Wednesday, 19 January 2011
Bretton Woods Agreements (Amendment) Bill 2011: Second Stage
Martin Mansergh (Minister of State with special responsibility for the Arts, Department of Arts, Sport and Tourism; Minister of State with special responsibility for the Office of Public Works, Department of Finance; Tipperary South, Fianna Fail)
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I move: "That the Bill be now read a Second Time."
I thank the House for agreeing to discuss this Bill today at short notice. The Bill is needed to allow the State to accept amendments to the IMF articles of agreement, which were approved by the IMF board of governors in early 2008. The acceptance of these amendments by Ireland will contribute to the process of bringing them into force. These two amendments were approved as part of the 2008 governance reforms agreed by the IMF in the ongoing process of enhancing the
fund's legitimacy, credibility and effectiveness in the changing realities of the modern world. Under the 2008 reforms, it was agreed to first, realign voting power in the IMF to reflect changes in the global economy and second, increase the voting power and participation of low income countries, LICs.
The 2008 reforms will adjust the IMF quota shares of members to reflect better their relative weight and role in the global economy. The quota of a country is a measure of its voting power and representation at the IMF, and is broadly based on its relative size in the world economy. A member's quota also determines the amount of financial resources that a member contributes to the IMF and the level of access of the member to IMF financing. However, current quotas have not kept up with changing economic realities, especially the increased economic weight of major emerging countries in the world economy. While the quota adjustments will benefit emerging market economies in the main, a number of advanced countries, including Ireland, who have been significantly under represented, will also receive a quota increase. The increase in Ireland's quota share will result in a reduction, by approximately 18 basis points, in the interest rate payable on the funds borrowed by Ireland from the fund, a saving in interest payments of approximately â¬1.8 million per billion borrowed per annum.
Since the 2008 agreement, I have attended two annual meetings of the IMF-World Bank where further reforms and quota changes were discussed, culminating in a further set of agreements - the 2010 reforms - which, when implemented, will have the effect of further increasing Ireland's quota. The impact of this quota adjustment, when implemented, will have a more significant increase on Ireland's interest rate, with a potential reduction estimated at 80 basis points when the 2010 quota increase is implemented. This would constitute an interest rate saving of approximately â¬6.5 million per billion per annum. This adjustment will require further amendments to the Bretton Woods Agreements Acts in due course. While it is not possible to be definitive about the timeline for the implementation of the 2010 quota changes, by resolution of the board each member has committed to use its best efforts to complete the necessary steps for acceptance before the annual meetings in autumn 2012. However, it is first necessary to implement the current 2008 quota reform, with which the Bill before us is linked.
The Bill is essentially a technical Bill, which provides for the acceptance of the fifth and sixth amendments to the IMF articles of agreement, both of which are Schedules to the Bill. The fifth amendment at Schedule 1 is known as the voice and participation amendment. By resolution of the IMF board of governors, entry into force of the voice and participation amendment is required before the quota increases can become effective. This requires acceptance by the required voting threshold of three fifths of members having 85% of total voting power. Current information from the IMF is that this voting threshold is close to being reached.
The amendment has three sections. The first section authorises the IMF board of governors to adopt rules so that IMF executive directors of constituencies with more than a specified number of countries may appoint a second alternate executive director. Currently, every constituency has only one alternate executive director. The purpose of this section is to enhance the capacity of the two African constituency offices to represent the countries in the constituencies at a higher level in recognition of their special challenges, including the heavy workload associated with the important advisory and financial role that the Fund is playing in many member countries.
The second section amends the formula for the calculation of the IMF votes of member countries. The purpose of the amendment is to increase the voting power of low income countries, LICs, which has been eroded over time, in part because of the relative increase in the economic power of other countries and also because of the impact of successive rounds of IMF quota increases. This is a central element of the 2008 IMF reform package. Under the current articles of agreement, the voting power of every member state is the sum of basic votes plus quota-based votes. Basic votes are the same for every member and are set at 250. Quota-based votes are broadly based on the member's relative size in the world economy. Thus, basic votes give the smallest members of the fund a proportionally greater voice in its deliberations. However, basic votes have not been increased since the founding of the IMF and, therefore, their weight has declined over time as successive quota increases have been implemented. In fact, successive general increases in quotas have reduced the share of basic votes from 11% when the fund was established to 2% which has led to a weakening of the voting power or voice of small developing countries within the fund.
The fifth amendment to the articles of agreement will allow for a trebling of basic votes to 750. It also provides that basic votes will be a fixed percentage of total votes so that any change in total votes will automatically trigger a consequent change in basic votes. This ensures that the ratio of total basic votes to total voting power will not in future be eroded by quota increases. The
third section of this amendment is a consequential amendment, which provides that the new rules for calculating votes shall not be affected by the suspension of any member's voting rights.
The Government is also taking the opportunity in this Bill to accept the sixth amendment to the IMF articles of agreement. This is called the investment authority amendment. While it is independent of the voice and participation amendment and the 2008 governance reforms, including the quota increase, the fund has suggested to members that they may decide to communicate their acceptance of the six amendment to it at the same time of the other two amendments.
The investment authority amendment is part of reforms which were agreed in 2008 in recognition of the need for more predictable and stable sources of income for the fund and to move away from dependence on income based on loans. The first three sections of the investment authority amendment provide for a broadening of the range of instruments in which the IMF may invest by removing a number of limitations in the current articles of agreement. This will enable the fund to adapt its investment strategy over time without the need for further amendment of the articles. I am happy to elaborate on these limitations if Deputies so wish.
Notwithstanding the removal of a number of the current limitations, the amendment provides that all investments be made in accordance with rules and regulations to be adopted by a 70% majority of the total voting power of the fund. The final section of this amendment is related to the creation of an endowment from the profits of the sale of a limited portion of the IMF's gold holdings. The purpose is to generate income while preserving the long-term real value of the resources. The amendment is technical in nature. Again, I can give further details if Deputies wish.
As I said at the outset, the Bretton Woods Agreement (Amendment) Bill 2011 is a technical Bill designed to give effect to IMF reforms which were approved in 2008 by the board of governors, including the Minister for Finance. These reforms relate to the governance and income framework of the IMF and are part of the ongoing process of modernising the fund aimed at enhancing its legitimacy in today's world. Ireland's acceptance of this Bill will contribute to completing the ratification of these reforms so that they will come into effect at an early date. Moreover, the ratification of these reforms will lead to the reduction of the interest rate payable by Ireland to the fund as the interest rate is related to a member's quota. A further reduction in the interest rate will be effected as soon as the 2010 quota reforms are implemented.
Since the first half of 2008, when these reforms were agreed, the IMF has assumed a vastly more important and central role in dealing with the global financial crisis and has come into play in our situation. It is in Ireland's interest and in the interests of the entire IMF membership that this Bill be enacted.
I commend the Bill to the House.
I thank the Minister of State for his explanation of the Bretton Woods Agreement (Amendment) Bill 2011. Fine Gael has no problem with this legislation, which is technical in nature and amends the Bretton Woods Agreements legislation to incorporate therein what has been already decided and agreed by the Government. Fine Gael agrees with what is occurring.
The Bill provides us with an opportunity to speak about the work of the IMF in general and to make some points in that regard. Until recently, the IMF was a pretty remote organisation in Irish politics. In most people's consciousness it was associated with assistance to under-developed countries. Those of us who served on the Joint Committee for Foreign Affairs are aware of its activities and of the lobbying by various interest groups for certain changes in the way the IMF operates in Third World countries. Submissions are being heard today from one of those organisations, namely, Debt and Development Coalition Ireland. While I note its recommendations, I do not believe this Bill is the appropriate vehicle to address the suggestions made by it. The organisation has contacted many Members of the House, who are generally sympathetic with the points made.
