Working Together: Ireland and IMF

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Ireland experienced a prolonged boom in the two decades ending in 2007, with economic growth averaging more than 6 percent a year.
Rapid expansion attracted multinational firms (Dell, IBM, Coca-Cola, Google, Facebook) because of low corporate taxes, moderate wages, and a young, well-educated workforce, turning Ireland into an export platform.
The boom generated hundreds of thousands of jobs and reversed long-term emigration trends, making Ireland a destination for immigrants.
Personal account: Sean Hanaphy left college in 2005, earned 80,000 euro a year in construction, bought investment property, emigrated after the 2008 crash, and returned to work by early 2015; by 2017 unemployment had fallen to less than 7 percent from a peak of more than 15 percent in 2011.

A real estate bubble formed as property values more than quadrupled in the decade ending in 2006, fueled by rising incomes and cheap credit after adopting the euro.
By 2006, construction accounted for more than 12 percent of employment, the highest proportion among advanced economies.
Bank lending standards weakened as domestic and foreign banks competed; bank assets grew to five times Ireland’s GDP, mostly funded on wholesale markets rather than domestic deposits.
The global financial turmoil beginning in 2007 cooled demand; property prices fell, construction halted, and “ghost estates” proliferated.
Tax revenue plunged 20 percent in just two years while spending on social services rose, producing a severe fiscal strain.
On September 30, 2008, the Irish government guaranteed liabilities of the six major banks.
The government injected 46 billion euros into banks, equivalent to 30 percent of GDP, and nationalized two banks including Anglo-Irish Bank.
In the last four months of 2010, 60 billion euros, equal to over one-third of GDP, flowed out of Ireland; banks relied on emergency loans from the European Central Bank.

In November 2010, Ireland sought help from the European Union and the IMF.
The EU and IMF provided loans totaling 67.5 billion euros—equal to 40 percent of Ireland’s economy—to be paid out over the next three years.
A “troika” (IMF, European Central Bank, European Commission) provided technical assistance; IMF staff teams based in Dublin worked closely with Irish authorities.
IMF recommended an independent assessment of bank loan losses; BlackRock Solutions was hired to identify the size of the banking-sector hole.

An additional 24 billion euros was required to fill the hole in the banking system.
Measures taken:
- Banks were merged and staffing reduced.
- Assets were sold to better align banks with deposit funding.
- Two nationalized banks were wound down and liquidated.
- A National Asset Management Agency (NAMA) was tasked with recovering large commercial property loans.
NAMA issued some 30.2 billion euro of senior debt to banks for those loans; that debt was redeemed by the end of 2017, three years ahead of schedule.
Bank of Ireland and Allied Irish Bank returned to profitability in 2013 and 2014.
More than 100,000 borrowers had gone into arrears; arrears stopped rising by mid-2013, loan restructurings increased in 2013-15, and the number with arrears is down by almost half.
The IMF and partners brought in international experts (Norway, United States) and recommended a new bankruptcy law and upgraded bank capacities for loan modification and debt collection.

Pre-program Irish measures included a 14 percent cut in public-sector wages in 2009, yielding savings equivalent to 6.2 percent of GDP from 2008 to 2010.
Ahead of the troika program, the government prepared a plan to reduce the budget deficit from 2011 to 2014 while maintaining essential services and protecting the poor.
Fiscal measures implemented:
- Increases in value-added tax and carbon and motor vehicle taxes.
- Introduction of the Universal Social Charge (a supplementary personal income tax).
- Reductions in the number of public servants.
- Savings in capital spending.
These fiscal steps amounted to 8 percent of GDP, with two-thirds of the adjustment on the spending side.
The government largely preserved welfare spending to cushion vulnerable groups.
IMF staff engaged in public communication: press conferences and meetings with union leaders, opposition politicians, and non-governmental organizations to build public support.

By the end of 2012, in the second year of the program, the economy began to turn around with firms hiring and investing and unemployment slowly declining.
The government re-entered financial markets in mid-2012 by selling short-term notes and later bond issues as interest rates subsided.
Home prices in Dublin began to recover.
Individual outcomes: Sean Hanaphy returned to Ireland in early 2015; by 2017 he secured a 700,000-euro construction contract employing 14 people and resolved his mortgage issues.