in Ireland leaks out in the shape of lower imports”.
European Commission president Jose Manuel Barroso said austerity was not imposed by the commission. “The reality is decisions are taken by the governments themselves,” he said, but added the deficit and debt rules are flexible in a worse than expected recession.
“We can adapt and fine-tune in finding the right balance, but this cannot replace true fiscal consolidation, deep structural reforms and target investments.”
