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IMF-EU Bailout Factsheet

IMF-EU Bailout Factsheet

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Categories:Types, Research
Published by: Donal Mac Fhearraigh on Apr 13, 2011
Copyright:Attribution Non-commercial


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Campaign 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 asFianna Fáil by pouring billions into the banks. Minister for Finance Michael Noonan stood inthe Dail on Thursday March 31 and baldly
stated: “
I want to be clear for the benefit of ourpeople
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 theIMF-EUdeal is to save the European bankers who lent out hundreds of billions to Irish banks. They areterrified that the collapse of the Irish banking sector could have a contagion effect onEuropean banks and lead to a collapse of the entire Eurozone system.Yet if Fine Gael and Labour are permitted to continue with this failed policy of nationalisingprivate debts Ireland will be destroyed for decades to come. The majority of Irish peopleare 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.
The IMF, or the International Monetary Fund, was oneof a number of organisations set up at the Bretton
Woods conference in 1944. Known as the worlds ‘lenderof last resort’, the ‘fund’ was originally mandated
smoothing 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 arather 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 westernloans left them dangerously close to declaringbankruptcy. In 1982 Mexico defaulted on its loans, andfearing that this problem might escalate, the UnitedStates along with the EU, forced debtor countries to
accept IMF ‘loans’ in order to meet their obl
igations tothe Western banks.
The IMF works on the basis of ‘one dollar one vote’ and
so the conditions attached to any loans are largelydecided by the Western powers. For example, the UShas a veto on all decisions with 16.5 percent of the votewhereas
the total combined share of the ‘l
developed countries’ is a mere 4.1 percent.
Countries go to the IMF as a last resort when theirpayments exceed their income. However, in order toqualify for a loan they must agree to implement certainspecified policies agreed between the government andthe IMF (what is know as a
‘Memorandum of Understanding’). Southern countries throughout the1980s and 1990s were required to ‘open up’ their
economies in order to receive foreign currency fromselling exports. Neoliberal economists argue that this
‘export led growth’ is
the best way to drag a country outof poverty. In reality these countries were quite simplydecimated, as a deluge of foreign imports radicallyundercut their ability to compete. Governments wereforced to put interest payments ahead of the needs of the population, while market-based pricing forcespeople to pay for vital services (such as water andessential foodstuffs) that were previously free.
According to UNICEF over 500,000 children under theage of five die each year in developing countries as adirect result of IMF polices
and a the lack of democratic accountability means that even when thesestructural adjustments fail to alleviate poverty, and theyinevitably do, there is absolutely no way of holding the
‘fund’ to account.
Consider Mali, for example. Mali is one of the poorestcountries in the world where 90 per cent of thepopulation live on less than $2 per day. As part of itslending conditions, the IMF demanded the privatisationof 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 andonly limited additional coverage was achieved. The
result of the liberalisation of the cotton markets was a20 per cent drop in cotton prices for 3 million Malianfarmers. An unpublished report by the World Bankclaimed that this policy would result in a 4.6 percentincrease in poverty. When the Malian governmentrefused to comply they blocked $72 million of assistance.Until recently this form of economic warfare has beenreserved for living in the Global South. However, thecurrent economic crisis has seen the IMF stepping in tobailout capital in more developed parts of the globalsystem. 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 percentcut in public sector pay; a 30 percent reduction inpensions; the closing down of 19 out of total of 59hospitals anda cut of 9 percent of GDP in public spending. This exactsame process is now also taking place in Ireland, Greeceand possibly soon, Portugal.
Ireland during the Celtic Tiger years was the poster-childof globalised, deregulated, neoliberal capitalism asmultinational corporations flocked to take advantage of its low corporation tax rates. A policy of light-touchfinancial regulation saw the banking sector finance amonstrous housing bubble. Then the bubble burst. Thecollapse of the construction industry sent the economyinto a tailspin, while plunging home prices left manypeople owing more than their houses were worth. NowIreland is, per capita, the most indebted country in theEU, with a deficit of 32 percent.
The government’s first crisis strategy was to guarantee
the deposits of the banks and ensure that no bank,however toxic, went the way of Lehman Brothers. It
guaranteed a huge €440 bill
ion worth of bank debt andembarked 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 marketssweet, the government responded with package afterpackage of draconian cuts, attacking social welfare,health and education budgets. Yet despite the cuts,dubbed "masochistic" by the
Financial Times
, Ireland'seconomy has stagnated and its debt is still growing.The strategy became unstuck when last November thegovernment 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 inEurope, the European Central Bank (ECB) startedpouring in money to shore up the system. They knew
that Irish banks had borrowed €224 billion from Britishbanks 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 Europeanbanks had gone into dodgy Irish banks and that theprospect of getting their money back relied onmortgage 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 toprotect the international bondholders. In March 2011stress tests on the banks the revealed that the losses inIrish banks were even greater than anticipated and a
further €24 billion will be required. This takes the totalcost of bailing out Ireland’s toxic banking system to astaggering €70 billion. The interests rates o
n these loans
are expected to top €9 billion per year by 2013. In
return for this loan, Irish workers are expected to acceptanother eye-
wateringly painful budget cut of €6
billion this year through tax increase and attacks onsocial welfare, health and education.
In December last year the government along with the
IMF/EU published a ‘Memorandum of Understanding’
outlining the conditions
for the €85 billion loan
package.The loan agreement locks Ireland into a very specificneo-liberal economic model dominated by policies thatwill impose immense pain on working people,communities and the poorest and most vulnerablesections of society by focusing on expenditure cuts,rather than on job creation or economic stimulus. Itgives huge powers to these unelected andunaccountable 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”,

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