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Updated 6.15pm
THE INTERNATIONAL MONETARY Fund has criticised a major policy introduced by the Government in the run up to last month’s elections.
In its first post-bailout review of the nation’s finances, the IMF trained its fire on the Government’s plans to boost mortgage lending by guaranteeing borrowings.
In a conference call this afternoon, former IMF mission chief Craig Beaumont said that the Government should exercise “significant caution in adopting a guarantee framework”.
The report broadly endorses the Government’s economic strategy, while drawing attention to impediments to growth that seem to ensure the recovery will remain sluggish at best.
Mortgage plan warning
The IMF warned against measures contained in the Government’s Construction 2020 strategy, which was published in the weeks preceding the local and European elections.
One aspect of the plan in particular, which would allow borrowers to draw down up to 95% of the value of a home with support from the Government, was singled out for attention.
On the plan, IMF staff say that they:
Caution against such mortgage guarantees in view of the implications for contingent liabilities and credit standards.
‘Major challenges’ on ISIF
In the report, the IMF also forecasts ‘major operational challenges’ in commercial lending from the Irish Strategic Investment Fund, formerly the NPRF.
Prior to the election, the Department of Finance issued a statement saying that the ISIF “is open for business and actively seeking commercial investment opportunities in Ireland”.
However, the IMF has questioned the wisdom of this move, and said the ISIF should be kept on a short leash:
“The continued need for the ISIF should be reviewed periodically, taking into account its performance and developments in the range of private financing options available.”
Cash from the ISIF is also being pumped into the Strategic Banking Corporation of Ireland, also announced in the weeks immediately before the election.
Overall view
The report welcomes an up-tick in major macroeconomic indicators, including unemployment and tax receipts.
However, in keeping with advice from the Government’s own fiscal watchdog issued yesterday, it recommends keeping the €2 billion budget adjustment planned for this year.
It also flags low rates of private and public sector consumption, with low inflation combining with consumer’s desires to save and pay down debt also proving to be a drag on the economy.
Risks to the economy remain, especially an unforeseen market shock, possibly with geopolitical roots. The high percentage of non-performing loans on bank balance sheets is also flagged.
Beaumont said earlier today that he continues to support Ireland’s case for retrospective recapitalisation of the banks, saying that “the benefit of (recapitalisation) is to help offset those risks and reinforce the progress Ireland has made recently.”
The report blames the demise of Labour party leader Eamon Gilmore on “the large fiscal consolidation in recent years together with the limited benefits, as yet, for the majority of the population from the emerging recovery”.
The spectre of overruns in the health service is also mentioned, as is the need for banks to get rid of their remaining commercial real estate loans not transferred to Nama and focus instead on normal lending.
Noonan response
Speaking at the Oireachtas Finance Committee this evening, Noonan welcomed the view of the IMF in addition to that of the European Commission and Fiscal Advisory Council in recent days, saying “they’re experts in their fields”.
However he reiterated that the government was focused on achieving the three per cent deficit to GDP ratio target next year insisting this is what the scale of the Budget adjustment would be based on.
He said that as of the end of last month exchequer figures indicated that an adjustment of €2bn would not be required in the Budget in October to reach the deficit target in 2015.
He added: “We’re not trying to beat that target.”
- additional reporting from Hugh O’Connell
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The governments plan to start handing out mortgages guaranteed by the state under the guise of stimulating construction is totally insane. There is already a short supply for the existing demand of houses, the guarantee will only apply to new homes, an even more limited pool of properties. Stimulating demand before supply merely serves to push prices up really, really fast. I can understand why this would appeal to the constructoin industry though as it would guarantee a higher price for their product when their development is built and ready to go to market.
The government construction 2020 strategy is a blatant product of vested interest lobbying. Another government in bed with developers, great.
I actually can’t believe I voted for these idiots believing they would carry through on their 5 point plan.
Actually, they’ve followed through on all 5 points of their plan, except ‘Abolish the Seanad’ – and you can’t blame them for the public’s preference that it stays. All other points are done or are long term ones that are on the way (free GP care).
a bit off topic…but gotta compliment that photographer who took the headline shot…the shadows in between…2 heads of the same face…quite apt really!!:)
So what the imf are saying in a nice way is, we want repossessions. Is this what they saying in flowery language?
Seems that they’re being told to keep out of the property market .
Nope, just telling the Banks to sort themselves out.
The plan is to reduce ownership across Europe, they don’t like us owning stuff!
#conspiracy
So, are they proposing guaranteed state housing? Like for free? That is crazy. Why is everyone going mad on properties. Nobody seemed to have learned on the negative equity situation that most people face today.
Sadly, thus Government has not assisted the young families with “negative equity”!
A shame!
They prefer to bail out “Unsecured” Bondholders, Developers, Builders and Bankers!
They forgot about the electorate who voted them into Government!
They will pay a big price for neglect!
there is nothing wrong with negative equity.
you pay back what you, as a fully functioning adult, agreed to borrow.
unless you want to trade up; in which case there are facilities for negative equity mortgage transfers.
you are in double digit negative equity on a new car the minute you drive it out of the garage, similarly so for pretty much any new item you buy on credit.