However, the IMF has become more relevant to Irish life recently because it is a participant in the bailout package for Ireland. Last Wednesday in the House I asked the Minister for Finance whether he was prepared to renegotiate a lower interest rate on the EFSM fund, which contributes to the package. Generally, the IMF is treating Ireland the same as any other country and the interest rates applicable to the portion of the package coming from the fund are calculated on the same basis. There are two other European-based funds but the EFSM provides the most funds. This new fund and the interest rates it charges are penal. The first tranche of funds applicable to Ireland was borrowed on the markets at 2.9% and lent on to us at a rate in excess of 5.6%. That is a high mark up and it is unprecedented in the provision by the EU of assistance to member states. I do not know why this approach was adopted but the Government should attempt to renegotiate the rates.
When I raised this in the House by way of priority question last Wednesday, the Minister was totally dismissive of my remarks, he was scornful in his approach and he questioned whether I realised this would require the assent of the 27 member states. He seemed to be surprised when I told him all major decisions taken by the EU are made with the consent of 27 member states. However, last Monday, when he was interviewed from Brussels on "Six One", he talked up the possibility of a renegotiation downwards of the interest rates. There is no doubt the Minister has learned an awful lot in a week and he is continuing to learn as the week goes on. Is he serious about doing the best deal possible? What level of briefing is he getting? Opposition Members using their own sources know what is occurring in terms of negotiation in Europe while the Minister is totally unaware of the policy developments in Brussels to the extent that he is no longer protecting the national interest.
The European Commission can currently borrow from capital markets to provide financial assistance to EU member states under two different programmes - the balance of payments assistance programme and the EFSM - designed to provide support to member states experiencing external payments difficulties. The medium-term financial assistance programme is available only to member states that have not yet adopted the euro. The loans under this programme should be financed exclusively from funds raised on capital markets. The maximum outstanding amount of loans under this programme was doubled to â¬50 billion on 18 May 2009 following a bond issuance of â¬4 billion for Hungary in December 2008 and March 2009 and â¬1 billion to Latvia in February 2009. The Commission has provided credit lines amounting to â¬14.6 billion under this programme to three countries - Hungary, Latvia and Romania. Hungary only used â¬5.5 billion in three tranches of the â¬6.5 billion credit line available before its facility expired. The credit lines for Latvia and Romania will expire in January 2012 and March 2012, respectively. Of a total of â¬8.1 billion credit available to both countries, a sum of â¬5.2 billion has been used so far. Romania is set to receive another â¬1.5 billion this year and that will leave a spare capacity of only â¬37 billion under the programme.
The reason I am going into the figures is to show that the amounts involved in this fund are substantial. A total of â¬50 billion is available but the coupon rates for money provided for terms of between three to nine years is between 3.1% and 3.8%. The fund that was in existence before the mechanism for the bailout package was put in place following the Greek difficulties provided money to non-eurozone countries at an interest rate of between 3.1% and 3.8%, depending on the duration of the loan, yet when a eurozone country such as Ireland had difficulties, it was penalised and it has to pay an interest rate of 5.8%, 300 basis points above the rate at which the fund can borrow.
The EFSM is part of the â¬750 billion joint financial safety net established on 9 May 2010 by the EU, European Commission and IMF to provide financial assistance to eurozone members in economic difficulty. Under the programme, the Commission can raise funds from capital markets of up to â¬60 billion by using the EU budget as collateral. In addition, â¬440 billion can be raised from capital markets through the newly established special investment vehicle of the EFSF. The IMF is committed to another â¬250 billion to make up the total fund. The Commission issued a â¬5 billion bond for the first time on 5 January 2011 under the EFSM to finance the first tranche of funds for Ireland. A further â¬5 billion is to be issued in the next few days and this will go towards the same fund. If the interest rate was calculated on the same basis as that on the funds provided to Hungary, Latvia and Romania, it would be 2.55%, but the rate charged to Ireland is 5.65%, even though the headline rate is 5.8%. Why was Ireland charged an additional 310 basis points in interest? It is a function of inept negotiation by the Minister and his Cabinet colleagues.
The arrangements were in place for the Greeks but they were not drawing from the fund. The stabilisation fund was put in place in the event of other peripheral states having difficulties. Ireland was the first test case and a penal rate has been applied. The Minister's position last Wednesday was, "take it or leave it". By Monday of this week, he had changed his tune and now he believes renegotiation is a possibility. I am trying to encourage him to fight the case because if we were treated in the same way using the fund that was in place to assist non-eurozone countries such as Latvia, Hungary and Romania to help them with their balance of payments problems, the EFSF moneys would be available to us at an interest rate of 2.55% and not 5.65% with a headline rate of 5.8%. There is a case to be made and the information is available.
Our European colleagues intend bringing forward proposals in March and I hope the Minister gets himself briefed properly before he negotiates there. The March deadline may not be met and it may go on until June when I hope a new Government is in place and some progress can be made. I do not say the horse is well and truly out of the stable and galloping across the European frontier and any negotiation will bring the interest rate down to 2.55% but a substantial reduction from what is being charged is desirable because, at present rates, the funding is not affordable and there is a grave possibility of us not being able to pay our way and hitting another crisis in two years time.
The Minister of State has introduced a technical Bill before the House to provide for limited reform to the IMF Bretton Woods structures. It is interesting that these minor reforms, which are welcome, were agreed in April 2008, probably around the time Deputy Cowen, as incoming Taoiseach, was having his ill-fated dinner in Heritage House with the directors and chiefs of Anglo Irish Bank. Time moves on. It is ironic that we find ourselves here today the night after the same person, now Taoiseach of the country, survived a confidence vote. There is an importance consequence for this country from last night's events by which I am most disturbed. I refer to the announcement by the Taoiseach this morning that he is taking unto himself the role of Minister for Foreign Affairs. It is a mistake not to have a Minister for Foreign Affairs of this country but instead to have that office incorporated into the office of Taoiseach, a Prime Minister and party leader who must also lead his Government into a general election in circumstances where the leading members of that party are either retiring or Ministers are at odds with him. Both the Minister for Foreign Affairs and the Minister for Finance are clearly at odds with him. Now we have no Minister for Foreign Affairs. I suggest to Fianna FÃ¡il Members that they might stop for a moment talking about Fianna FÃ¡il's interest and think about the national interest and the job we have to rebuild our reputation and presence in international institutions, such as the IMF or in Europe and if it is in the country's best interest that we appear to have to wait for approximately another two months for a general election. We should discuss whether it is in the country's best interests to have the Prime Minister - the Taoiseach - who is busy enough both with national but particularly as we saw last night with party affairs also carrying the burden of the Minister for Foreign Affairs. This is particularly important when we have delicate negotiations to undertake to rebuild our reputation from the hubris of the Celtic tiger days when Charlie McCreevy used to step out of meetings in Europe and elsewhere and chide people who might have been critical of the Irish economic miracle or even questioning in a friendly kind of way. We have to rebuild those relationships because one of the most important jobs that will face the incoming Government is to try to reopen and renegotiate what has been agreed by the Government.
The legislation before us today goes back to 2008. In September 2008, the Government, supported by Fine Gael and Sinn FÃ©in, tied the fate of our country to the fate of our broken banks with the introduction of a blanket guarantee of the banks' debts - a free lunch for existing senior and subordinated bondholders who had nowhere to run. What was a banking crisis soon became a sovereign debt crisis as Ireland was shut out from borrowing on the international markets at reasonable rates. It became clear that we would need external assistance to finance our deficit over the medium term and to manage the fallout from the banking crisis. In our time of need, we sought help from our international partners. That is one of the purposes of the IMF. We got help but at a very steep price. Bailing this country out of a debt crisis cannot be achieved by piling on ever more expensive debt. The EU-IMF deal carries a very high rate of interest which includes 3% or 300 basis points, which is in effect a penalty.
