Austerity not Irish growth clog: IMF

WASHINGTON - Agence France-Presse

Irish Finance Minister Michael Noonan is seen at a eurozone meeting. REUTERS photo

The International Monetary Fund denied on Oct. 20 that austerity measures are to blame for the sluggish Irish economy, saying that other factors are keeping growth flat.

Greece, Portugal and Ireland are complaining that the Fund underestimated the economic and social impact of drastic spending cuts and tax hikes in the bailout programs, but a senior IMF official said that was not the problem in Ireland.

The pace of the EU-IMF rescue program “has struck an appropriate balance and continues to do so for the period ahead, enabling Ireland to make steady progress in reducing fiscal imbalances while protecting the still fragile economic recovery,” Ajai Chopra, deputy director in the IMF’s European Department, said in a statement.

“With overburdened bank, household and SME (small and medium sized business) balance sheets, and weak growth in trading partners, a number of factors besides fiscal consolidation have been a drag on growth in Ireland,” he said.

The IMF recently admitted that it had underestimated in Greece how deep the “fiscal consolidation,” or austerity measures, in its bailout plan would force the economy into recession.

Critics say the severity of the measures are to blame for Greece’s inability to get back to growth.
At issue was a revision of its “fiscal multiplier,” which IMF economists use to estimate the impact of various actions, like spending cuts, on the economy.

The admission that the IMF got it wrong in Greece has been taken up by other countries undergoing IMF-European Union bailouts, with countries arguing for easier adjustment terms to cope with slower-than-expected growth.

Ireland sought an 85-billion-euro ($110 billion) EU-IMF rescue package in November 2010 after it was devastated by the 2008-2009 global financial crisis.

As part of the rescue, Ireland agreed to painful austerity measures including spending cutbacks, state asset sales and tax hikes.