Dáil debates

Thursday, 24 March 2022

Bretton Woods Agreements (Amendment) Bill 2022: Second Stage (Resumed)


Question again proposed: "That the Bill be now read a Second Time."

1:15 pm

Photo of Ossian SmythOssian Smyth (Dún Laoghaire, Green Party)
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I will briefly outline the contents of the legislation. It is a short Bill which is very technical in nature. It has ten sections and one Schedule, containing the text of the 2020 new arrangements to borrow, NAB, decision.

Section 1 sets out the definitions used in the Bill. Section 2 provides for the approval of the terms of the NAB decision and Ireland's adherence to, and participation in, the NAB decision. This also empowers the Minister for Finance to consent to future amendments to the NAB decision on behalf of the State, subject to a Government decision and consultation with the Central Bank.

Section 2 grants the necessary powers to the Central Bank to perform the obligations and exercise the rights arising from Ireland's adherence to the NAB decision and clarifies that any moneys received by the State under the terms of the NAB decision should be directed to the Central Bank. Section 3 of the Bill provides that, in cases where amendments to the NAB decisions are approved by Dáil Éireann, a notice of this approval is published in Iris Oifigiúil.

Section 4 of the Bill provides for a ministerial guarantee to cover the Central Bank's participation in the NAB on Ireland's behalf. This section requires the Central Bank to submit an annual report on the use of ministerial guarantees on the NAB decision to the Minister for Finance. This statement will be incorporated into the annual report on Ireland's participation in the IMF and World Bank which is laid before both Houses of the Oireachtas each year, in accordance with section 10 of the Bretton Woods Agreements (Amendment) Act 1999.

Moving on to the trust funds element of the Bill, section 5 provides for the payment of grant contributions by the Minister for Finance to the IMF's Catastrophe Containment and Relief Trust, CCRT, up to an aggregate total of €50 million. All proposed payments to the CCRT will be subject to a resolution by Dáil Éireann. Section 6 sets out the mechanism by which grant contributions may be made to existing IMF trust funds as well as those yet to be established. As explained earlier, any proposed contribution will require a ministerial order, followed by a resolution of Dáil Éireann. Like the CCRT, payments up to an aggregate total of €50 million may be made to each individual trust fund.

Section 7 amends section 3 of the Bretton Woods Agreements Act 1957 to provide for the payment of grant contributions to the IMF trust funds and to reflect the fact that the "ESAF Trust" has been renamed the "PRGT". Similarly, section 8 amends section 1 of the Bretton Woods Agreements (Amendment) Act 1999 to replace the definition of the "ESAF Trust" with the definition of the "PRGT". It will also amend section 4(5) of that Act to increase the total aggregate amount that may be paid to the PRGT to €75 million. Taking into account the total contributions to the ESAF trust or PRGT to date, this amendment will facilitate further grant payments up to an aggregate maximum of approximately €50 million.

Section 9 repeals section 163 of the Finance Act 2010. This was intended to amend the Bretton Woods Agreements Act 1957 to provide for a borrowing agreement between Ireland and the IMF. As Ireland's 2010 borrowing agreement with the fund lapsed without taking effect, section 163 of the Finance Act 2010 is redundant so a repeal of that section is in order.

Section 10 is a standard section defining the Short Title of the Bill.

We are living through a particularly turbulent time. Having emerged from a pandemic, we are now dealing with the Russian invasion of Ukraine which has brought a new set of challenges for the world as a whole. Multilateral co-operation has formed the basis of the global response to the Covid-19 crisis and will do so again in facing down the unconscionable aggressions of Vladimir Putin.

Multilateralism is also the cornerstone of how Ireland engages with the world. As a small, outward-looking nation, Ireland, throughout our history, has both benefited from and contributed to such international co-operation. Ireland must continue to play an active role in supporting the multilateral system.

Given its key role in fostering economic stability and global growth as well as acting as the de factoglobal lender of last resort, the IMF is a critical part of that system. This legislation, facilitating Ireland's participation in the NAB decision and payments to IMF trust funds, is another important step on Ireland's journey to re-engage fully with the IMF. Moreover, it is a strong demonstration of our commitment to multilateralism and of our long-standing support for the world's poorest people in their time of greatest need.

I look forward to a constructive debate. I commend the Bill to the House.

Photo of Rose Conway-WalshRose Conway-Walsh (Mayo, Sinn Fein)
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I am sharing time with Deputies Andrews and Ó Murchú.

