Transcript of a Press Conference on the 2012 Article IV Consultation with IrelandWith Ajai Chopra, Deputy Director, European Department
Craig Beaumont, Ireland Mission Chief, European Department
Peter Breuer, Resident Representative in Ireland
Olga Stankova, Senior External Relations Officer, External Relations Department
Wednesday, July 18, 2012
MS. STANKOVA: Good afternoon everybody and welcome to the press conference on the Article IV Consultations with Ireland. The press conference will be held by Ajai Chopra, Deputy Director in the IMF European Department, Craig Beaumont, Mission Chief for Ireland, and Peter Breuer who's Resident Representative here in Ireland. With that, I will pass the microphone to Ajai for his introductory remarks and then we will take your questions.
MR. CHOPRA: Thank you very much, Olga. As you all well know, the discussions for the review of the program were held in the last couple of weeks and were concluded last week. We've issued a press statement on that together with our partners in the ECB and the European Commission. Now I should explain that these consultation discussions, the Article IV consultation discussions, are the IMF's periodic health check of the economy. And these take place with all member countries, regardless of whether they have a program or not.
If a country does have a program, the frequency of the consultation changes, but the fact that we have a consultation does not change. I do want to emphasize that the process of these annual consultations is separate from the quarterly program review, which we do with our European partners. So in one of these consultations, what we do is we take a medium-term perspective compared with a somewhat shorter-term perspective when we have program discussions.
But, of course, there's a very large degree of overlap because even in program discussions, we obviously need to place things in such a medium-term perspective. So these consultation discussions tend to be more of the nature of, you know, an assessment of what's going on in the economy and it's more advisory. Now, you all have -- at least I hope you do -- you have the statement that I think, got published at 4:00 Dublin time. Now that statement lays out our main conclusions. I'm not going to go into that in much detail, but I will just give you some of the big picture elements from that concluding statement.
So our main conclusions were, first, that work to strengthen the financial sector needs to continue, and we see this as important to help revive lending. And the work will need to focus on issues such as enhancing banks’ asset quality, regaining profitability, and securing affordable and stable funding.
The second element that we highlighted in our concluding statement is that again, work needs to continue to put the budget on a sound footing over the medium-term. And in our concluding statement, we gave particular emphasis to having a strategic approach to the consolidation needs in the period ahead.
And in this strategic approach, the aspects that will need to be looked at are better targeting of spending programs to better protect the poor and also generate savings, and also to broaden the tax base. I should emphasize also that, the Irish authorities have shown that they can and will deliver on the fiscal front even under tough circumstances.
The third element that we focus on in the Article IV consultation discussions was the need for continued structural reforms to facilitate growth and job creation, both of which are essential in Ireland.
Now even though our focus is on the consultation discussions, I think I would be amiss if I didn't take particular note of the June 29th summit statement from the euro area leaders, which in our view offers a welcome path forward to help improve Ireland's economic prospects in the future. We've made particular note of this in our statement and what's encouraging is that there seems to be a new political mandate to make meaningful progress in this area.
MS. STANKOVA: That summarizes pretty much key conclusions of the mission. Thank you, Ajai.
And now we will take your questions. Please introduce yourself and you affiliation when asking a question. And we will take maybe two or three questions at the time and then decide how to distribute them among our team. First question, please.
QUESTIONER: Mr. Chopra, Last week's review made specific reference to the health budget and the overspends there. How concerned are you about the overspending in health and are confident that the government can get it under control?
QUESTIONER: Mr. Chopra, your language there at the end was quite vague in terms of meaningful progress in the area of what was mentioned in the June 29th summit. If you could expand on that and give us some sort of, you know, meaningful outcome that you would look to see by October?
MS. STANKOVA: And maybe one more question before we proceed. Yes, please.
QUESTIONER: Can you outline somewhat in detail some of the more structural reforms you're talking about? You're talking about needs testing some payments and perhaps cutting of the universality of some benefits. So if you could go into a bit more detail?