We should bear in mind that the German and the French banks which lent to reckless, out-of-control, unregulated Irish banks took a risk but the structure of the bailout is that they will be repaid in full. The first thing on the to-do list of the incoming Government after the election in a couple of months time is to reopen the EU-IMF deal to secure less onerous, but more achievable terms. If our friends in Germany think about this; what we need is not a Versailles deal, we need a Marshall plan approach so that we get a deal which will enable this country to recover and to repay our obligations, and the obligations the Government has unwisely added to the debt of the State. In the election, the Labour Party will seek a mandate from the people to reopen the deal so as to give Ireland as strong a negotiating position as possible.
It is clear that the Government, distracted by internecine conflict within Fianna FÃ¡il, and with the Greens who unhelpfully announced a couple of months ago that they were leaving Government but then decided to postpone that particular event, took its eye off the ball in its dealings with the IMF and the European Union. Rather than lead the negotiations himself, the Minister for Finance, Deputy Brian Lenihan, handed authority over to his civil servants. Although he was not a negotiator the Minister seems to have been hovering somewhere up and down the halls of the Department of Finance perhaps popping into the rooms where the negotiations took place and getting advice from the various other institutions, but he was the one who signed the memorandum of understanding on the dotted line. He will never be able to shirk his responsibility for allowing a hopelessly inadequate deal to be negotiated for Ireland in his name and the name of the Taoiseach, Deputy Brian Cowen, and the name of Fianna FÃ¡il.
We are to make penalty payments of up to 300 basis points, or 3%, on all moneys drawn down under the agreement. Before we entered into this deal the structure of such deals was that this country should have been able to secure an interest rate of somewhere between 2.5% and 3%. That is on the record of all of the institutions who were party to the negotiations. Despite initial insistence, the Taoiseach, the Minister for Finance, Deputy Brian Lenihan, and all the others claimed that the conditions of the deal were set in stone. I saw the Minister, Deputy Brian Lenihan, at the ECOFIN meeting on television glibly suggest in recent days, that hey presto, because he has matters to pursue within Fianna FÃ¡il that the interest rate could after all be subject to re-examination, discussion or renegotiation. In the cold light of day, his statement at the doors of the ECOFIN meeting the other evening, as seen on television, constituted a recognition and acknowledgement by him that he had done a bad deal for this country. Whether the task falls to the Minister, Deputy Brian Lenihan, or to his successor, negotiating down the interest rate will be a delicate and difficult matter, but one of the utmost importance to the interests of every citizen of this country. If the penalty payment margin were to be halved, for example, to 150 basis points, that would bring down our annual interest payments by â¬1 billion in cash terms by 2014. Some of the people opposite have got too used to throwing billions around but â¬1 billion in the context of our stretched budgetary situation is not to be lightly cast aside.
Another major area for discussion must be the extent of burden sharing between taxpayers and bank bondholders. Chancellor Merkel made the common sense observation that investors who take a risk should not be given complete cover by sovereign governments. She obviously intended that remark to refer in a negotiated structural way to the future. Essentially, the content of her remark makes sense. We must do everything within our power to mend the damaged perceptions of this country abroad. That is why it is a mistake for this country to be without a dedicated Minister for Foreign Affairs for two months. The Minister of State, Deputy Mansergh, is a distinguished former official of the Department of Foreign Affairs. He is aware of the burden on a Minister for Foreign Affairs and that it is important that this country keeps a presence abroad.
We are a proud nation facing challenging times, but they are challenges we will overcome to thrive again. Those advantages we have of language, culture, education, our people and our presence in the eurozone and within the European Union have not in any way decreased our attractiveness to foreign direct investment. I hope that by next week the Taoiseach will have reconsidered this position. The IMF was conceived in the aftermath of a devastating world war and the great depression. The Bretton Woods system was established as a new economic world order. John M. Keynes was the principal negotiator on behalf of the United Kingdom, one of the victors in the war. He was upset and depressed and died shortly afterwards because he believed American cold war developing interests won out in the deal.
Representations have come from the Debt and Development Coalition. The IMF needs reform and this is a small reform but it is not sufficient. In recent years under the leadership of Dominique Strauss-Kahn the IMF seems to have learned that the disasters it delivered to countries in Latin America and Africa during the 1970s and 1980s amounted to an awful mistake.
I worked in Tanzania in the 1980s and I was honorary secretary of the Irish Anti-Apartheid Movement in the late 1970s. I have had extensive contacts with African countries. In some ways, the negotiators did to Fianna FÃ¡il and this country what the IMF did back then. In those days, men used to have gold biros in the top pocket of their suits. One could see them sitting by nice swimming pools when their hard day's work was done. Essentially, when the IMF went into a country, it said what some in the ECB wanted to say to Ireland and Fianna FÃ¡il, which bent the knee during the negotiations. The ECB said: "You have to give up all that you have. Are you willing to give up all that you have?" In the case of the Third World countries, it used to say: "Are you willing to give up free primary education and free rural health treatment?" They simply put red pens through those budgets. The IMF has reformed and realised that this approach was a catastrophe for democratic institutions in those countries . The IMF took out free primary education in Tanzania. If there were five children in a family and four were boys, who did not get education fees paid for primary school education? It was the girls who lost out significantly. However, the IMF has learned.
The deal concluded between Ireland, the European Union institutions and the IMF was the first of its kind after the Greek deal. Those in the European Union must begin to think about developing a model that includes eurobonds and a financial transactions tax for the vast amount of worldwide speculative transactions. Such measures would help to float the Irish economy such that we could repay our debt and return to growth and social solidarity in this country. In addition, such measures would help to fund investments in water, education and health services in the developing world. While I have no difficulty with the Bill, there remains a significant challenge for the IMF to improve and bring its approach up to date.
Some of the most stringent critics of the Irish bailout and what happened to Ireland include such people as Joseph Stiglitz and Simon Johnson, both former senior economists at the IMF. Having seen what took place and having lived through and experienced the worst days of the IMF arriving in Tanzania as I did, they know that austerity and too much suffering, to quote Yeats, "can make a stone of the heart". In debating this legislation there is an opportunity to reflect on how at the end of the recent negotiations, the IMF was almost more friendly to Ireland than the ECB and the EU institutions, of which we are sovereign members.
There are siren voices in the House and elsewhere who suggest we should leave the European Union. However, since our debts are denominated in euro, if we left we would have to recreate a currency and we would immediately be subject to a massive devaluation. One effect would be that mortgage holders would find themselves in the position of people in Hungary in recent years. All of a sudden, their mortgage debt, which was already a significant burden, was a vast extra burden because it was denominated in a foreign currency.
DÃºirt an Aire StÃ¡it go dtugann an reachtaÃocht seo Ã©ifeacht don laghdÃº sa rÃ¡ta Ãºis a bheidh Ã¡Ãoc ag an tÃr seo ar an â¬22.5 billiÃºn atÃ¡ le tarraingt sÃos de rÃ©ir an maoiniÃº atÃ¡ curtha ar fÃ¡il ag an IMF mar phÃ¡irt don bail-out. Tuigim gur reachtaÃocht teicniÃºil atÃ¡ i gceist agus go mbeidh buntÃ¡iste faoi leith ag dul go dtÃ an StÃ¡it seo siocair an laghdÃº sin. I dtÃºs bÃ¡ire, nÃ mÃ³r dÃºinn machnamh an bhfuil an airgead seo de dhÃth orainn. TÃ¡ sÃ© rÃ¡ite go simplÃ aguis go soilÃ©ir ag Sinn FÃ©in nÃ¡r cheart go mbeadh an IMF anseo. TÃ¡ go leor airgead againn sa tÃr seo chun maoiniÃº a chur ar fÃ¡il do na seirbhÃsÃ cuÃ, gan tacaÃocht a thabhairt dÃ³ibh siÃºd a chur a lapaÃ amach sna bainc, agus dul ar ais go dtÃ na margaÃ domhanda roimh deireadh na bliana.
