TALKS ON restructuring the €31 billion in promissory notes are well advanced, according to Craig Beaumont of the International Monetary Fund.
The head of the IMF’s Ireland team said much consensus existed among his organisation, the European Commission, the European Central Bank and the Irish Government on restructuring the notes.
An agreement on the €31 billion of promissory notes, which accounts for just under one-fifth of total public debt of €164 billion as of the end of last year, could significantly reduce the risk of the Irish State defaulting on its sovereign obligations.
Responding to a question from The Irish Times,Mr Beaumont said that agreement on the promissory notes would "reinforce Ireland's debt sustainability".
He did, however, play down the prospect of an immediate deal, saying the first repayment on the notes, which is due at the end of March, is not a “hard deadline” for the negotiations.
Whether Ireland will be able to raise the €14 billion the IMF estimates Ireland needs to borrow from private investors next year is “realistically possible,” Mr Beaumont said before adding that “risks remain elevated”.
Speaking from Washington yesterday on the launch of the fund’s latest quarterly assessment of the Irish economy and the Government’s compliance with the terms of its bailout, Mr Beaumont reaffirmed that his organisation remain satisfied with the Government’s implementation of the conditions of the bailout.
The positive assessment allows the latest quarterly tranche of IMF bailout monies to be released to the Irish Government.
On whether the Government should introduce additional budget measures this year if its deficit targets are not being met, the IMF reiterated – yet again – its position that to do so would be counter productive.
David Lipton, IMF first deputy managing director, said: “If growth should weaken further, the automatic stabilisers would be allowed to operate to help avoid jeopardising the fragile recovery.”
Mirroring exactly the European Commissions new forecast, also released this week, the IMF cut its outlook for growth in the Irish economy this year.
Three months ago it expected gross domestic product to expand by 1 per cent in 2012. Now it is forecasting 0.5 per cent. The Government is considerably more upbeat, expecting an expansion of 1.3 per cent.
The IMF’s downward revision of its forecast is mostly on account of a weaker outlook for exports, reflective of a downturn in the European economy.
Despite the lower than anticipated growth expectations, the IMF continues to believe that the Government will meet its budgetary targets this year of a deficit of no more than 8.6 per cent of GDP.
On the restructuring of the banking sector the IMF echoed concerns expressed earlier by the commission on the difficulties presented by the fragile state of the wider European banking system. This has resulted in many banks seeking to deleverage by selling assets.
With many banks simultaneously putting assets on the market, the increase in supply risks driving down prices. This could result in larger than expected losses for Irish banks.
Mr Beaumont said yesterday that it is possible safeguard clauses available to the Irish Government could be invoked to halt or slow the sale of bank assets. This would allow it to miss targets set out in the bailout without being in breach of its commitments to the troika.
Reflecting a deepening concern with labour market issues, the fund report stated “the review of key social welfare schemes, to be completed by the Spring, will be important to avoid work disincentives and unemployment traps”.
