Transcript

Transcript of a Conference Call on the Second Post-Program Monitoring Discussion with Ireland

January 29, 2015

MR. SILVESTRE: Good afternoon Dublin, good morning Washington. I am Bruno Silvestre with the IMF Communications Department, and I'm glad to welcome you to this conference call on the release of the Ireland Ex-Post Evaluation of Exceptional Access Under the 2010 Extended Fund arrangement, and the second Post-Program Monitoring Report.

With me this morning are Craig Beaumont, Assistant Director in the European Department and Ireland Mission Chief who, a couple of days ago, had a press conference in Dublin and just returned from Ireland. And Thomas Krueger, the Deputy Director of the Finance Department and Mission Chief for the Ex-Post Evaluation Report.

Before I pass the floor to Thomas let me remind you that, first, the conference call is on the record, and second, the documents that you received yesterday are still under embargo for another hour. Thomas, you have the floor.

MR. KRUEGER: Thank you, Bruno. I thought it might be useful to have a few opening remarks on the ex-post evaluation just to explain what this is, because it's a bit of an unusual publication, and then to also summarize briefly the key points.

An ex-post evaluation is required by the IMF in all cases where we provide exception access, that is large access to Fund resources. The report is done by a staff team that did not work on Ireland before, so it's an independent staff team.

That report was discussed by our Executive Board. You will see their view in the summary, in the press release, but the report itself, again, was prepared by an IMF staff team on the evaluation of Ireland's Exceptional Access Program with the Fund, that program that started in 2010.

Briefly our key points in that report are the following. First of all, program implementation was very strong. The program really met the key objectives including stabilizing the banking sector. The fiscal program was largely as envisaged. But, obviously, Ireland is continuing to face challenges. Unemployment was clearly higher than we had anticipated. There are also in the banking sector remaining challenges that are important to address.

Key lessons that we draw, so the post-evaluation the purpose is really for the IMF to learn from its program experience, what can we do better, differently for the future, in future programs. A lot of key lessons that we saw really come from what worked well in Ireland. This was a program that was very well executed, so the lessons also come from why did things work so well.

One was ownership, very strong ownership, by the Irish Authorities. The targets that were set in the program were realistic, and they were met consistently. Also, that a banking crisis requires very strong upfront action. That was done in Ireland very effectively.

Then lessons for future Fund program design among those you will see in the report are in the financial sector that more proactive and stronger supervisory interaction could have helped, and can help in future Fund programs, really to strengthen banks' balance sheet and also address making earlier progress on underperforming loans.

The report also suggests that bank recapitalization by the state should be limited only to banks that have a viable medium-term business model. Third lesson is that unsecured creditors should be bailed in, including senior creditors in fair banks, and that repercussions should be ring-fenced, repercussions onto other countries, onto other sectors should be ring-fenced and appropriate steps taken to prevent those repercussions.

Finally, on fiscal policy we also say there has to be an important balance between really debt sustainability and also demand conditions in Ireland. That was well captured in the original program design. The program argues that some of the risks dissipated interest savings could have been saved, and there could have been a somewhat stronger fiscal stance over time. But the basic fiscal program design was appropriate.

Finally, there are some lessons for Fund policies that you will see in the report. Among those is that we should seek stronger commitments from one of their union authorities where such commitments are essential for the success of a program with a country that is a member of a monetary union.

Those, I think, are the main points. I invite questions that you may have.

QUESTIONER: My question just relates to the government's decision to break from advice and spend in the last budget. Does the IMF have an opinion on that?

MR. BEAUMONT: This is Craig Beaumont, Mission Chief for Ireland. In the Second Post-Program Monitoring Report we did mention that there were some expansionary measures in Budget 2015, but that still left some remaining progress in underlying structural terms of about one half a percentage point of GPD.

So we saw the budget as still making progress towards fiscal balance, but given the relatively strong growth environment in Ireland currently we expressed the view that the adjustment could have been somewhat firmer in those circumstances, and that there was an opportunity missed to make a bit more progress in very strong economic conditions that Ireland has been enjoying.

QUESTIONER: Are you surprised with the level of economic growth currently in Ireland given the situation in the wider Euro Zone?

MR. BEAUMONT: We have been surprised. Clearly, at the beginning of 2014 we were only predicting growth on the order of 2 percent, and it appears to be coming out at more like 5 percent. Though there's significant uncertainty until we get the final data for 2014 in the middle of 2015. So much stronger than expected, and the main contributor to that strength is on the trade side, especially exports. Exports have included some off-shore manufacturing that's done under contract to Irish companies which has been exceptionally strong. Once you exclude that item, growth has been a little bit closer to our projections. We don't have a precise estimate, but maybe in the 3 to 4 percentage point range.

But still, even excluding that exceptional item the economy is doing quite well. On the demand side it's investment that's leading the way which is, of course, very welcome because it leads to strong job creation.

QUESTIONER: During the program, negotiations were ongoing for quite a while about trying to do some deal on the tracker mortgages with the Irish banks. Could you give me an update on that? Are those talks -- has there been any progress at all with those talks or does it seem dead in the water?

MR. BEAUMONT: There's been no further discussions after the program ended at the end of 2013 on funding solutions for tracker mortgages. But I would note that funding positions of banks have continued to improve after the program on the back of the sizable reduction in sovereign yields.

The drag from the tracker mortgages on banks' profits has, I think, declined, especially if you take into account there has been some decline in average deposit costs of banks. So it remains a legacy challenge for the banks, these tracker mortgages. But market conditions so far have made it a bit more manageable.

QUESTIONER: The Bank of England Governor, Mark Carney, was in Dublin last night. He made quite a pointed speech about the problems besetting the Euro Zone, and he said in particular that there have to be moves towards a fiscal union if the region was to become a viable economic entity. Could I have your thoughts on that, on Mr. Carney's speech?

MR. BEAUMONT: On Euro area-wide issues, it is best for the relevant staff to address that question. I personally haven't seen the speech, so I can't comment.

MR. SILVESTRE: Well, if there's no more questions at this point I think we will conclude this conference call. I'd like to thank all the participants. Thank you very much.