I welcome the opportunity to speak on Second Stage of the Bretton Woods Agreements (Amendment) Bill. This legislation has been well flagged and has had a long gestation before reaching the Dáil. It is to be welcomed that we now have the legislation before us for scrutiny. The aim of the Bill is to facilitate the State's participation in the International Monetary Fund's new arrangements to borrow, NAB, and streamline procedures for contributing to IMF trust funds.

Before considering in detail the provisions of the Bill I want first to reflect more broadly on the role of the IMF. The year 2019 marked the 75th anniversary of the 1944 conference in Bretton Woods, which led to the creation of the International Bank for Reconstruction and Development - now the World Bank - and the International Monetary Fund. In many respects the Bretton Woods era ended in the 1970s. Bretton Woods was a dollar order, with the American dollar the only currency that was guaranteed convertibility to gold and as the currency of most international trade. The Bretton Woods order had obvious advantages for the United States, but it also allowed European states to control capital flows from their respective countries and into the United States. For its architects, the system had a crucial role to play in halting capital flight and allowing governments to manage interest rates in pursuit of full employment.

Spurred by the oil crisis, this order was ultimately ended by the decisions of President Richard Nixon between 1971 and 1974 to abandon fixed exchange rates, adopting the floating exchange rate system and the removal of capital controls. The post-Bretton Woods era was a new world with enormous ramifications for the global economy. Public and private debt rose massively, unemployment increased and the post-war system was replaced by a neoliberal system. However, the institutions of the World Bank and the IMF survived.

The stated role of the IMF since its inception has been to promote international financial stability, exchange rate stability and monetary co-operation. It ensures confidence by making the general resources of the IMF temporarily available to members, reducing the duration and severity of balance of payments imbalances. It has not always met these objectives, instead imposing structural adjustment programmes that have led to increased inequality, poverty and social breakdown in lower-income countries.

However, its role and importance cannot be dismissed on these grounds. On the contrary, it is because of its importance that the historical programmes it has imposed have been so damaging. Its role is crucial. It includes the facilitation of international trade, promotion of employment and sustainable economic growth and the reduction of global poverty. A core responsibility is the provision of loans to member countries that are experiencing actual or potential balance of payments problems.

Resources for IMF loans to its members are provided by member countries, primarily through their payments of quotas. Multilateral and bilateral borrowing serve as a second and third line of defence, providing temporary and supplementary resources. The new arrangements to borrow, or NAB, constitutes a second line of defence to supplement IMF resources to cope with an impairment of the international monetary system. Through the NAB, member countries and institutions lend additional resources to the IMF. In January 2021, a reform of the NAB took effect following consents from NAB participants, almost doubling the size of the NAB to $521 billion for the period from 2021 to 2025. Activation of the NAB requires support from 85% of eligible participants. The core provision of this Bill is to allow the State to participate in the new arrangements to borrow facility within the IMF.

I now wish to turn to particular provisions of the Bill. Section 2 provides for the approval of Ireland’s participation in the NAB decision, whereby the Central Bank, acting in its capacity as Ireland’s fiscal agent to the fund, will be responsible for providing a loan to the IMF in the case of a call on the NAB. Under the terms of the NAB decision adopted on 16 January 2020, the State committed approximately €2.3 billion. Section 2 grants the necessary powers to the Central Bank to perform the obligations and exercise the rights arising from Ireland’s adherence to the NAB decision, namely, the provision of a loan or promissory note to the IMF in the case of a call on the NAB. Since the original NAB decision was adopted by the IMF executive board on 27 January 1997, the NAB has been renewed on eight occasions. Under future NAB decisions, the size of the credit arrangement to be provided by participants may increase, decrease or remain unchanged.

Section 3 provides that all proposed amendments to the NAB decision will be referred to the Office of the Attorney General for consideration. If the amendment to the NAB decision creates a charge on public funds, the approval of Dáil Éireann will be necessary before the Minister can consent to the new decision.

Section 4 provides for a guarantee by the Minister for Finance to the Central Bank to cover the repayment of the principal and interest on any sum advanced by the Central Bank to the IMF under the terms of the NAB decision.

Section 5 provides for the payment of grant contributions by the Minister for Finance to the IMF’s catastrophe containment and relief trust, CCRT, unless opposed by Dáil Éireann by way of resolution. Payments to the CCRT will be made from the Central Fund. The CCRT provides grants for debt relief on IMF loans to eligible low-income countries hit by catastrophic natural disasters or public health disasters. Section 5 limits total aggregate payments to the CCRT by the Minister for Finance to €50 million. The IMF also provides concessional financial support through the poverty reduction and growth trust, PRGT, tailored to low-income countries, LICs.