The Bretton Woods Agreement (Amendment) Bill marginally increases Ireland's IMF voting quota and has the effect of reducing the interest rate and a portion of the bailout loan. I understand it is envisaged that each member country would pay a certain amount of money in its own currency into the fund. This entitles a country to apply for short-term loans when it runs into short-term balance of payment problems. If a country wishes to borrow more than its allocated quota, it must submit itself to a strict regime of monetary and fiscal policies drawn up, principally, by the IMF. This is what has taken place here. We will have a large quota when the thresholds are reached, when other states transpose the proposals agreed in 2008 and when they come into effect subsequently. The increase in quota means some of Ireland's initial deposits will cover loans extended to us. I understand this means, in effect, Ireland may receive approximately â¬486 million from the IMF without interest, once enough members have approved the 2008 reform.
The Government is committed to drawing down an even greater amount from the fund. It has committed the people to wage cuts, cuts to social welfare, health and education. Property and water taxes will be introduced by this or successive Governments in the future. Will the Minister of State explain how the reduction announced today affects the first tranche of the IMF loan, amounting to â¬5.8 billion, drawn down yesterday? Will this be applied retrospectively to that part of the loan? When do these measures take effect? Can we be sure the â¬8.5 billion drawn down from the IMF yesterday will be subject to the new interest rate?
I examined the figures presented by the Minister for Finance. I note that a total of â¬14.2 billion of the IMF portion of the bailout will be drawn down by the end of this year. The Minister of State remarked that the 2010 reforms are not due to come into effect until August 2012. Have negotiations taken place with the IMF to secure the reduced interest rate which has already been agreed by the board but which must be ratified by members? Some â¬14.2 billion from the IMF will be drawn down this year. Were we to secure the reduced rate of 80 basis points, it would represent a saving of approximately â¬130 million in interest payments each year. When the change comes into effect in 2012 will it be retrospective as well? Has any discussion taken place in this regard? I understand the interest on the IMF loan is charged at daily rate. The IMF will cut its average rate of 5.75% by 15 basis points to 5.6%, which the Taoiseach claimed this morning he had done much to secure. In fact, it is due to a technical point where Ireland has a larger share of the IMF quota because of rule changes agreed three years ago. The reduction was not because of the Government's commitment to securing a fair deal for its people, and neither was it due to the negotiation skills of the Minister for Finance, Deputy Brian Lenihan, nor that the interest rate is now considered too punitive.
The average interest rates for our so-called bailout are still close to 6%. Focusing on this small reduction in the interest rate for the IMF loan will not change the disastrous effect the drawdown of these loans will have. The interest rate may have reduced by 15 base points but the price tag attached to this loan for the people of this State is crippling.
The IMF has seriously damaged the lives of people across the world through the application of stringent policy conditions to its loans. It will continue to do so, as we saw in the budget this year. The IMF practice of attaching policy conditions to its loans should be ended. It has demonstrated it does not have the competence to make reasonable recommendations to nations on economic decision-making not least in developing countries such as Mali and Somalia, but also in Ireland.
The IMF's role in Ireland's banking crisis must not be forgotten, as highlighted by the two reports on the crisis published last year. The Central Bank Governor, Professor Patrick Honohan, stated in his report the IMF was not strongly or consistently critical of the underlying dynamics of fiscal policy. Its oversight failed abysmally and it is now interfering to steer our economic course. The IMF is also continuing to promote its usual pro-cyclical measures including strong cuts to public expenditure, excessively strict fiscal policies and an over-preoccupation with privatisation and the liberalisation of trade and finance. It has already set out a shopping list of policies in return for monetary assistance. This is not assistance but dictation.
In return for this erosion of democracy, what has been gained for the Irish people? The loans from the EU and the IMF will be used to repay the bondholders who lent to the Irish banks that have now crashed and burned and whose liabilities the State has recklessly guaranteed.
While other parties in the House may talk about what happened three years ago when the bank guarantee was introduced, they will continue to honour it for senior bondholders and gamblers in defunct banks who would not be capable of standing on their own two feet without State intervention. This Government and the alternative future government will continue to bail out the private debt of the bondholders using IMF-EU moneys at these interest rates. These moneys will be used to compensate for the failure of these same institutions in the lead up to the financial crisis. The Government has no focus on job creation or economic stimulus. Instead, it focuses on taking money from the less well-off rather than the wealthy.
The amendments being made by the Bill have been described as applying fresh paint while the foundations rot. The changes agreed so far have been deeply insignificant and have failed to give any real power to impoverished nations. It is easy to discuss the changes the Bill will have in this State. It is also important to consider its effect across the world given that the IMF is an institution which has often devastated economies due to the damaging policy conditions it attaches to its lending programmes.
The package contains modest improvements in existing governance procedures for the IMF but they fall short of the creation of an institution with a more balanced and inclusive representation and voting power. What is being proposed is too little and preserves developed country control over the IMF. It provides for a total increase of only 1.6 percentage points in voting share for developing countries, leaving developed, richer countries, which represent 15% of the membership of the IMF, with over 60% of the voting rights. To be genuine about sharing governance power in the allocation of votes, the increase should be much more substantial. Genuine governance reform in the IMF will not occur simply through marginal increases of voting rights. The real issue is how developing countries can have a stronger role in IMF governance and actually shape how the institution is run.
While it was this Government that invited IMF intervention and negotiated a dud deal for Ireland, many other states are powerless to resist the IMF. This must change. Sinn FÃ©in recognises the debt burden on developing countries is a symptom of the disease that is at the core of the international financial institutions, namely the IMF. The voting rights in both these bodies are stacked in favour of the developed states and against the developing countries while the selection procedures for IMF leaders are totally undemocratic.
For too long the IMF has been able to impose its will, to dictate economic policies that ultimately strangle economic growth and impoverish millions of people. The IMF should be abolished with member countries focussing instead on building standards for just and responsible financing with regard to international lending and borrowing as part of new financial institutions under the control of a democratised UN.
Of the â¬67.5 billion in Ireland's bailout, â¬42.6 billion, almost two thirds of the total fund, will be drawn down by the end of 2011. Considering the bailout is over a lengthy period, will the Minister of State explain why the State is front-loading so much of the funding?
This technical Bill will make two key amendments to the proposed voice and participation voting weight and the funding arrangements for the IMF's investment authority. The IMF has been responsible for seriously damaging the lives of people in poorer and developing counties. I hope this country will not suffer the same fate.
It is claimed the voting formula contained in the voice and participation amendment aims at a better approximation of voting weight to economic weight meaning some under-represented developed countries will gain weight and some developing nations could lose. It is disappointing, as some organisations have pointed out, that after years of debate the proposal only gives a small increase in quota share for a handful of developing countries and none for the rest of them. This proposal does not represent the long overdue reform that was promised. Yet the EU's position paper in supporting it claims "it will achieve a significant shift with the representation of dynamic economies, many of which are emerging market countries, and give poorer countries a greater say in running the multilateral institution". Where is the truth?
The issue of governance reform has been a long-standing controversy between IMF member countries. Many justice organisations across the world have repeatedly called for a more just allocation of representation to southern hemisphere countries in the IMF, an institution that has often devastated their economies with its policy conditions attached to lending. Debt and Development Coalition Ireland has produced several reports on this damage. The IMF itself has acknowledged the need for governance reform, including increasing the voice of weaker countries in IMF decision-making structures. To date any changes agreed have been almost meaningless and impoverished countries do not have real power. There is a definite governance imbalance in the IMF. Reforms will not occur through marginal increases in voting rights.