Dermot you are right in your comments, we have the misfortune to have a government which is corrupt, inept and self-serving, why are there no proper statesmen in it? Barristers, solicitors and failed school teachers and not a decent leader among them.
What is the best demographic for politicians? Plumbers, Aromatherapists and Farmers?
John, You’re right; there is nothing intrinsically wrong with negative equity in a normal market situation, afterall the value of your investment may go up as well as down. However, the situation in Ireland is beyond ‘normal’; the arse has fallen out of the property market, and the economy as a whole is suffering badly because of it’s dependency on the former. The result is an enormous chunk of the population either:
a. On social welfare and unable to make ends meet
b. Working and still not making ends meet
I do not include the welfare recipients who are happy to be wlfare recipients in these groupings.
It is the government’s job to find solutions for issues that the population faces as well aslooking after the economy. The government is supposed to find a balance for both of these task but, since coming into office they seem only focussed on the economy at the behest of Europe. This is because Europe (ECB) and IMF are not interested in our population, only our economic progress. To be honest, they shouldn’t be either, that is, afterall, the governments job. They just seem to forgotten it though.
Who Red Thumbed Me?
Seriously? my point can be summed up as this:
the government’s job is to look after:
1.. the interests of the people of ireland
2. the oconomy
My assertion is that they are only looking after the economy at the expense of the most vulnerable in our society.
If you can provide me with some insight into how they are adequately protecting the most vulnerable in our society please give me some facts.
Johngahan, you are biased you are forgetting about fishmongers, motor vehicle mechanics, barbers and life guards.
@stuart – by focusing on the economy, that leads to jobs and lower unemployment. That is the way to help people. handouts are unsustainable and personal debt forgiveness is a thorny issue. Ireland needs to outcompete other countries in order to enrich itself. Only through money coming into the country to buy what we sell can we recover.
If unemployment gets to below 8% then I think we’ll have to admit this program is working.
That doesn’t look very likely at the moment though. The drop has stalled at 11.8% for the past few months.
Don’t forget Driving Instructors (they know everything)
Why are there no proper statesmen in the country?
Why are therer no proper statesmen in the country?
Nothing wrong with negative equity ehh?
Maybe if it’s in manageable amounts.
But let’s put this in perspective.
The UK has 500,000 (2%) households out of 25 million households in (generally mild) negative equity and they themselves admit that their property market is still in a very delicate situation.
Ireland has 400,000 (16%) households out of 2.5 million households in (generally severe) negative equity, yet our fine leaders and protectors seem to think that there is feck all wrong.
Not to mention Ireland has 142,000 homeloans and 40,000 BTL mortgages in arrears which are accruing interest and penalties on a daily basis (in-spite of the “long term restructured” bank spiel) this is probably adding millions to the net negative equity balance as we speak.
Try cleaning up that s**t heap with a couple of years of inflation.
Ireland has 6.7 million schoolteachers all clamouring for a seat in the Dail.
Ya they would be better then what we currently have running g the country
Taxi drivers know everything about everything.
Gus, I agree with your comments
Enda is going to the EU on a big salary thanks to Merkel who is so grateful for the Irish Government guaranteeing the German Banks “UNSECURED” Bondholders in all Irish Banks.
Sadly, Flannery -a high ranking Fine Gael Party Official – took €80,000 PA for lobbying the Government for a registered Charity where Irish people donated their hand earned cash after tax to help alleviate suffering!
He was a high ranking official in Fine Gael!
Alan Shatter took compensation of €70,000 from the Irish Taxpayer after he passed legislation to ban such payments !
The Government closed the Vatican Embassy against the wishes if the Irish People!
Enda gave a roasting speech condemning the Pope and The Vatican which was written (I am informed) written by Fr Tony Flannery CssR, a brother of the Fine Gael high ranking official!
A strange world we live in!
The fully functioning adult who listen to the Taoiseach of the day telling people who talked down the economy to commit suicide. I mean, if you can’t take your leader at his word…
Not so strange. People do have big issues with those running our formerly theocratic state. Where did the charitable money given to the religious go ?? Any accounting exercise likley anytime soon. No….thought not. Any of the Tuam babies died of starvation because of money being funnelled to put up another gold statue in the Vatican…..No answers there either…..didn’t think there would be Dermot…you are probably to blinkered to see this as a problem though.
Spot on.
As recents events have shown
Corrupt and criminal wealthy international organisations can always rely on the full support of Irish government(s) to
rape
abuse
enslave
starve
kill
mutilate
rob
con
pilfer
vilify
criminalize
scam
banish
the Irish people.
There are two obvious solutions to NE.
Rising property prices.
Write – offs
Pick your poison.
Everything in this country is hedged against artificial and inflated prices.
If there is any kind of shock here or in Europe we are toast.
Stuart….trying to come across as all masterful….you in the back be quiet!
