ANALYSIS:While the report is glowing, privatisation could become a bone of contention

ANOTHER DAY, another forecast on the Irish State’s debt dynamics. With economists giving their tuppence ha’penny worth on the subject on a weekly, if not daily basis, the IMF has now chipped in too.

The story of how the fund’s views have evolved, revealed in documents published yesterday, is more interesting than the views themselves. It shows just how hard it is to predict how high the debt peak will be.

Last May the IMF said that public debt would top out at 120 per cent of GDP. Positive developments from May to early August led the fund to lower the peak to 117 per cent of GDP.

Then, as August progressed, more evidence emerged that the global economy was on the slide. This caused the fund to cut its GDP forecast late in the month - just three weeks after completing its comprehensive quarterly forecast. Indications yesterday were that the IMFs estimate for the public debt peak is now back up to 119 per cent of GDP.

This down-then-up forecast illustrates just how hard a call this is to make. GDP, the budget deficit and the interest rates on different debt instruments are the three variables in the peak-debt equation. Each is impossible to predict on its own. Given that they influence each other in numerous ways, the range of possible outcomes is huge. But the catastrophists who state with (unwarranted) certainty that Ireland is doomed to default may turn out to be right. If international trends over the summer continue into the autumn and beyond, they may yet get to indulge in some I-told-you-so gloating.

The IMF’s criticisms of the European authorities appeared less muted than in the recent past, reflecting the (limited) progress made at the emergency meeting of European leaders on July 21st.

That said, the Washington-based institution continues to press for further changes that would further benefit this country. More help from the euro bailout fund would help the State return to the debt market sooner rather than later. The same would happen for the banks if the ECB gave them more medium-term certainty about the liquidity support it provides them.

Household indebtedness has been a hot topic in recent weeks. The IMF, in contrast with its position on the issue in Iceland, does not advocate a programme of forgiveness here. It does, however, see the importance of changing bankruptcy laws.

But getting the balance right in bankruptcy laws is always difficult. If bankruptcy is made too onerous, it won’t be used (that is the situation in Ireland). If it is made too easy, it will be overused and those able to repay will walk away from their debts.

Even if the coming changes to Ireland’s bankruptcy regime get the balance right, the IMF sees that there is big pent up demand among the desperate to declare themselves bankrupt. The new regime risks being overwhelmed as soon as it comes into force. As with so much else in the current mess, easy and simple solutions are not on offer, no mater what the populists may say.

While the IMF’s overall assessment of the Governments record on implementing the terms of the bailout is little short of glowing, there is disagreement on how much privatising should be done. Don’t be surprised if that becomes a source of more serious contention.