The IMF has categorised South Korea and Singapore as developing countries, benefiting from the shift despite an IMF report classifying them as advanced economies. Another commitment the IMF can make in reforming its governance structure must include a far greater voice and vote for southern hemisphere countries through introducing a double-majority voting system, two separate majorities, one based on one country, one vote and the other on equally weighted quotas. This will allow southern countries to have a meaningful role in decision-making with increased dialogue between members which could result in more stable and effective decisions. Impoverished countries in the past have been ruined by the IMF. Now is the chance to put that right.
Regarding the proposed investment authority amendment, I note one provision concerns when the IMF sells gold.
To where will the proceeds go? I am informed that an amount will be placed in a general resources account and that the excess will be placed in an investment account. The IMF completed the sale of 403.3 tonnes of gold in December 2010 and obtained a far higher return on that sale than would normally be the case. In 2009, the IMF had agreed to use $900 million of the profit from such sales toward increasing low-interest lending to low-income countries. However, global debt justice movements have long been calling for the proceeds from these gold sales to be used to fund debt cancellation for southern nations, which is very much needed. Reputable research carried out in 2009 indicates that at least 100 countries still require approximately $400 billion in debt cancellation.
How was such a high level of profit made from the IMF's recent gold sales? It is suggested that said profits amounted to as much as $2.5 billion. The southern countries to which I refer have been used, exploited and drained of their wealth for a very long period by their European imperial masters. Immediate action is needed to alleviate the debt burden on countries of the global south. Some NGOs working on debt issues recommend support for the Bill, while noting that it does not address any of the fundamental concerns relating to reform of the IMF. There is a need to call for significant new commitments from the latter in respect of gold sales. Any windfall profits from such sales should be allocated to additional debt cancellation in respect of the most impoverished countries.
There is also a need to address the issue of the IMF's practice of attaching policy conditions to loans, a matter in respect of which we have had some experience in recent times. Questions arise with regard to the IMF's competence in working with southern countries. For example, does it have a real understanding of the economies of such countries? There is a need for just and responsible financing when it comes to international lending and borrowing. I stress the word "just" in this regard. The proposed increased investment authority for the IMF should not be for internal costs but should rather be directed towards other priorities such as debt cancellation.
I welcome the introduction of the Bill, which provides an opportunity to clarify some of the issues relating to the interest rates which apply in respect of the money made available to Ireland by the EU and the IMF. While there will be a slight reduction in the interest rates, it is interesting to consider some of the comments that have been made, particularly by Opposition spokespersons, regarding the IMF-EU deal and the position relating to interest rates.
The Minister for Finance, Deputy Brian Lenihan, has stated that there could only be changes to the interest rates if an overall renegotiation of the assistance mechanism was engaged in by all member states. Deputy Noonan acknowledged that point. In the context of the deal the Government obtained in respect of the interest rates, it was made clear that the 5.8% rate could not be improved upon unless an overall agreement in respect of the assistance mechanism was reached. It has been claimed that Ireland is paying higher interest rates than Greece. The latter is now seeking to obtain terms similar to those which apply in respect of Ireland. The interest rate being charged to Greece is 5.2% for three-year loans. The important point with regard to Ireland's case is that we are paying a rate of 5.8% in respect of a 7.5 year loan. The Government is to be applauded for ensuring that we obtained money over a longer term.
As Mr. Michael Somers, former Government of the Central Bank, stated recently, the NTMA is going to be in a position to return to the bond markets, sooner rather than later, in order to borrow two or three-year money based on the fact that we will have the money from the EU and the IMF in the banks, as it were, for a period of seven and a half years. Many economists are predicting that we will be in a position to borrow two to three-year money at a rate of approximately 4.4%. This was the rate which applied prior to the crisis involving Greece. If we return to the markets and obtain money at the rate to which I refer, it will prove that the IMF and the EU arriving in Ireland was not the crisis which people originally made it out to be. Everyone would prefer if it had not been necessary to agree a package with the IMF and the EU. However, that package is providing us with stability and it will provide the new Government with the stability required in order to try to restore fiscal and economic fortunes.
It is important to take this opportunity to consider what has been said in Europe and here at home in respect of this issue. The German Foreign Minister stated that it is clear that we cannot renegotiate the interest rate. His colleague, the German European Affairs Minister, Mr. Werner Hoyer, rejected the idea that a new Government would be able to negotiate a lower rate of interest and stated:
I think this is complete nonsense and should not be used for domestic political gains. The Irish Government has negotiated a very difficult deal and it has done so very successfully.
And, of course, it would question not only the seriousness of the Irish Government but that of the (European) Commission and the partner countries if one made such a political link. That doesn't fit.
I recall the iconic moment when Deputy Gilmore waved a copy of the document relating to the EU-IMF deal above his head in the House and stated that Labour would not accept it. He was attempting to fool the people. Deputy Gilmore stated that the deal was bad and that it would have to be renegotiated. He further stated that the elements of any negotiations would have to centre on bondholders and the extent of the bank bailout, the interest rate and that fact that the deal does not contain an investment strategy. Mr. Ajai Chopra from the IMF described the â¬85 billion bailout package as a very good deal for Ireland. He also stated that a 5.8% average interest rate "is clearly much better than one could get if Ireland had to borrow on the market right now".
Fine Gael has adopted a two-pronged approach to this matter. To be fair, Deputy Noonan has been quite responsible in respect of this issue. On 6 January, he accepted that the IMF rate of interest payment cannot be changed. He also conceded that renegotiating the interest payment with the EU would be extremely difficult. However, Deputy Varadkar would be at the top of Fine Gael's agenda in any renegotiation. He even stated that this could be part of a new deal introduced before the next budget.
Deputy Gilmore, in stating that the deal can be renegotiated, indicated that the Irish taxpayer has been expected to bail out the banks and the bondholders. He also stated that Ireland is being charged a penal rate of interest, that the deal is bad and that it will have to be renegotiated. The interest rate is the key aspect of the deal Deputy Gilmore intends to renegotiate. Again, Labour Deputies have made completely irresponsible statements in the House to the effect that, in government, their party is going to be in a position to carry out a bilateral renegotiation of this deal. That is not possible and those in the Labour Party should have the courage to admit as much. They should also admit that any renegotiation of the interest rate will be on the basis outlined by the European Council of Ministers in Brussels in recent days. Any new deal must involve a total change in the way in which European countries make this money available.
It is important that we should be honest in the period leading up to the general election.
Deputy Burton does not like to hear the truth. Nor does she like it when I and others try to explain - in light of proof provided by Mr. Matthew Elderfield, Professor Patrick Honohan and others internationally, such as Regling and Watson - that her party got it all wrong in respect of the bank guarantee.
I know Deputy Burton is finding it difficult. I want to make it clear to the House that we will expose this kind of "all things to all men" approach by the Labour Party. It is interesting we have not heard much about the great new strategic bank that will be the bedrock of Labour policy in getting us out of the problems we are in. It is quite clear-----
It is quietly being put into the background. If this kind of comment is as much as we can get from the Labour spokesperson, the future Minister for Finance of this country, then God help us.
With regard to the contribution made by Sinn FÃ©in, this stretches the imagination to the hilt. Anybody who knows anything about economics or banking must accept what the new Deputy from Donegal has just given us as something one would read on the front of The Beano. It is incredible to think that Sinn FÃ©in is putting forward policies on banking and economics that simply do not add up in any man's language. There is no country or no Socialist party in the EU-27 that is coming up with the kind of policies we are hearing from Sinn FÃ©in on the economy and banking. I would expect the Irish people will answer this kind of claptrap we have got-----
I apologise for getting Deputy Doherty's name wrong. Since the Deputy came into the House, we have heard a new line on banking policy and economics. In fact, he has gone even further than his former colleague in regard to what Sinn FÃ©in will do for the country. The Irish people will have an opportunity to analyse what we are getting from Sinn FÃ©in.