Section 6 provides for the payment of grant contributions by the Minister for Finance to IMF trusts or contribution-based financing mechanisms, including the CCRT and PRGT. Section 6 also provides that the Minister may make grant contributions to a “prescribed trust fund” up to a maximum aggregate total of €50 million for each individual prescribed trust fund. In addition, it imposes a collective aggregate limit of €325 million on grant contributions to all prescribed trust funds, the CCRT and the PRGT.

Ireland joined the IMF and the World Bank in 1957 as part of a process of deepening our engagement and integration with the global economy. The legislation governing Ireland’s membership of the institutions is the Bretton Woods Agreements Act 1957, which has been amended several times. As is well known, the IMF is not averse to loading the loans it issues with ideological conditions that have often stunted the economic and social progress of developing countries. Neoliberalism must be abandoned if global inequality is to be reduced and sustainable development achieved. Ireland itself has experience of this ideology and its consequences, having been subject to a programme of austerity under the troika. After long advocating policies that put the interest of private capital before those of citizens in developing countries, the IMF has shown signs in recent times of moving course, such as its response to the Covid-19 pandemic and recent criticism of the framework to deal with debt distress. Together with our call for the IMF to recognise that austerity is a recipe for inequality and not a path of sustainable development, we also recognise the need to fulfil our obligations in the international community, recognising the role of institutions such as the IMF and World Bank in the multilateral system. For that reason, I and Sinn Féin support this legislation, which will see Ireland participate in the IMF’s new arrangements to borrow, providing credit to the IMF and its operations.

1:25 pm

Photo of Chris AndrewsChris Andrews (Dublin Bay South, Sinn Fein)
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The Bill before us here today is essentially a fait accompli. As the Minister signed us up to this two years ago, it is something of a rubber-stamping exercise. Before I deal with the contents of this Bill, I feel I should mention the Bretton Woods system itself, from which it derives its name, because the IMF, alongside the World Bank, have been with us since the Bretton Woods system was first launched. Indeed, it is fair to say they have now outlived the very system they were born of.

The Bretton Woods system was the approach to global financial management established after the Second World War. Its architects wanted to ensure the interests of capital did not ride roughshod over those of labour and that big business could not smother wider social concerns in post-war democracies. This system rested upon several things: capital controls, fixed exchange rates and the US dollar, backed by a gold standard as its anchor. There were high rates of taxation on capital which were recycled back through high levels of public investment. The policy target was full employment. It was a time when trade unions were strong and finance was weak. Inequality was low and labour’s share of GDP was at an historic high. In the English-speaking world, it was known as the “golden age of capitalism”, the Japanese called it the “economic miracle” and, following its establishment in 1957, it lasted for almost three decades.

What followed then was the onset of neoliberalism and a very different system of global financial management. Capital accounts were liberalised and exchange rates floated with fiat currencies, backed by nothing more than the promise to pay. Low rates of taxation on capital prevailed, with the consequence of low levels of public investment with creaking public infrastructure. Now, the policy target was price stability. Inequality moved back towards the levels of the gilded age, trade unions were weakened and finance was strong and highly mobile. Today, capital’s share of GDP is at historic highs. This era has been given various names from across the political spectrum: secular stagnation, financialisation, late-stage capitalism and so on. Regardless of the term that is used, it is pointing to a system that is not serving the needs or the interests of people. If we want an explanation for populism, that is where we start.

We support this Bill but we also have concerns. We have concerns about whether the IMF has finally woken up to that reality. The IMF, to its credit, has been on something of a journey of self-reflection in recent times. Its research department has led out on this and it has produced important research papers which question ideas that it once held to be conventional wisdom.

Its path-breaking article, "Neoliberalism: Oversold?", concluded that "Instead of delivering growth, some neoliberal policies have increased inequality". It has produced important research supporting the introduction of wealth taxes to help recover from the pandemic and even has produced research demonstrating how taxing the rich is good for growth. This is a far cry from the disastrous trickle-down economics we once got. My only concern is whether the IMF's board of governors have joined the research department on the road to reform.