MR. CHOPRA: Craig will handle the question on both healthcare spending and issues on structure reform. And maybe Peter will also jump in if needed. Let me answer Ms. Campbell's question to start with. You know, as I said in my opening remarks, we see the June 29th statement as offering a welcome path forward in terms of obtaining European support to help what the Europeans have called, a well-functioning program in the case of Ireland.
And what's striking about the commitment was the point that similar cases will be treated equally as policy options are developed and applied in various other possible country cases. So together with our European partners and the Irish authorities, we are working to formulate technical solutions that form a potentially coherent package with the following objectives. The first objective is that it's going to be important to break the viscous circle between banks and the sovereign. The second objective is to improve debt sustainability and prospects to regain market access for the sovereign. And the third is to strengthen the capacity of banks to lend and support the economy.
Now, all this is work in progress and these objectives that I've laid out are of course, interrelated. And since this is a work in progress, I think it's important that we give it time to proceed. There's a common understanding on these objectives, and within that we'll need to do further work to design the type of approaches that would be suitable in the case of Ireland, keeping in mind equal treatment of countries in similar circumstances.
MR. BEAUMONT: On the first question on the health budget, the overspend in the health budget is manageable from an overall budgetary perspective. The authorities are certainly well aware and have assured us that they're taking measures to unwind that overspend. We have experienced last year in 2011, when there was some overspending during the year, but by the end of the year the authorities had brought the overall spending back within the budget set out at the beginning of the year. So we have every confidence that that can be done again.
On the targeting, it's a situation where resources are more constrained. In that type of situation, one needs to look to where resources can be best used, and targeting aims to help provide services and protect the poor at lower cost than a universal benefit. This concept can be applied quite broadly to a range of areas to spread the burden. We note a number of items including the child benefit medical card spending, the household benefits package, there are many options to help save budgetary resources while minimizing the impact on the most vulnerable.
MS. STANKOVA: And then next question or several if you have more questions. Yes, please.
QUESTIONER: What sort of size of bank rescue is required in billions of euros to make a difference for Ireland?
MR. CHOPRA: As I've emphasized, this needs to be a package and the whole package needs to fit together consistent of the objectives that I've just outlined. There's no way we can specify a magic number that is going deliver that without looking at all of the elements of the package. So that's all I can say at this point as the work continues on this front.
QUESTIONER: (inaudible) significant?
MR. CHOPRA: What's needed is that as I said, it needs to improve debt sustainability and it needs to improve the prospects for Ireland to regain market access. Those are the principles on which we're working.
MS. STANKOVA: Thank you. Next question.
QUESTIONER: Mr. Chopra, you've drawn attention in here to some bond redemption issues in the Irish banks coming up soon which they might lead to an increased reliance on system funding. Can you expand a little bit on that for us, please? And can I also ask you about your current thinking on wage levels in the Irish Public Service? (inaudible), but you're saying you still have to closely monitor the provision of services and the wage and pension levels in the Public Service.
QUESTIONER: In the event that the ESM isn't set up to directly recapitalize banks, do you think that, at a minimum, that Ireland will be able to achieve its objective of restructuring the (inaudible)?
MR. CHOPRA: Let me take this and then we'll turn to Craig, because there's clearly a lot of interest on this matter. The leaders have made a statement about their intentions. They've conditioned this on having more centralized supervision. We have put emphasis on the implementation of what they have announced and we expect this to be implemented along the lines that they have outlined. And beyond that, we have nothing to say on this matter at this point.
MR. BEAUMONT: On the question on bank funding, in the current market circumstances in Europe, bank funding markets have become very illiquid and really, the only option for banks to gain market access is to provide collateral. We point out that with the Irish banks having existing debt stocks continuing to mature, there could be a possibility that they would need to draw further liquidity from the euro system which would tend to encumber their collateral and limit their prospects to gain such access to market funding.
This really is a broader issue that affects a number of countries in the euro area currently, and we're flagging as something that would need some further study to provide a broader solution. On the Croke Park agreement, I'm not sure I can add too much more to what we laid out in the statement. We believe the Agreement has facilitated significant savings from personnel reductions. It's done so in a way which has enabled public services to be preserved and productivity gains to be achieved. As we say, there would be a need to continue to monitor these savings and make sure that service provision is adequate going forward.