I welcome the opportunity to contribute. When one looks at the substance of this legislation and its Title, the Bretton Woods Agreement (Amendment) Bill 2011, one cannot avoid asking the fundamental question as to what has happened to the spirit that informed the original Bretton Woods agreements. It has been one of the great moral failures of our time, although it began as a significant moment.
When people met to establish the first Bretton Woods agreement, it was in an atmosphere of concern for constructing the basis of international peace and of relieving intolerable burdens on different member countries within the community of world nations. In the short time available to me, I must be perhaps a bit more blunt than I would like to be. The philosophy that informed and the dialogue that created the Bretton Woods conference is entirely contradicted by most of the activities in recent decades of the institutions which it spawned. It has been perhaps at its atrocious worst in regard to the influence of the neoliberal model of economics that is associated with the Chicago school, and which contaminated the institutions of Bretton Woods in such a way that, instead of appearing to advance a shared concern for solidarity in economic and social terms, they became institutions that were merely the naked instruments of imposition of a single model of economic development.
Deputy Burton has perhaps spoken about her experience in Tanzania. I recall very well that the neighbouring country of Kenya was used as an example to destroy the social model of Ujamaa, which had been introduced by Julius Nyerere. The distinguished Minister of State, Deputy Mansergh, is well aware of this issue. He will be more aware than most of the fundamental contradiction of the Keynesian thinking that was brought to the conference by some of the people at the first conference. Lord Keynes, as he was later to be, spoke, for example, about political economy. However, what came as instruments through the International Monetary Fund took no account of the social and human impact of the policies that were prescribed, be it in regard to whether villages needed to establish small farms to raise chickens to feed their population or otherwise - that did not matter.
As this is one of the rare opportunities I have left to speak in the House, I will make the following point. I remember the debate in the 1970s when we used speak about food sufficiency in African countries. Many of the African leaders who were visiting Europe and the United States at the time would say "We want everything you have". Short cuts were taken in regard to the structure of what was demanded and food sufficiency became unfashionable, as was the case in regard to many other basic items. Into that consumer-driven model of economy and social development came the IMF with one thing after another. It never asked a question about the impact on villages, women or children of its policies in regard to medicines or, for example, the connection between the trade talks and its lending policies.
I could spend an hour suggesting that the IMF today is not what the IMF was yesterday. That is true, and I make no false claim. I simply state that the empirical evidence of the policies was one of not taking any account of what the impact was in regard to people's lives. It was one also of the imposition of a single development model and one of not listening to a jot of indigenous wisdom that might come from any of the receiving countries.
I wish I had time to say much more about this. Nonetheless, a number of specific questions arise. The Minister of State suggested he has attended two meetings so far. I put it to him it is a great pity that countries like Ireland are not driving the discourse about the connections between political and social development and economy. We have a difficulty in this House in that those of us who are spokespersons on foreign affairs are allowed to discuss overseas development aid but, when it comes to policies that might contradict everything we stand for on overseas development aid, for example, on the finance or trade side, they belong somewhere else. While there is an interdepartmental committee, there is no evidence there is clear convergence between what we are aiming at in regard to development aid, for example, and either trade or financial structures.
The Debt and Development Coalition, which will have circulated information to many Members of the House, has particular suggestions to make. For example, we cannot oppose this Bill because it takes a very tiny step. However, there are other questions we might ask. The Minister of State refers to those changes that were suggested, for example, in the discussions in 2010.
In regard to the issue of the governance of the IMF, one might say I am being pessimistic. I refute that because the reality is that there is no evidence whatsoever of a return to founding principles. These institutions - the World Bank, IMF and so on - replaced older charter arrangements, with the Assistant Secretary General of the United Nations being the person to whom they were originally to report. There was a discussion at one stage as to whether there should be a United Nations body to deal with all of this - capital flows, hot money and so on - which would have rescued the people of the planet from the unaccountability of irresponsible, unregulated flows of capital.
In the 1950s people used to find it tedious when it was observed that something was God's will as if one could empirically prove the existence of God. Now we live in a time where people observe that certain events represent the market's response as if somehow it is beyond the ken of ordinary citizens to comprehend the amorphous workings of something that only an expert few understand. It is one of the great moral and political failures of this century and the last that there was such a capitulation in terms of any responsibility or accountability in regard to flows of money beyond sovereign borders. Professor Manuel Castell's work on the advent of technology in our lives has shown that the two greatest beneficiaries of the ability to transfer information in real time are the international drugs industry and international banking.
I remember well when some of us in this House made the case for the Tobin tax which would have yielded enough, from a tiny proportion of 0.1% of trade revenue, to facilitate spending to deal with the major issues facing the planet, including the elimination of preventable diseases, the provision of clean water and so on. We were told it was not possible and could not be done. However, in regard to the international banking arena, it suddenly becomes possible. The Minister of State should be making the case for the missing discourse. Ireland has a valuable reputation in regard to peacekeeping, overseas aid and so forth, a reputation that stands in such contrast to the degradation that was visited on us by a few chancers in the area of international banking. It is from Ireland and countries like Ireland that the case for the missing discourse might be expected.
We have pieces of language being used in regard to the two major amendments that are suggested in the legislation, including references to "voice" and "participation". Participation means just that. The existing structure of donor, recipient and shareholding is not democratic. Rather it is structured to reflect what the Minister of State referred to as the changing strengths in terms of the economics of the time. If that is so, is the objective in regard to the structure of the IMF aimed narrowly or broadly?
I missed part of the Minister of State's speech because I was at a meeting of the Oireachtas Committee on Foreign Affairs, so he may have addressed my question in regard to the second issue, the changes in respect of investment instruments. Does the Minister of State propose to see benefit to Ireland in this regard given that we are no longer proclaiming our hubris around the world, beating our breasts and asking everyone to be like us? It is difficult to know into which category we now fit. Does the Minister of State see capacity in regard to the change in investment instruments in terms of having low stable interest rates in respect of our borrowing requirements?
One of the questions that is being asked in regard to the working through of the governance at the IMF itself relates to the capacity that might exist for like-minded countries, such as poorer countries, to operate with a collective voice. That would have been of enormous benefit. It is easy for a strong country to enter the discourse, supported as it is by its shareholding and also by the respect it commands. In the case of other countries which are representing people at different levels of development and different exposures in regard to trade, their power is in their capacity to build a collective representation. One could therefore make a governance proposal to look into the requirements of different forms of majority rather than a simple majority. However, I do not see any proposal coming from Ireland in regard to that.
Lest the Minister of State argues that this is all slow progress and whatever, I draw attention to the case of Zambia which received a debt cancellation through the highly indebted poor countries, HIPC, process and through the multilateral debt relief process. However, it is interesting that faced with the choice between using the receipts for the gold that it sold, the IMF decided to put it into its low-interest fund rather than relieving or cancelling the debt even of a country like Zambia whose ratio of debt repayment to GDP is 300%. These are moral choices. I am not blaming the Minister of State but I am saying that the types of issues I raise are ones that one would expect to be raised by the spokesperson for Ireland at the governance talks.
Many people ask me what the Bretton Woods system is about. It took its name - like the Maastricht treaty, for example - from the location in which the agreement was reached, in the United States in 1944. Its aim was to rebuild the international economic system and, to that end, it established a system of rules, institutions and procedure to regulate the international monetary system. It also established the International Monetary Fund and the International Bank for Reconstruction and Development.
The IMF is currently getting all the attention for reasons set out eloquently by the last and previous speakers. The actions of the IMF, particularly in African and other underdeveloped countries, has given it a somewhat toxic name. Friends of mine who have worked for many years as missionaries in Africa and other parts of the world have told me that the methods that were used under the direction of the IMF did not take into account the extreme and even inhuman hardships that were visited on individuals in those countries over the years. The IMF has now recognised that one solution does not fit every situation. In the last decade or so, in particular, it has reviewed its modus operandi, and there has been further progress under Dominique Strauss-Kahn to ensure its intervention in particular countries is tailored to their specific needs.
