International Organisations

Abstract

This chapter draws on all the relevant publications in the period from the IMF, the OECD and the European Commission. Like all of the subsequent core chapters it analyses the commentary under four key headings, reflecting the facets of the crisis itself. These are competitiveness, fiscal policy, property and construction, and the financial sector. The chapter demonstrates that while the IMF and the OECD produced a lot of significant analysis of the Irish economy, the European Commission published relatively little. It also demonstrates that the opinions of these organisations were repeated quite extensively in the newspapers and in parliament, and were deemed to carry significant weight. It finds that the international organisations were strong in terms of warning about Ireland’s deteriorating competitiveness position during the period, and did so reasonably consistently. The Chapter argues that the IMF issued a crucial warning in 2000: that of nearly forty recent international examples of property booms that not one had ended without price falls. In view of the political and market sensitivities this was very likely the strongest possible warning that the Fund could issue. However, analysts failed to press home the point in subsequent years, and the warning drew essentially no public attention. Similarly, in 2006 the OECD warned that of a sample of 49 residential construction booms none had ended in a soft landing. Strikingly, however, a soft landing was exactly the prediction that analysts made for Ireland. The chapter argues that the discrepancy was either attributable to intentional obfuscation or a pronounced example of design by committee. The international organisations consistently warned the Irish Government to run balanced Budgets to maintain fiscal stability and avoid contributing to inflation. However, given the enormous reliance of the workforce and the Exchequer on the continuation of the construction boom this advice was to prove totally inadequate. It thus reflected the failure of the international organisations to correctly anticipate how the boom would end. Similarly, the IMF’s 2006 Financial Sector Assessment Programme concluded that the Irish banking system was fundamentally sound. The reason is clear from the methodology: while the Fund tested the system for House price falls of up to 50%, it conducted no comparable tests for a crash in the construction sector. Given that developer loans were of comparable magnitude, but with a much higher probability of default, this was a critical mistake.

If you are out of trouble, watch for danger.

Sophocles, Philoctetes