imf-eu bailout factsheet a5

8/7/2019 IMF-EU Bailout Factsheet a5

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NO MORE BAIL-OUTS

DEMAND A REFERENDUM ONTHE IMF-EU DEALCampaign factsheet written by Sinead Kennedy



Despite all the election talk of ‘burden sharing’ and even ‘burning the

bondholders’ the Fine Gael-Labour government has now committed

itself to following the exact same strategy as Fianna Fáil by pouring

billions into the banks. Minister for Finance Michael Noonan stood in

the Dail on Thursday March 31 and baldly stated: “I want to be clear

for the benefit of our people and for market participants, that we are

committed to the EU-IMF programme”.

As a result a further €24 billion will be poured to toxic Irish banks, on

top of the €46 billion already committed. One reason for this

scandalous state of affairs is that December’s IMF-EU deal insists that

the banks are recapitalised. The primary purpose of the IMF-EU deal is

to save the European bankers who lent out hundreds of billions to Irish

banks. They are terrified that the collapse of the Irish banking sector

could have a contagion effect on European banks and lead to acollapse of the entire Eurozone system.

Yet if Fine Gael and Labour are permitted to continue with this failed

policy of nationalising private debts Ireland will be destroyed for

decades to come. The majority of Irish people are opposed to this EU-

IMF deal but have been denied any real say. It is time we say: “Enough

is Enough” and demand a referendum on this corrupt IMF-EU deal.



WHO IS THE IMF?

The IMF, or the International Monetary Fund, was one of a number of

organisations set up at the Bretton Woods conference in 1944. Known as the

worlds ‘lender of last resort’, the ‘fund’ was originally mandated withsmoothing out ‘balance of payments’ problems in order to facilitate a steady

transition to post-war capitalism. During the ‘long boom’ (1945-73) the IMF

played a rather marginal role within the global economic order – but the

revival of neoliberalism and the Latin American ‘debt crisis’ set the scene for

a much more active role after 1980.

In the late 1970’s a crisis emerged for many countries in the developing world

as increases in interests rates, declining terms of trade and an overreliance

on western loans left them dangerously close to declaring bankruptcy. In1982 Mexico defaulted on its loans, and fearing that this problem might

escalate, the United States along with the EU, forced debtor countries to

accept IMF ‘loans’ in order to meet their obligations to the Western banks.

The IMF works on the basis of ‘one dollar one vote’ and so the conditions

attached to any loans are largely decided by the Western powers. For

example, the US has a veto on all decisions with 16.5 percent of the vote

whereas the total combined share of the ‘least developed countries’ is amere 4.1 percent.

Countries go to the IMF as a last resort when their payments exceed their

income. However, in order to qualify for a loan they must agree to implement

certain specified policies agreed between the government and the IMF (what

is know as a ‘Memorandum of Understanding’). Southern countries

throughout the 1980s and 1990s were required to ‘open up’ their economies

in order to receive foreign currency from selling exports. Neoliberaleconomists argue that this ‘export led growth’ is the best way to drag a

country out of poverty. In reality these countries were quite simply

decimated, as a deluge of foreign imports radically undercut their ability to

compete. Governments were forced to put interest payments ahead of the

needs of the population, while market-based pricing forces people to pay for

vital services (such as water and essential foodstuffs) that were previously

free.



THE IMF IN ACTION

According to UNICEF over 500,000 children under the age of five die each

year in developing countries as a direct result of IMF polices – and a the lack

of democratic accountability means that even when these structuraladjustments fail to alleviate poverty, and they inevitably do, there is

absolutely no way of holding the ‘fund’ to account.

Consider Mali, for example. Mali is one of the poorest countries in the world

where 90 per cent of the population live on less than $2 per day. As part of its

lending conditions, the IMF demanded the privatisation of the electricity

sector and the liberalisation and privatisation of the cotton sector. As a result

Mali’s electricity became the most expensive in the region and only limited

additional coverage was achieved. The result of the liberalisation of thecotton markets was a 20 per cent drop in cotton prices for 3 million Malian

farmers. An unpublished report by the World Bank claimed that this policy

would result in a 4.6 percent increase in poverty. When the Malian

government refused to comply they blocked $72 million of assistance.

Until recently this form of economic warfare has been reserved for living in

the Global South. However, the current economic crisis has seen the IMF

stepping in to bailout capital in more developed parts of the global system.For example, in Latvia, the IMF recently gave €7.5 billion in loans,

the majority of which went to pay off European banks

(primarily Swedish in Latvia’s case) - the

price for the Latvian people included

a 30 percent cut in public sector

pay; a 30 percent reduction in

pensions; the closing down of

19 out of total of 59hospitals and

a cut of 9 percent of GDP in

public spending. This exact

same process is now also

taking place in Ireland,

Greece and possibly soon,

Portugal.



WHY DOES IRELAND NEED A BAILOUT

FROM THE IMF?

Ireland during the Celtic Tiger years was the poster-child of globalised,

deregulated, neoliberal capitalism as multinational corporations flocked to

take advantage of its low corporation tax rates. A policy of light-touch

financial regulation saw the banking sector finance a monstrous housing

bubble. Then the bubble burst. The collapse of the construction industry sent

the economy into a tailspin, while plunging home prices left many people

owing more than their houses were worth. Now Ireland is, per capita, the

most indebted country in the EU, with a deficit of 32 percent.

The government’s first crisis strategy was to guarantee the deposits of thebanks and ensure that no bank, however toxic, went the way of Lehman

Brothers. It guaranteed a huge €440 billion worth of bank debt and embarked

on the now notorious bailout of Anglo Irish bank (the world’s expensive

banking rescue). The priority was to save the banks no matter what the cost.