MS. STANKOVA: And the next question comes from the gentleman in the back.
QUESTIONER: The European Central Bank president suggested that the question of burden sharing with senior bond holders is evolving in Europe. And I just wondered what your general opinion on that is in terms of Ireland where there's not too much senior bank desks left in the non-viable banks. What does it mean for Ireland? I mean, does it perhaps strengthen our hand in the talks on the bank rescue?
MR. CHOPRA: The IMF staff's position on burden sharing in the case of the failed banks in Ireland, is well known. And as you correctly pointed out, much of this debt has been repaid. So what we now need to do is look ahead. And I've already outlined how we see the work that will need to be done to make the June 29th summit commitment into something that helps Ireland and meets the three objectives that I laid out. And that's what the focus of our work is at this point.
QUESTIONER: Mr. Beaumont, can I just get you to elaborate on some of the options you were referring to there to help reduce spending while, at the same time, protecting the most vulnerable? Can I just hone in on two of them you mentioned, child benefits and medical card spending, you just outline generally speaking, what are recommending there?
MS. STANKOVA: And maybe another one or two questions. Yes, please.
QUESTIONER: The IMF this morning had estimates for a growth in the euro area. Is there any fear with you that those very low growth forecast makes it difficult for Ireland to achieve its 2013 deficit reduction?
MR. CHOPRA: Let me start off on the last question. You're quite right. We released our quarterly update of the World Economic Outlook on Monday. And then just two hours before this presser, we also had a press conference on the release of the euro area staff report. And as you point out, we have made some revisions to our forecast for the euro area and also for global growth. And we've emphasized that risks are to the downside.
Now in our statement today, we have said quite clearly that -- and I can quote from it. We've said quite clearly that success in Ireland will hinge on euro area stability and recovery. As I said earlier, the authorities have shown a remarkable ability and grit in delivering on its fiscal objectives, and for that we've talked about the importance of a more strategic approach going forward. There's no question that that task becomes more difficult if the external environment does not improve and conversely it becomes easier to the extent that the external environment does improve.
As was emphasized in the release of the euro area paper today, we've put emphasis in that on the steps that are needed to improve the viability of economic and monetary union, which is going to be very important for confidence and growth returning. But we've also put emphasis on both the near-term macroeconomic policy adjustments and the medium-term structural reforms that are going to be needed to improve growth prospects in Europe. So the IMF staff are working to promote the sort of outcomes that will be of benefit to all countries in Europe.
QUESTIONER: But are you concerned that the Irish objectives will be less attainable now?
MR. CHOPRA: AS I've said, there's a great deal of work to be done to meet fiscal objectives. I've also stressed that the authorities have shown a remarkable ability to meet the objectives that they laid out for themselves. To do this, they're going to need to continue to focus on a strategic approach to the further adjustments that need to be made.
MR. BEAUMONT: I'll turn it the question on child benefits and medical cards. Ireland’s child benefits are universal, there's no means testing, all families qualify for child benefits. The child benefit amount has risen very substantially in the last decade, so it's quite an expensive part of the social welfare budget. We're just laying out the option that you could consider targeting it to the families who are relatively less well off which could save a quite substantial expenditures in the process.
Similarly, with the medical card, all persons over a certain age, I think it's 70, qualify for the medical card. The population over 70 is going to be rising significantly over time, so the cost of those medical cards will keep on rising. And one way you can contain that type of demographic pressure is to again, look to some means testing on eligibility for the medical card.
MS. STANKOVA: And then maybe we'll take another round of questions and see.
QUESTIONER: Mr. Chopra, would you be worried about -- you mentioned the saying that the low-hanging fruit has been gone already and that the benefits Craig mentioned, that they're perhaps politically not obtainable at the moment. Would you be worried that the government aren't capable of delivering on this? And secondly, what do you think of the stimulus plan? Would you have preferred to see 2 billion repaid off national debt or used in perhaps a different way?