In the case of Ireland we have had to tie ourselves into funding from the IMF, something for which no nation would wish because of the damage to its reputation. When one borrows money from any source one is tied to rules, regulations and conditions, in other words, the small print. No matter from what source the money comes there will be conditions. Of the total financial package of which we are availing, 33% is from the IMF, with the rest coming from our European partners under the European financial stability mechanism and the European Financial Stability Facility, as well as from various individual countries such as Britain, Sweden and Denmark. Every time people raise the subject of IMF funding, it gives the impression that there is no other source of funding being made available to this country. The argument is used for political purposes and is twisted to ensure that it causes some problems for the Government. Nonetheless, the International Monetary Fund is important in giving a greater voice and more power and influence to other countries. The IMF saw that this was necessary back in 2006 when it launched a two-year programme to reform the system of quota shares. Four big countries - China, South Korea, Mexico and Turkey - were not represented on the IMF. In addition, other countries, including Ireland, were either under-represented or not represented.
The Bill before us, which provides for the articles of agreement brought forward by the IMF, gives a bigger share to ourselves on that board. In effect, that means that our interest payments will be less than they were previously. The voice and participation amendment provides for an increase in the basic votes of every IMF member to enhance the voice of low-income countries. It also gives additional representation to African countries and provides that a calculation of the basic votes will not be affected by the suspension of voter rights of any members if this arises. Ireland's quota will increase from 0.385% to 0.528%, which will lead to a reduction in the IMF interest rate being charged on the loan we are getting from the fund.
The other amendment in Schedule 2 provides for a broadening of the fund's investment authority, which includes the creation of an endowment funded by gold sales. This follows on from the approval of a new income model for the fund approved by the board of governments in 2008. It will allow the fund to generate revenue from a variety of sources.
Ireland voted in favour of the IMF amendments in 2008 and subsequently conveyed its acceptance of the associated quota interest increases. We have now been requested to convey formally our ratification of the amending articles as early as possible. Ireland will contribute to achieving the required threshold of votes which will then trigger implementation of quota changes, including Ireland's quota increase. It is important for us to ratify this measure so that we will get the benefit of reduced interest rates. It is also important to ratify it in order to give greater representation and influence by many countries who do not have their proper quota.
I also wish to mention the contribution that was made by Deputy Doherty. Effectively, he said that we should not borrow from anybody. In that case I do not know where we would get the â¬18 billion that must be borrowed this year. That money is to pay teachers, nurses, doctors, gardaÃ and the Army, as well as running schools and building new schools and hospitals. I would like the Sinn FÃ©in party to explain in detail where that money would come from. Sinn FÃ©in Deputies have been peddling this argument without saying where the money would be obtained in the years ahead. They have a responsibility to explain that point. Their colleagues north of the Border do not seem to have any great problem in cutting back on social welfare, education and health expenditure. Do we have two Sinn FÃ©in parties?
They tell us that they are one party, North and South, in the whole 32 counties, but they seem to be acting in two different ways. Sinn FÃ©in should tell us the truth about where they will get the money and what their real policies are.
I commend the Bill to the House.
If the Deputy had waited he might have heard some of the proposals. Instead, however, he runs away when I get to my feet to address some of the points he raised. Deputy Michael Ahern could not be bothered listening. Once again, he has shown a failure to understand the dynamics of the real issues in the Six Counties, because fiscal controls were never transferred to the Assembly.
I invite Deputies Michael Ahern and Frank Fahey to read the policies and proposals that Sinn FÃ©in made in the run up to the budget, which outlined in quite a lot of detail exactly where the money would come from. This was before the Government put us into hock to the tune of nearly â¬80 billion. I would advise both Deputies to examine the job creation strategy - when people are employed they pay taxes - rather than losing money by encouraging people to emigrate, and thus lose the investment the State has made in young people.
Both Deputies would much prefer to sling mud and run away. They have no understanding of the economics of this State because they have been in a Government that has destroyed the economy. This is especially so for Deputy Fahey who does not understand financial issues. Otherwise he would have properly addressed the lost at sea issue by giving the proper compensation to that family in Donegal who, because of his ignorant attitude towards them, have suffered a loss. He was the same Minister who was involved in giving away Ireland's natural resources to the likes of the Shell Corporation in the Corrib gas field. Many other exploration companies are set to benefit from changes that Deputy Fahey, as a Minister, made to legislation in the past.
That is the very same attitude the IMF has when it loans money to African countries. It opens up markets to big corporations so that they can rob such countries' natural resources. Since its foundation, the IMF has been an odious institution. It has ruined many an African country. Rather than helping to develop such countries, it has sent them backwards so that they are in a state of under-development. It has prevented sustainable economies from being developed in many of those countries.
The legislation before us is to amend the agreements. It is being presented as a Bill to help southern hemisphere countries, in particular in Africa but also in South America. However, it will only make a minuscule change to the voting strengths of those countries in the IMF. An additional 1.6% will be added to the voting strengths of the southern hemisphere countries. That will still leave the northern developed world with 60% of the voting rights, even though it only makes up 15% of the IMF's membership.
The Government's other selling point has been that there will be an increase in Ireland's voting strength, which amounts to an additional, albeit minuscule, change to our voice. That will lead to a reduction in the interest rate Ireland will have to now pay for the â¬22.5 billion this Government has hung around the necks of every man, woman and child in this State.
We must not forget that it is not just a minuscule reduction in the interest rate. We still have to pay the lump sum. The payment and the loan itself has been tied to austerity measures, some of which we have seen already and some of which we will see in forthcoming budgets over the next two or three years. I refer to the wage cuts, the social welfare cuts we have already seen, cuts in public service numbers and the cuts in services such as Dublin Bus and Bus Ãireann in which the State is reducing its investments. I refer also to the reduction in the capital spend on new schools, hospitals and the like which the Minister said will be funded by the International Monetary Fund, IMF. There will be no such thing. The vast majority of the money we are talking about is going to bail out the bondholders, those people who gambled their own money and yet expect to be paid by the Irish taxpayer. That is where the money is going. Similar to the position with our National Pensions Reserve Fund, it is not going into a productive investment environment. It is not being invested in the future of Ireland. It is being invested and given away to German, Spanish and French financial institutions which were gambling with their own companies' futures.
What should have happened in terms of all of that is that they should have been burned, so to speak. It is not just Sinn FÃ©in who have called for that. Many an economist has called for it also because that is what happens. When people speculate and gamble, there is always a possibility of loss unless they speculate and gamble in Ireland where this Government is willing to bail them out lock, stock and barrel.
The other changes we are seeing already is the undermining of the investment in community service. There was never enough investment, yet under the austerity measures tied to the IMF we are seeing an undermining of those services. We are seeing the proposals and the guarantee by the Government to the IMF and the European Central Bank, ECB, that water charges and possibly a property tax will be introduced.
In every country into which it has managed to gets its claws the IMF has undermined the democracy and the public services in those countries because it has taken away their sovereignty and the power to decide for themselves how to spend the money and use the natural resources of those countries. The example of Argentina is one that Ireland and any future Government should examine to see how we can extract ourselves from this odious deal to which the Government has tied us.
I believe that as soon as we regain our economic sovereignty, for once we will have the capability of building a proper future. I say to the Minister of State that it is not too late to row back on that. Despite the fact that we have already downloaded huge sums of money this month we can return it. We can go back and ensure that the â¬20 billion or â¬30 billion that will go to the bondholders does not go to them but is instead invested in job creation and in creating a proper, nationalised State bank which will have the function of ensuring that industry and the public are properly served rather than what we have seen in recent years.
