Seán Fleming (Laois-Offaly, Fianna Fail)

I welcome the opportunity to speak on this legislation, the Bretton Woods Agreements (Amendment) (No. 2) Bill 2011. This amending legislation specifically eliminates the category of appointed executive directors and requires them to be elected. This measure forms part of the ongoing governance reforms at the International Monetary Fund, which we welcome. It is an improvement, a point well made by previous speakers.

People have an idea what the IMF is about. I wish to mention some particular points about its operation and our role. We are part of the IMF. Some people believe it is some kind of enemy, just as some people in this House believe the EU is the enemy on the mainland while Ireland is out in the mid-Atlantic. We are part of the EU. These people are not just semi-detached Members, they are completely detached from some of the financial realities.

Our subscription and voting power in the IMF are a central component of that organisation's financial resources. Each member country - we are one such - is assigned a quota based broadly on its relative position in the world economy. A member country's quota determines its maximum financial contribution and its voting power and has a bearing on its access to IMF financing. Normally, a member state can borrow up to 200% of its quota annually, and up to 600% cumulatively. Higher amounts can be borrowed in exceptional circumstances. Deputy Phelan mentioned that when a country borrows within its agreed limits it receives a preferable rate but if it borrows above that rate it will get a different interest rate, also preferable relative to what is available on the international market but not as good as the first kind. Some people might disagree with that description.

As to access to financing, the amount a member can obtain from the IMF is based on its quota. For example, under the stand-by and extended arrangements a member can borrow up to 600% cumulatively, over a period. There is a fancy term for this - "special drawing rights". It is a little like the green pound that used to exist in the EU. It took me a long time to get my head around that one. There was the green pound and there was the euro. Who had the green pound? I never saw one. It was a fictional mathematical construct, if I may so describe it. It was not actually a currency but a figure on which people based transactions. A special drawing right is a little bit like that. These rights are allocated to member countries by the IMF. A country's IMF quota, the maximum amount of financial resources it is obligated to contribute to the fund, determines its allocation or allotment of special drawing rights. I reiterate, special drawing rights are not a currency but represent a claim to a currency held by a IMF member countries for which they may be exchanged. They can be exchanged in the main currencies: euro, Japanese yen, UK pounds, US dollars, and their value is determined by a basket of these currencies. We are in the territory of a nebulous concept. However, countries can translate this back into their home currencies even if those were not the starting currency. That is the bottom line.

I wish to mention some points about the IMF. First, people must recognise it is the lender of last resort to countries in financial trouble. The chief responsibility is to ensure stability of the international monetary system. This began with the gold standard after the world war. The dollar then took over as the base currency in the world. If we do not have an international monetary system we cannot buy and sell abroad, or complete transactions. Ireland would be one of the countries that would have the most difficulty if there were ever a problem in that regard because ours is one of the most open economies. That has major advantages and disadvantages. If there is a downturn worldwide we suffer but there is also maximum advantage in that if there is a bit of a pick-up, because we are so open, as a small country we can hop in very quickly and benefit from being an open economy.

International Monetary Fund financing provides member countries with the breathing space and room they need to correct problems in their balance of payments. Often there is criticism of the IMF, as we heard a short time ago. I will touch on some aspects that were mentioned in the Chamber. It is fair to state that the basic problem with the IMF model was that the latest financial crisis had its origin in the private sector. Basically, the IMF is there to bail out countries but much of the problem worldwide was due, in part, to governments overspending. I am one of those who believe that deficits in Europe and the United States are contributory causes to some of the overall instability. China and other nations had to issue warnings. We are all living beyond our means. In western democracies we expect others to continue to provide loans then we complain when there is a drying up of liquidity. The point is, if one is living within one's means one does not need to borrow. There is a very simple way not to become involved in this problem - live within one's means and operate a balanced budget. That point keeps getting lost in this debate. Banks and private investors lent too much money under too little supervision to fast-growing developing countries, including to Ireland. They pulled the money when the liquidity squeeze happened. it is important to recognise that.

I do not know how Ireland was ranked after the Second World War. Now, however, I am sure there are corporations throughout the world besides the big multinationals we all know, the pharmaceutical and IT companies, oil exploration and construction businesses, that could be ranked in this way. Ireland would be a very small player. Even some of the biggest countries in Europe would not match in size and scale the turnover of some of the biggest corporations in the world. Their role in the world economy is far greater than the role of the overwhelming majority of governments. The IMF has not yet come to terms with that. The next review of its activities will have to deal with the issue of international business separate from government business. I understand how 60 years ago when the IMF was established government business was the world's main activity and there was not as much international trade as there is now. For example, last week's budget had to make an adjustment of €3.8 billion. Recently, I read Ryanair actually has the same amount in bank deposits. While I am not suggesting there is a link between the two, it shows how large the scale of activity of some private companies can be. Ryanair, while one of Ireland's larger companies, it is not up there with the Dells and Microsofts which could buy and sell Ireland before breakfast if they wanted to.