The Bill will mean our participation in the NAB facility. As part of this, we will contribute to IMF loans to eligible countries in difficulty. We have no problem supporting those in need. However, those loans will come with conditions. In the past, such conditions have included increased labour market flexibility, which has been code for lowering wages, loosening employment rights and weakening trade unions. It meant undertaking pro-cyclical measures like reducing government borrowing and raising interest rates in a time of recession. Conditions have included signing up to structural adjustment programmes, which has meant the privatisation of public goods, the fire sale of state assets and the deregulation of markets. This Bill will rename the enhanced structural adjustment facility trust as the poverty reduction and growth trust. I hope that symbolises something more than just changing the name on the label of the loan product. I hope the IMF board of governors has learned from the mistakes of the past, just as its research department has. I hope the IMF recognises that we need to get back to a system of global financial management more akin to the Bretton Woods system than what we have today. There is a major realignment taking place in the world and the unipolar moment is coming to an end.

1:35 pm

Photo of Ruairi Ó MurchúRuairi Ó Murchú (Louth, Sinn Fein)
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I agree with much of what has been said. We agree with this and want to make sure we are part of the IMF's loan infrastructure. We are a long way from the original concepts in Bretton Woods. We have moved into a period of free flow of capital where private enterprise takes precedence over everything, including the necessity of our communities and societies. That needs to be looked at.

It is difficult to talk about the IMF without talking about our past experience with it, which was one of austerity. It embedded inequality and poverty. We all get or should get the basic concept that more equal societies work better, are healthier and do better on every key performance indicator, KPI.

As Deputy Andrews said, a huge amount of work has been carried out by the IMF research facility, including papers on neoliberalism oversold and research into wealth taxes and how they work and into the necessity for a more fitting and better system that works for the entirety of our society. The difficulty has been that the IMF has come in with sets of conditions which have been about privatisation, impacting on workers' rights and austerity. A lesson learned across the European Union was that austerity did not work. During the pandemic, mistakes may have been made but the general idea was that we cannot return to the road of austerity. The thinking was more akin to the US New Deal and the Marshall plan funding of Europe after the Second World War. That is where we have to stay.

It was necessary for the State to do the heavy lifting in the pandemic and is necessary for states across Europe to do the heavy lifting in the humanitarian crisis caused by the illegal invasion of Ukraine by Vladimir Putin. If we are to deal with climate change and other issues, we will have to lift fiscal constraints and be imaginative on an EU level. We saw that imagination during the pandemic when we were able to do all those things we possibly could not do.

We need to get real with the issues we have. We will have 20,000, 40,000, possibly 100,000 or even 200,000 Ukrainians here. It is necessary that we play our part but we all know the housing crisis we have. We are in a different situation and need to show the imagination that elements of even the British Government was able to show post Second World War with the idea of the welfare state. We have to engage in a system of building houses.

I accept what the Government has said in the sense that our solutions will not be perfect. That is fine but we need imaginative solutions. We have to be able to fund that and there has to be a conversation across Europe, not just about loosening fiscal constraints but about ensuring there is free flow of capital, particularly for necessary capital infrastructure to deliver for Ukrainians fleeing war and for our people who are suffering from our inability to facilitate them with housing. If we are to deal with the big issues of tomorrow, we have to do things differently. We support this but we hope the IMF has learned from past mistakes.

Photo of Gerald NashGerald Nash (Louth, Labour)
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The Labour Party will support this Bill, which is by and large technical. I do not intend to use all my time and many of the issues I would be ventilating if I were to do so have been adequately covered by the Minister of State and Opposition Members.

The Bretton Woods agreement was a groundbreaking accord forged from the ashes of the Second World War. It created the IMF and the World Bank and, latterly, led to the formation of the UN, the European Coal and Steel Community and other important multilateral institutions out of the devastation of the war. It had at its heart a determination to bring economic and fiscal stability and growth as a means of securing peace and prosperity in a war-torn Europe and world.

We are, as a consequence of Russian aggression, at an uncertain and insecure point in our history. At times like this we are reminded of the importance of multilateralism and of sovereign states with common principles and objectives working together to secure peace, insisting on respect for international law and rules and the need to support our fellow human beings with the solidarity that being active members of international organisations brings.

Our membership of the IMF goes back to 1957. As has been said, it was an important step in the development of our young State as a polity that was growing in confidence, maturing and becoming more aware of its important function in the world. The IMF has had its critics and some, if not all, of the criticism levelled against it has been fair. The terms of the 2010 bailout for Ireland were exacting and stringent. Some €22.5 billion was provided to this State through the troika programme via the IMF to keep the doors open as part of that arrangement. The country was in receivership at the time. Nobody else would lend us money to pay welfare and keep schools and hospitals open. The IMF, the European Central Bank and the European Union were the lenders of last resort. I hope and the evidence suggests that lessons have been learnt by the IMF and other international lenders from that difficult period.

