bringing in the IMF ... laymans terms please?

Nobrow

What would it mean for the IMF to be brought in, in the context of NAMA failingfor example.

I've heard it said but dont understand. Would. it.somehow start dictating policy directly, or would it just come in to offer banking services to regular people in the absence of any alternative, and hence, as the only bank in town, effectively dictate policy?

SkepticOne

Nobrow wrote: »

What would it mean for the IMF to be brought in, in the context of NAMA failingfor example.

I've heard it said but dont understand. Would. it.somehow start dictating policy directly, or would it just come in to offer banking services to regular people in the absence of any alternative, and hence, as the only bank in town, effectively dictate policy?

My understanding is that the Irish government would call the IMF in when they can no longer borrow elsewhere to pay their bills (public sector salaries etc.). There would then be a period of negotiation behind the scenes where various measures to cut down expenditure would be agreed by the government in return for the loan.

Sandvich

Extremely unlikely to happen as the EU doesn't want to let the IMF loose in a Eurozone - can you imagine how bad that would look? The IMF tend to hurt more than help much of the time too. Letting them "sort out" a first world country is a bad idea.

To be honest I think the IMF is being spread around as a threat so the government can make "lazy" cutbacks. In reality it's a bad idea to cut welfare or minimum wage in a recession because that keeps money pumped into the economy, and the greedy ****s don't want to dip into their own pockets or go to the effort of firing TDs and streamlining services.

IMF would probably destroy the Irish economy for good.

Nobody's said we can't keep borrowing.

nesf

Nobrow wrote: »

What would it mean for the IMF to be brought in, in the context of NAMA failingfor example.

I've heard it said but dont understand. Would. it.somehow start dictating policy directly, or would it just come in to offer banking services to regular people in the absence of any alternative, and hence, as the only bank in town, effectively dictate policy?

a) Country goes bankrupt or close enough that they'll accept the IMF coming in (i.e. the State can't cover its bills and needs to borrow money from somewhere)

b) The IMF give the State a loan with certain conditions attached to it. Generally these have tended to be policy conditions (i.e. cut spending etc) but the IMF have adopted a less dictatorial approach since the mess that was the Asian Banking Crisis of the 90s so it wouldn't be as bad as some would have you believe.

c) Government gets to implement the measures (which to any neutral party would look sensible and necessary) and blame it on the IMF instead of having to summon the balls to take such measures themselves earlier in the time.

buck65

Well said neff. Maybe it would sort alot of this tin pot countries problems out i.e the public sector, the unions, the banking sector. Of course we hear about "draconian" measures brought in and we will be paying massive interest and taxes for the rest of our lives.
If NAMA fails surely we will be in the same boat?

SkepticOne

buck65 wrote: »

If NAMA fails surely we will be in the same boat?

Depends on what you regard the purpose of NAMA to be. I think it is primarily a response to the problems banks were having with impaired loans to developers. NAMA, by taking over these loans and compensating the banks, will succeed in this sense.

I think the idea of making a return for the tax payer, although it is a possibility, is more to do with selling NAMA to the public than anything else.

Hasschu

If the gov't disregards the advice of the ECB and refuses to chart a course that has a reasonable chance of success the flow of low interest funds from the ECB will slow to a trickle. At that point a desperate gov't will approach the IMF and try to negotiate a high interest loan. The IMF will play hard to get and make demands that will make the ECB look like the guardian angel. The only card left to play then if the gov't takes leave of its senses and burns the ECB and IMF bridges will be to pull out of the Euro zone and issue punts worth 20% to 50% of a Euro. The standard of living will plummet but the country will be very competitive with a weak currency and soaring inflation. Italy has played this game many times which is why there are so many Italians all over Europe and North America. The Irish played a more conservative game up until the current debacle but there are also many Irish scattered around the world and there will be more. Study foreign languages it might be your best investment.

nesf

Hasschu wrote: »

If the gov't disregards the advice of the ECB and refuses to chart a course that has a reasonable chance of success the flow of low interest funds from the ECB will slow to a trickle. At that point a desperate gov't will approach the IMF and try to negotiate a high interest loan. The IMF will play hard to get and make demands that will make the ECB look like the guardian angel. The only card left to play then if the gov't takes leave of its senses and burns the ECB and IMF bridges will be to pull out of the Euro zone and issue punts worth 20% to 50% of a Euro. The standard of living will plummet but the country will be very competitive with a weak currency and soaring inflation. Italy has played this game many times which is why there are so many Italians all over Europe and North America. The Irish played a more conservative game up until the current debacle but there are also many Irish scattered around the world and there will be more. Study foreign languages it might be your best investment.

Eh and you think our Government would be stupid enough to withdraw from the Euro because? Like seriously, it's not like debt owed from outside this country is denominated in a currency that we can devalue, even if we pull out of the Euro zone those bonds we issued won't convert into paying out in the new Irish punt so it's no escape.

Hasschu

I agree it is not a solution to pull out of the Euro. The external debt will have to be paid in Euros or Euro equivalents. The internal situation is completely different since the Gov't of the day can decree that effective early one Monday morning (not so high upon the gallows tree) the Punt will be the only legal tender in Eireann and the banks will start exchanging Punts for Euros on a one for one basis. Controls will be imposed immediately on movement, electronic or physical of funds between banks and customers and most importantly of funds which would normally flood out of the country. We would be trapped like rabbits in the headlights. In addition to the economic problems we have a social cohesion problem which can be expected to worsen as unemployment rises. The model with some chance of success would be to spread the pain evenly enough that only insignificant minority groups could have well founded grievances. The model being used is to prop up the well connected at the expense of the majority. The chances of coming through this without civil unrest are not high. Almost every industry and labour group in the country is standing with cap in hand expecting a handout. I am speculating that they fully expect to be bailed out as if they were banks and developers.

nesf

Hasschu wrote: »

I agree it is not a solution to pull out of the Euro. The external debt will have to be paid in Euros or Euro equivalents. The internal situation is completely different since the Gov't of the day can decree that effective early one Monday morning (not so high upon the gallows tree) the Punt will be the only legal tender in Eireann and the banks will start exchanging Punts for Euros on a one for one basis.

That doesn't get us out of our banking problems or our mortgage problems since much of the money used to fund mortgages in this country was borrowed from abroad and not denominated in Punts. We could end up with a very competitive economy however we'd end up with enormous problems in our banking sector that the State would have to prop up costing us vast amounts of our now devalued home currency which we're collecting in tax.

Devaluing our currency would only work if we were willing to default on our current debts which would create a lot of problems for us going forward. Why would anyone ever lend us a penny afterwards except at the most punishing interest rates after such a stunt?