QUESTIONER: (inaudible) if you agree with Mr. Newman's view on the timetable for producing a plan that would be a (inaudible) September (inaudible) by October on dealing with the bank (inaudible)?
QUESTIONER: There's 1.8 million people in a recent survey who have less than a hundred euros after paying off (inaudible) essential bills; 600,000 don't have any money left at the end of the month. I think it was almost 200,000 children in Ireland are under 10 who are caring for parents. There is 50 percent unemployment, there's thousands of people immigrating every day. I was wondering, you say you need time to proceed with this -- you know, the plans that are coming out. I was wondering, do you have any kind of a date -- do you have any kind of a -- you know, do you have any kind of message of hope for these people who are struggling under the restraints?
And you know, not your fault that Ireland's gotten itself into this situation, but the cuts and the (inaudible) measures are having a real impact on the ground. And I'm wondering, have you got any message of hope? Is there a timeframe that you can say, listen, you're in your fourth year now, but you know, it'll be another two years, it will be another three years, keep up the fight.
MR. CHOPRA: Okay, I'll start off and then maybe Craig can talk a little bit more about the impact of the cuts and how we see that. Look, on the fiscal front, what we have focused on in the consultation discussions going forward, is that as the government starts working out its fiscal plans for the medium-term, it should do this with some key principles in mind. Now what are these principles? These principles are that the measures need to be durable, the measures need to be fair, the measures need to be efficient, they need to keep in mind social cohesion, and they need to have a long-term reform orientation. Now in order to do that, what we've emphasized in our statement is that a range of options will need to be kept on the table.
As you start excluding options, it makes the choices more difficult to achieve what we're trying to achieve while meeting those principles that I just outlined. So that's how we see the situation on the fiscal front. On the question about the timetable, this is an issue that is more between the government and the European partners, because the European partners have particular timetables for certain meetings. On our side we are working with our colleagues in the other institutions to be able to produce what we've been asked to produce in a way that meets whatever timetables are set for this exercise.
MR. BEAUMONT: On the impact of the fiscal adjustment, naturally it's actually very difficult to go through the type of fiscal adjustment that Ireland has gone through. We estimate the overall impact in the last three, four-years of adjustment at about just over eight percent of GDP. I would note at the same time, that the adjustment has been quite carefully designed. The ESRI information shows that overall, the adjustment has been progressive.
About 50 percent of the impact has fallen on the upper two income deciles. And a European Commission study showed that Ireland continues to perform relatively acceptably in terms of the number of people at risk of poverty. So far the adjustment has been, I think, quite carefully managed.
QUESTIONER: So we can take more -- I mean, is there no message of hope that there would be a suggestion that there is light at the end of the tunnel? Can you say anything to people who have no more than one euro at the end of the month? Can you say anything to the people who have no money in their pocket after they pay their essential bills? Can you say anything to them?
MR. BEAUMONT: We do emphasize that fiscal adjustment should be conducted in a way which protects the most vulnerable. We see the planned property tax as something that is a progressive measure and we would encourage the authorities to set that at a suitable level and in that way, avoid other measures which would have a greater impact on low-income people.
QUESTIONER: And are there more -- how (inaudible)?
MS. STANKOVA: I think we answered your question. We have other questions in the room.
MR. CHOPRA: There was a question on the stimulus --
MS. STANKOVA: Oh, right.
MR. BREUER: Against this background, we recognize the desire to stimulate growth, to get people working again, and that's what this measure is intended to do. The spending goes towards projects that are in the purview of the government such as, building roads, schools, primary healthcare, and as such help to enhance the productive capacity of the economy.
They are invested across the country, and the budgetary impact is comparatively small. It's roughly only about 0.1 percent of GDP per year. They are financed through PPPs -- Public Private Partnerships. --This means that liabilities for the government increase by a corresponding amount.
MS. STANKOVA: I think if we exhausted your questions, no unaddressed issues, then we will conclude today's press conference. Thank you for coming and we'll see you soon on other occasions.