Former IMF mission chief to Ireland Ashoka Mody calls for less austerity

Sunday 21 July 2013 15.33
Ashoka Mody (R) said the Government should consider suspending or at least lowering Ireland's planned cuts
Ashoka Mody (R) said the Government should consider suspending or at least lowering Ireland's planned cuts

A former senior official of the International Monetary Fund has said that Ireland should consider greatly reducing policies of austerity.

Former IMF chief of mission to Ireland Ashoka Mody said there has been little growth in the Irish economy both this year and last year, adding it was hard to believe that austerity was not part of the problem.

He said there was an immediate need for innovative alternatives to austerity.

Prof Mody has said the Government should consider suspending or at least lowering Ireland's planned cuts for Budget 2014.

Speaking on RTÉ's This Week programme, Prof Mody was asked if Ireland should reduce the deficit in 2014 to 5.1% or by the cash amount of €3.1bn.

He said: "If a €3.1bn reduction is planned, then that number should be considerably lowered. I would even ask the question why can we not consider the possibility for the next three years, as an experiment, there be no further fiscal consolidation".

He expressed concerns that international growth prospects were poor in the short term, as was possibility of a reduction in Irish debt.

He said: "The only instrument left to address the growth side is the fiscal instrument and that requires a complete rethinking of how aggressive and how persistent the austerity has to be.

“At this point it looks like, given the debt dynamics, if debt levels remain where they are and growth remains where it is, there is never going to be a reduction in the debt ratio the foreseeable future and so logically we are left with the only other option: Generating growth by abandoning the sever commitment to austerity and hoping there will be a short-term boost to growth, which not only improves growth, but brings down debt levels".

Questioned about how important it was for Ireland to have legacy debt dealt with through the European Stability Mechanism, Prof Mody said: "The likelihood that legacy debt will be financed by the ESM is almost zero. At this time the politics of financing legacy debt is such that I would be astonished if that happened."

Asked whether Ireland should invest the €1bn Anglo Irish Bank promissory note savings in stimulus measures, the former IMF mission chief said: "I think that's the very least that one should be thinking about ... moving away from austerity at this stage is a sensible course of action and that if it is to be done, not just on the margins, by taking advantage of short-term windfalls by promissory notes and suchlike, but in a more well-conceived and well articulated way, such that it becomes a programme and not just a series of ad-hoc measures".

Prof Mody also expressed the belief that the Government was committed to future austerity, independently of any Troika programme: "If this programme did not exist, it's unclear to me whether the Irish authorities would do anything differently".

Prof Mody also said a so-called back-stop, or fall-back credit facility was not vital to Ireland establishing credibility in the markets during the country's exit from the bailout.

"My view on that is it doesn't hurt, but it's not important."

Keywords: imf, austerity