Dr. Donal Donovan:

On the first point, and I would have to recall the precise details, the solutions to the Mexico debt crisis and the solutions to the East Asian debt crisis did involve restructuring, reorganisation and alleviation of the debts in question. The Deputy is right. It was not simply a question of "Let's wipe out all these debts" but the programmes, particularly in Mexico I recall, did involve a substantial write-down by creditors of the claims they had on Mexico. This was known, if I recall correctly, as the Brady plan. It would be overly simplistic for an author to say it was straightforward that the IMF required the Governments to assume all of these debts. There were quite a lot of bankruptcies and private sector write-downs.

The second point is a very interesting one and it is something the IMF and its executive board has grappled with over many years. There is a potential moral hazard problem if countries believe that if they get into trouble, the IMF will come along to help. I am not saying they would welcome that because, after all, there is political stigma and huge political costs associated with being associated with the bailout, but the more important point is that private lenders feel that if they get into trouble, the IMF will come along and bail them out. This can create moral hazard, and can cause riskier and inappropriate decisions to be taken by private lenders.

This has been wrestled with over several decades. It is not an easy problem. The IMF would wish to try to provide money to countries that are in trouble but the taxpayers in IMF countries do not want to see this money disappearing back out the door to private lenders who should have adopted a less risky policy.

I know this might come up a little later, Chairman, but it is interesting that in the euro debt crisis it is fairly well known that the IMF was quite keen at an earlier stage for some write-down of debt by Greece to be included as a critical part of the Greek programme, and this occurred in 2011 to 2012. It is also no secret that in the discussions on the Irish bailout the IMF, at least the IMF mission here in Dublin, explored quite a bit the possibility of some limited burning of senior unguaranteed bondholders.

The IMF has generally not been opposed to debt write-downs as a matter of principle. There are costs and benefits, but it does not have a philosophical objection to that. It approaches the issue in a pragmatic way and would tend, in my experience, to take the view that if a debt is unsustainable and some restructuring write-downs are needed, then it is better to do that earlier rather than later because if it ends up being done later there are a lot of costs involved in the meantime. It is a more nuanced approach to the handling of debt issues on the part of the IMF.