Since that experience, we have seen the IMF, the EU and the European Central Bank adopt a much more enlightened and, dare I say, Keynesian approach to the challenges faced by the Continent and the globe more generally in the context of Covid-19. If we are to see this country, this Continent and the world reach the potential which exists and if we are to be serious about declaring a war on poverty, building up public services and making this country and the world more equal, then we must see more evidence from the IMF, the EU and the European Central Bank that their ideologies have changed.

The borrowing arrangement we experienced from 2010 to 2013, and post 2013, in respect of the arrangements that are still to a degree in place in respect of the monitoring of the Irish economy, was provided under the previous NAB facility. Ireland is currently an inactive participant in the NAB. When this Bill is enacted, Ireland will then fully participate in the NAB, with a credit facility provided to the IMF through the Central Bank of Ireland. As was said earlier in various contributions, this is about providing supplementary resources to the IMF, if and when needed, to help states to forestall or to cope with and adjust to any impairment in the international monetary system. This is a temporary measure ahead of quota increases apportioned to each member state to ensure the ongoing adequacy of IMF resources.

Given the current uncertainty, it is welcome that Ireland is stepping up and accepting and fulfilling its international obligations in a spirit of solidarity. At this uncertain time, we do not know what kind of turn this continent and this world will take and we must ensure that we are always stepping up and taking on our responsibilities as a wealthy, mature and confident state in the global system to support countries that may experience difficulties in future.

1:45 pm

Photo of Cormac DevlinCormac Devlin (Dún Laoghaire, Fianna Fail)
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I welcome this opportunity to discuss the latest amendment to the Bretton Woods agreement. I thank the Minister of State and his officials for bringing this Bill before the House. My party, Fianna Fáil, will be supporting the Bill. As the Minister of State has indicated, this legislation facilitates Ireland's continued involvement in the IMF's new arrangements to borrow and implements the decision adopted by the executive board of the IMF on 16 January 2020. The Bill facilitates Ireland's participation in the 2020 NAB decision, and future decisions, by means of a credit arrangement with the IMF that will be provided by the Central Bank of Ireland, acting on behalf of the State.

The Bill amends the Bretton Woods Agreements (Amendment) Act 1999 to reflect the renaming of the ESAF Trust as the PRGT and increases "the aggregate amount of grant contributions that the Minister for Finance may pay". The Bill also amends the Bretton Woods Agreement Act 1957 "to provide for the payment of grant contributions by the Minister for Finance in respect of the Catastrophe Containment and Relief Trust, CCRT, and trust funds established or to be established by the IMF in accordance with Article V (2)(b) of the Articles of Agreement of the Fund". These measures are important in order to ensure that Ireland can fully participate in the programmes of the IMF. The PRGT is an opportunity for low-income countries to access interest-free loans for capacity-building activities that can boost domestic revenues, manage public finances and regulate financial systems, while progressing towards the UN sustainable development goals, SDGs. The catastrophe containment and relief trust supports low-income countries impacted by the most serious of natural disasters, such as those we have seen in recent years. It also assists countries battling public health disasters, such as infectious disease epidemics, with grants for debt service relief.

As of December 2021, $976 million of funding support was approved for 31 countries to deal with the Covid-19 pandemic. The fund was previously accessed to support Ebola-afflicted countries such as Guinea, Liberia and Sierra Leone. Given the current post-pandemic uncertainty and Russia's despicable war in Ukraine, international organisations like the IMF provide an important safety net for many countries and make an important contribution to the rules-based order. Undoubtedly, the recent increases in energy prices and input costs to food and materials caused by the war in Ukraine will have an impact in Ireland and other EU states. However, EU states have the capacity to deal with these crises. Increases in the costs of energy and food, in particular, may have a significant destabilising impact on lower income countries, causing great suffering for millions of people. International bodies like the IMF provide an important safety net in these circumstances. I should say, however, that their role and their financial assistance in those circumstances must be reviewed and it must be ensured that the finance provided is used for the correct purposes. That said, I welcome Ireland's enhanced participation in this programme and I will be supporting the Bill.