The IMF has imposed its diktats around the world and has facilitated globalisation, as I referred to earlier. Anything to do with the IMF should be opposed because that institution is an example of modern colonialism and imperialism because it dominates through debt. It controls the resources to benefit those who have pillaged those countries. It has left many a country denuded of natural resources and of the skills and powers to decide for themselves and made them dependent upon the hand-outs from the IMF.
I urge the Minister of State to try to undermine the IMF as much as we can in the next year or so, bring it down and put the powers the world has invested in the IMF in the hands of the United Nations because that is where the mechanism should be located with the changes and the reforms that are required to democratise that institution.
Martin Mansergh (Minister of State with special responsibility for the Arts, Department of Arts, Sport and Tourism; Minister of State with special responsibility for the Office of Public Works, Department of Finance; Tipperary South, Fianna Fail)
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A Cheann Comhairle, am I not expected to reply to the debate?
Martin Mansergh (Minister of State with special responsibility for the Arts, Department of Arts, Sport and Tourism; Minister of State with special responsibility for the Office of Public Works, Department of Finance; Tipperary South, Fianna Fail)
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I thank the main parties in Opposition for their support for this legislation in the House for what has been an interesting debate on what is undoubtedly a technical piece of legislation.
To refer to the legislation itself, and I do not want to exaggerate this, and also the follow up on the 2010 agreement, it allows us to shave interest rates. That will only happen from the date those agreements are ratified by a two thirds majority and enter into force. Other than ratifying those agreements ourselves, there is nothing that we as an individual country can do beyond that to hasten when they come into effect but I understand the 2008 agreement will shortly come into effect.
Deputy Burton has a good understanding of how the IMF has evolved. Deputy Higgins evoked the idealism of the founding fathers, just as I heard some of my colleagues in my own party evoke the idealism of the 1920s and 1930s, but social conditions change and obviously the global conditions since 1945 have radically changed as well.
I share the strong criticism of the way the IMF operated in the late 1970s and late 1980s and a great deal of the criticism directed against the insensitivity at that time is justified but the IMF of today is a completely different type of organisation. As has been pointed out already and as I pointed out myself, it is headed by a French socialist, Dominique Strauss-Kahn, who is still mooted as a possible French presidential candidate.
There are many developing countries, and I have not heard any government of a developing country describe the IMF as an odious institution and one that ought to be abolished. Many developing countries would be extremely upset if that were to be mooted because the IMF of today is of real assistance to them. The Sinn FÃ©in Members should get themselves up to date on the culture of the present day IMF.
Deputy Burton made the case for a Minister for Foreign Affairs. When a vacancy occurs the Taoiseach, and indeed any Taoiseach, often takes a Department to himself for a short period. There are two Ministers of State, Deputy Dick Roche, who deals with EU matters, and Deputy Peter Power, who is oriented towards development policy. If necessary, there is myself. I represented the former Minister, Deputy MicheÃ¡l Martin, at two Foreign Ministers' meetings last May. There are people who can be called upon in that situation.
Deputy Michael D. Higgins raised the question of globalisation and anti-globalisation. For better or worse, and it is probably both although perhaps more for the better, we live in a globalised world. I do not think it is going to be possible to reverse that. It is a question of controlling and regulating matters so that the beneficial effects outweigh the destructive harm that can be done, and that we have seen, for example, in the global financial crisis of the last two and a half years.
The discussion broadened out to EU interest rates. Deputy Noonan referred to relatively lower interest rates being charged on the EU balance of payments facilities for certain eastern European countries. The average interest rate on EU assistance, under the European Financial Stabilisation Mechanism and the European Financial Stability Facility is designed to be similar to IMF lending conditions for developed countries. Following the granting of bilateral loans to Greece and after detailed discussions, member states agreed to the provision of financial assistance under those two schemes on the basis of strong policy conditionality and terms and conditions similar to the IMF. It is not appropriate to make comparisons to the assistance given to non-euro member states, because the balance of payments support was not set up to be the equivalent of IMF conditions.
I follow closely, in the international as well as the Irish press, the ongoing debates that are taking place in the EU, both about the short-term problems facing the euro and the longer-term problems. The Minister for Finance was at a meeting where that subject was addressed earlier this week. There is, perhaps, a tension between attitudes. The underlying motive of eurozone partners is to try to re-establish confidence in the euro and to prevent contagion spreading. There was, certainly, a short-term success vis-Ã-vis Portugal last week.
I am strongly of the opinion that the terms negotiated last November were those thought by our partners to be most conducive to restoring confidence in the euro. We have moved on two months since then. It is, perhaps, clear that the terms of the agreement have not had, from a euro-wide perspective, the positive impact that might have been hoped at the time. There is a perception, not least from this country, that the terms are onerous, although it has always been the Government's position that they are manageable. This is not to say that if more favourable conditions could be obtained we would not be interested in obtaining them. That debate is ongoing and there is a tension between being fairly rigid at the moment and yet foreseeing a different mechanism three or four years down the line if a similar situation were to occur. One has to be frank about the fact that the EU, and in particular the eurozone, has not yet come to a resolution of these problems. If progress is made from which this country can benefit, whether under this or the next Government, that would be welcome. I would caution against any party thinking or proclaiming to the public, particularly in an electoral context, or holding out the prospect of a major change or alleviation of conditions. I do not, at present anyway, see any prospect of that.
The mechanism is often presented as the result of a bilateral negotiation between Ireland on the one hand and our euro partners on the other. Our euro partners are, obviously, looking all the time at its knock-on effects. Other countries are vulnerable and the long-term consequences of short-term solutions must all be considered.
Of course, the IMF could be made an ultra-democratic institution. However, the country that provides the vast majority of the funds might no longer be interested in doing so if it felt that its influence could be overridden. When one talks about using the UN rather than the IMF model, one must remember that the UN is not a democratic organisation either. There are five permanent members of the Security Council that have a weighted and a veto power quite different from that of other member countries. The EU is, to a degree, different. There are, of course, voting weights in the Council of Ministers so there is also a weighted mechanism there, but the EU is, relatively, as equal and democratic an organisation as it is possible to be. When one has member countries of vastly different size, population and wealth one can only push equality so far. The United States itself consists of some states with very small populations. They are all represented equally in the Senate but by population in the House of Representatives. Balances must be worked out.
On whether one can have basic equality, whereby the smallest country would have the same weight as the United States, China and so on, unfortunately, regardless of whether this would be ideal or otherwise, it certainly is neither realistic nor pragmatic. We must work with the institutions we have. In respect of the World Bank and the IMF, Ireland operates in a constituency that is led by Canada and that consists of several but not all Caribbean countries. Consequently, we have a mix of representation there. Marginal changes are being made in balances to quotas and so on in order that poorer countries are better represented. No country is obliged to belong to the IMF or any other international organisation if it does not wish. However, in the world community as a whole, practically all countries are in it. Countries belong to such organisations because they perceive them to be of benefit to themselves.
Finally, I have no ambition to see this country go down the route of Argentina, Colombia or anywhere else. One should study the consequences of so doing and of not being able to borrow on markets. Ireland still is a wealthy, developed country and we simply must buckle down to adjust to our conditions. The word "hubris" was used and it is a word I would have used myself. We were too ambitious and did not listen to the voices that told us to go more slowly, notably the European Commission in 2001. While we all were highly indignant about its interference in Ireland's internal affairs, I am afraid the European Commission was right and we were wrong as we were going too fast. However, we still have a great deal going for us. If one asks the reason the Government is front-loading the adjustment, it certainly is not for the political advantage of this side of the House because there is absolutely none. It is because most people would like to get through these problems as quickly as possible and head towards recovery, rather than stagnating for long periods, which has been the experience of some other countries with similar problems in other parts of the world. I hope I have responded to most of the points raised.