The difficulties with Lehman Brothers and others were brought about partly by the private sector, not wholly by governmental decisions. The IMF has no mechanism to deal with these types of issues. I am probably in a minority in the House when I say I prefer the American to the European system. When an American financial institution goes bankrupt, it is let go bust just like Lehman Brothers. Europe has a different approach which has more to do with the social democracy view people have and how they are afraid of the consequences. We had Anglo Irish Bank which was bankrupt but Europe would not let it go bust. Europe needs to cross the Rubicon and allow companies go bust. It is a sign of weakness of the EU that it cannot face up to these situations the way the Americans did. Life goes on and, believe it or not, people forget about these events in a few years.

The other night on radio I made it clear I do not like all these EU summits with Heads of State because there is too much politics and ego. Several of the current European leaders have large egos and like to see themselves strutting around the place. I have said before that I would prefer if these matters were solved by the finance Ministers. Taking the egos, the big politics and prime ministers out of the equation will mean far more progress could be made. At every summit, all one sees are politicians putting a political solution to what is inherently a financial problem. While any deal must be presented to member state parliaments and be saleable to their people, it must be started by and worked on by the Ministers with responsibility for financial measures. I suspect they would get to the brass tacks of the problem much quicker than their prime ministers.

Some claim the IMF destroyed Ireland. It must be recognised it is only providing one quarter of the programme funding. The rest is provided by the National Pensions Reserve Fund, the European Central Bank and the European Union. People love to have someone to blame and it is understandable if its suits some to blame the IMF for our economic problems.

I would like if Deputy Boyd Barrett followed his thinking through with his claim the IMF has no role in employment creation. Is he asking the IMF to run the country for us? My approach is to request a loan from the IMF, pay it back in time and let the IMF butt out. Instead, the socialist Deputy spent half an hour in a tirade giving out about the IMF and then complained it is not creating employment or stimulating economic growth. Does he want the IMF to supplant the democratically elected Government? We may need some financial assistance by way of borrowing but we do not need any IMF assistance in running the country or deciding our priorities of expenditure in employment creation, health and education. I am surprised Deputy Boyd Barrett went down that particular route. While the IMF may have much evolving to do with its approach to private sector industry, as I outlined earlier, its main role is to protect countries in financial trouble and ensure the stability of the international monetary system.

I thank the Minister for Finance for facilitating meetings between Opposition spokespersons and the troika members when in Dublin in July and October. While probably not a popular thing to say, A. J. Chopra is one of the most reasonable men I ever met. When he arrived in October, he said the budgetary adjustment must be €3.8 billion but it was up to the democratically elected Government to make the decisions as to how it would reach those targets. Some Ministers recognise they have the scope to make decisions once it is within the financial basket allowed. Weaker Ministers, however, blame all their decisions on the EU-IMF deal we signed. Regardless of whether an EU or IMF official had to come to Ireland, for our own good we needed to stop spending €15 billion more than we were taking in taxation. It reminds me of those towns and villages which say they must do up their streets and buildings to make them look nice for the tourists. We should be making it nice for ourselves in the first place. Likewise, we should be correcting our own finances for our own good, not for the EU-ECB-IMF.

As an accountant I tend to have a black-and-white view of issues, leaving aside the politics and concentrating on their financial brass tacks. It may come as a surprise to some but I recall telling several journalists I always believed the IMF would be in Ireland during the course of last year. In fact, before it arrived in November 2010 and when Ireland was trying to raise funds on the markets, I warned senior colleagues at a parliamentary meeting that Ireland was swimming in waters infested by financial sharks trying to destroy us. All they wanted was to make a quick buck on Ireland and did not care what yield they charged once they could make that killing. I recommended Ireland should get out of those waters and find a safe port of call, namely the EU and the IMF.

It was in that context that I said that at a parliamentary party meeting. In September last year, I had a detailed conversation with my deceased colleague, Brian Lenihan, who was Minister for Finance at the time, about the IMF coming into the Ireland in the near future. He could not confirm that would happen but it was always a possibility. He had been in contact with the IMF over the summer and the fund was satisfied Ireland was making the necessary adjustments at that stage. My message to him and to several other Ministers at the time was that we should not build the IMF up as the big bad wolf because it might be our saviour. Language like that was being used to put that image in the minds of the people.

That is why I do not follow the fixation most people have with Ireland returning to the bond market. I said at the time that the IMF had to be involved in a financing arrangement. The fund provides a loan, the same as the international financial sharks wanted to do at an exorbitant rate, that we repay and it does not run the country. We are better off dealing with the ECB, EU and eurozone and the international organisations of which we are a member. I would be happier if Ireland and other countries had their finances on a even keel long term instead of having to listen every morning to what is happening to Portuguese, Italian or French bond yields. The bond ratings of European countries will be revised downward by the rating agencies because we crossed the Rubicon when some Greek debt was written off. The US had its rating downgraded recently and there is no reason to believe this will not happen in Europe. Let us not get too excited about this. Once we have a proper system in place at EU-IMF level and we get our deficit under control, thereby reducing the amount we have to borrow, Ireland will work well.

See this speech in context