To fund this massive bailout and to keep the markets sweet, the government

responded with package after package of draconian cuts, attacking social

welfare, health and education budgets. Yet despite the cuts, dubbed"masochistic" by the Financial Times, Ireland's economy has stagnated and its

debt is still growing.

The strategy became unstuck when last November the government

announced what was suppose to be the final figure for the bank bailouts; €46

billion. Terrified that this would have a knock on effect on other banks in

Europe, the European Central Bank (ECB) started pouring in money to shore

up the system. They knew that Irish banks had borrowed €224 billion from

British banks and €204 billion from German banks and were terrified that a

default would cause their collapse.

In October 2010, the ECB were forced to put a further €11 billion into Irish

banks to compensate for money taken out by the Irish rich. In total, they

have pumped €90 billion into Irish banks and have turned a blind eye to the

fact that the Irish Central Bank added another €20 billion. Eventually the ECB

had to acknowledge that a staggering one fifth of its total funding to

European banks had gone into dodgy Irish banks and that the prospect of



getting their money back relied on mortgage repayments on vastly over-

valued property.

To save their own skins, they insisted that Ireland take out another €85 billion

loan package from the IMF/EU to help Irish banks pay back money to the ECB

and to protect the international bondholders. In March 2011 stress tests onthe banks the revealed that the losses in Irish banks were even greater than

anticipated and a further €24 billion will be required. This takes the total cost

of bailing out Ireland’s toxic banking system to a staggering €70 billion. The

interests rates on these loans are expected to top €9 billion per year by 2013.

In return for this loan, Irish workers are expected to accept another eye-

wateringly painful budget cut of €6-€7 billion this year through tax increase

and attacks on social welfare, health and education.

WHAT DOES IRELAND’S EU-IMF LOAN

AGREEMENT INVOLVE?

In December last year the government along with the IMF/EU published a

‘Memorandum of Understanding’ outlining the conditions for the €85 billionloan package. The loan agreement locks Ireland into a very specific neo-

liberal economic model dominated by policies that will impose immense pain

on working people, communities and the poorest and most vulnerable

sections of society by focusing on expenditure cuts, rather than on job

creation or economic stimulus. It gives huge powers to these unelected and

unaccountable lenders in terms of economic decision making and commits

the government to a total of €15 billion in cuts by 2013. The agreement also

emphasises the need for a “business friendly environment”, “vigorous action

to remove remaining restrictions on trade and competition” and a strong

emphasis on private sector involvement in for example the electricity and gas

sectors. Here are some of the key points:

No funds can to be drawn down until Budget 2011 is passed.

Draft budgets for 2012 and 2013 are indicated and include further

cuts and tax increases of up to €3.6 billion for Budget 2012 and €3.1

billion for Budget 2013.



The agreement calls for the introduction of a property tax by 2012.

The government must provide weekly, monthly and quarterly

updates to the ECB, EU and IMF.

The IMF/EU must be consulted on any new policies introduced that

are not consistent with the agreement.

Water charges will be introduced in 2012 or 2013, by which time

metering is to have been installed across the State.

The agreement also advocates the privatisation of water by

demanding that responsibility for water will be transferred from local

authorities to a new water utility.

The memorandum says the Government will adopt measures in

Budget 2012 to generate

HOW MUCH MONEY IS INVOLVED?

The EU/IMF loan agreement involves €45 billion from the European Union,

€22.5 billion from the IMF and bilateral loans from the UK, Sweden and

Denmark. However, in order to qualify for the fund the Irish Government

must contribute €17.5 billion. This will involve €12.5 billion from the National

Pension Reserve Fund and €5 billion from cash reserves.

The National Pension Reserve Fund was set up in 2001 as a ‘sovereign wealth

fund’ to cater for the future needs of the population. Its 2003 report put it

clearly: “The Objective of the National Pensions Reserve Funds is to meet as

much as possible the costs of social welfare and public service pension from

2025 onwards.” The report noted that by 2030 there would be only two

working people for every pensioner compared to five today, so a fund was

required to seek “optimal total financial returns” to pay for future pensions.

This fund will be completely dismantled.

The estimated average interest rate of the loans is a punitive 5.83 per cent

per year. This means the Ireland’s national debt interests repayments will rise

to a projected €9 billion per annum by 2013.



IS THERE AN ALTERNATIVE?

On the one hand the IMF is sometimes represented as a neutral arbiter,

stepping in to weed out cronyism, corruption and to rejuvenate the

economy. This could not be further from the truth; their real agenda is toensure that working people pay for the economic crisis. On the other hand

the IMF and its policies are often seen to be irresistible. However there have

been examples of resistance. For example, Argentina, a country that had

been used as a ‘free-market experiment’ by its political leaders and the IMF

stood up to the IMF and its creditors and defaulted on its debts in 2001.The

people of Greece have shown magnificent resistance to the EU/IMF policies

been forced upon them.

Last year the people of Iceland demanded the right to have a referendum onthe IMF deal that was being forced upon them. They won, and a massive 93

percent of the people rejected the deal in a referendum in March 2010. We

need to learn from the people of Iceland and Greece and hold our rulers to

account and let them know that we will not pay the gambling debts of

bankers and speculators.

We need a referendum on the IMF-EU bailout so that it can be

democratically rejected. We must end the absurd state guarantee to repay unsecured bank

debts. These debts were run-up by wealthy Irish and European

speculators and we have no responsibility to pay for them.

Get active in the

Campaign for a Referendum

Contact Richard Boyd Barrett TD

[email protected]

Tel: (01)6183449

Produced by Richard Boyd Barrett TD

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