Unemployment statistics are as fake as fake can get because of the masses of people forced to emigrate. If they all would return we would see a massive spike. I agree with the imf however. This is an initiative looking after developers. The real issue is negative equity not new property purchases. Lower the income tax. Get people spending again.
Makes you wonder why the IMF shoud be worried about the mortgage issue.
Also makes you wonder why we need a 2.5 billion euro budget adjusmtment this year.
If things are doing well then why isn’t it being reflected on the ground?
Tell them feck off
About time the IMF minded their own blasted buisiness haven’t we given them enough money why don’t they tell that shower in the dial to half their salery
Best advise I’ve read Maureen but sadly little Enda or his government won’t be doing that soon
who let these chancers back in the country………..if we need advice on how to help the rich and screw the rest we have plenty of overpaid advisers and economists in ireland to do that already we dont need the IMF thanks
Deport them i say.
Arrest them, and trade them for a total write off!
International Meddling Fuc#ers !
Heroes more like. We need them back
Your my hero ,Dave !
*You’re ,even :)
Where’s Cowan, Michael Martin and co when they’re looking for an invite!!
Craig Beaumont, there’s no polite way of saying this so would you and your crew ever e** off.
Good to get some external perspective on how the country is doing:
Employment growth was 2.3 percent y/y in Q1 2014, led by growth in full-time employment of 3.3 percent y/y, with almost all sectors creating jobs and business surveys indicate continuing growth momentum.
Unemployment fell to 11.8 percent in April, down from 15 percent two years ago.
Consumer confidence has climbed to levels not seen in seven years with core retail sales rising 3.3 percent y/y in the first four months of 2014.
Construction and service PMIs are back to pre crisis levels.
Rising tax receipts, up 5½ percent y/y in the first four months of 2014, also
indicate continuing recovery
So let me get this straight. We are currently in a recession, whose effects were amplified in Ireland due to people in Irish borrowing too much on houses with no guaranteed resale value and above the limit of safe borrowing anticipating any salary decreases or property value reduction. The government wants to actively encourage this again, during a recession, and we need our bailout masters to tell us it’s crazy? If this was a pass level leaving cert economics question the dumbest student would realize the insanity of it.
John,
I’m not really sure if you have that straight. People borrowed to buy houses at inflated prices and have received relatively little debt forgiveness.
Government bailed out banks and developers and ended up paying real cash to unsecured bond holders, they then turn on the people to raise taxes and cut services so they can pay for their largesse. Government gambled on getting a retrospective deal and lost. Quite obviously.
It’s naive to say that “Peepil went mad borrowing” when it’s more true to say that Government was running the country based on numbers picked from the rear ends of some of the countrys finest financial minds.
John – i don’t think we are still in recession.
Another Auctioneer opening up another shop in Blackrock — this business should be dis-incentivised. All residential property speculation should be dis-incentivised. 1 home is all people need but it will not happen as the better of are enslaving our young people with high rents. All the buy 2 let should be taxed at a much higher rate. Rental property should be taxed at a penalising rate. Our government can do this for smoking and other areas where the lobby group is not so powerful.
If people and residential property companies were dis-incentivised to invest in residential property the economy would be much better off. SMEs, manufacturing, farming, research, etc would get more investment and jobs would be created, the revenue from PAYE would increase and there would be more jobs in construction of infrastructure, factories, offices, research units, etc. I think the government should tax 2nd homes and residential property companies should be taxed much more as they are creating a situation where few can afford a home and rental prices are too high. We should Revolutionise the whole residential housing so everybody can afford 1 home and if people or companies want to get involved in property investment they should be taxed at a really high rate.
And we should especially tax development land banks to decrease the price of new builds and make the parasites pay. Oh, sorry I forget – the politiicians get fat bribes for getting the planning permission changed for land bank millionaires – they won’t want to bite the hands that feed their offshore bank accounts.
You’re a great man for wanting to tax stuff, so I’m just curious.. In this lunatic plan of yours, who is going to provide / own/ rent out all of these properties if there is no incentive to do so? Or will your poor enslaved children all take out mortgages?
There is a saying and it a good saying. “If it not broken don’t fix it leave it”. Is there any saying like that for a smash up economy of Ireland. The IMF have said it “slow growth” eh hem mr noonan you grey haired brain , this means Irelands economy has dis improved since all you cut back and taxes imposed on us all. Forget the rich and middle tax distraction. As a scientist of decades of research experience, I can say this to you with the basic fact. If after years of austerity we have as you called them experts who noted slow growth, this road we are on has proven now beyond any doubt things will never get better in the long term. As how slow can no growth go because this is what we have 0.3% growth, think you lack visionary skills and it time to go.
I believe you and this government need to go so we can get quick growth.
We need there guys back in order to run the country
You forgot the i ,Dave !
I meant ‘these’
Great photograph Mark Stedman.
Terrible terrible government.
So the IMF had no problem with FF guaranteeing lenders, but has a problem when FG/ Labour want to guarantee borrowers. Odd that.
have your say