Photo of Róisín ShortallRóisín Shortall (Dublin North West, Social Democrats)
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I am happy to contribute to the debate on this Bill and to tentatively welcome some of the provisions. I would, however, like to raise a few issues. Perhaps the Minister of State could respond to some of my questions in his wrap-up or at a later date.

Despite my strong reservations about the IMF and some of the activities it has engaged in and continues to engage in, I state my support for the trusts referred to in the Bill and the intentions behind them. The catastrophe containment and relief trust allows the IMF to provide grants for debt relief to the poorest and most vulnerable countries hit by catastrophic natural disasters or public health disasters. That relief on debt service payments frees up resources to meet exceptional needs created by the disaster, as well as for containment and recovery as might be necessary. The poverty reduction and growth trust, then, gives low-income countries concessional financial support to help them achieve, maintain or restore a stable economy that is consistent with poverty reduction and sustainable growth. That concessional support through the poverty reduction and growth trust is currently interest free.

While the IMF undoubtedly has its problems, these are eminently worthy causes. I wonder, therefore, whether the limits allowed for in sections 5, 6 and 8 are too low? What we are talking about here are Ireland’s contributions, which are not made on any kind of regular basis, to programmes that give debt relief to poor and vulnerable countries via grants and cheap loans. Yet the grants from Ireland to the catastrophe containment and relief trust are limited at €50 million, a paltry enough sum. Contributions to the poverty reduction and growth trust are limited at €75 million, and I am informed that roughly €25 million has already been contributed.

It seems likely that the IMF will be involved in some form with the refinancing of Ukraine's debt, and probably with helping to finance the rebuilding of Ukraine's infrastructure once the war with Russia concludes. It is likely that other countries affected by war will need similar assistance, and this is before we talk about the critical need to help finance low-income countries' climate change mitigation and adaptation and transition to low carbon economies. Prescribed trust funds may be the way the IMF finances these areas, so I again wonder whether the limits defined may be much too low? I also note that the European Central Bank recently gave its technical opinion on the Bill and noted that: "the draft law does not currently explicitly cover exchange rate risk on moneys advanced by the Central Bank of Ireland”. Will the Minister of State give his opinion on this aspect of the Bill and whether he believes there is a need to make future alterations accordingly?

As the Minister of State is aware, the value of special drawing rights, or SDRs as they are commonly known, is based on a basket of currencies. The euro rate for SDRs was: 0.8104 in Dec 2019; 0.8485 in Dec 2020; and currently stands at approximately 0.8.

So when we talk about a potentially maximum loan of 1.9 billion SDRs, we know the euro value can change a good deal. It seemed to me when reading it that the European Central Bank technical opinion paper raises the questions of who will be responsible for managing the exchange rate risk, what mechanism will be used and, if the Central Bank is to manage the risk, how it will be compensated by the Exchequer for doing so. None of this is specified in the Bill.

All of this, however, is to assume that the manner in which the IMF awards financing is without its problems, which of course we know it is not. To assume so would be to ignore both its recent history and its current activities. The Covid-19 pandemic has dealt a huge blow to every country and many governments have struggled to meet the urgent needs of their populations during the crisis. The IMF has stepped in to offer extra support to a large number of countries during the pandemic but at what price does this support come?

If we want to gain an understanding of the policy direction that the IMF intends to take in the aftermath of the unprecedented crisis that is Covid-19, we only need to look at the Oxfam briefing paper from last August entitled Adding Fuel to the Fire. According to the report, as of last March, 85% of the 107 Covid-19 loans negotiated between the IMF and 85 different governments indicated plans to undertake fiscal consolidation, that is, austerity, once the health crisis abates. This trend is clearly observable in the publicly available loan documents and we have not heard anything about that from our Government or the Minister for Finance.

The IMF's initial advice to governments was to spend as much as required to mitigate the severe impacts of the Covid-19 crisis. Oxfam’s research finds the IMF is now encouraging countries to go down the path of austerity as the pandemic subsides. Some of the terms in the loan documents involved austerity measures beginning as early as before 2020 concluded. The IMF has historically advised countries facing high deficits and debt levels to adopt fiscal consolidation and this is despite strong criticism from civil society and academia about the dangers this poses. These dangers have been confirmed by the IMF's own research, including the landmark 2013 working paper on the distributional effects of fiscal consolidation, which showed that the austerity measures it championed have typically had profoundly negative distributional effects by raising inequality, decreasing wage income shares and increasing long-term unemployment.

The most commonly proposed austerity measures in the IMF loan documents include pay cuts and pay freezes, increases to VAT which we know is a particularly regressive tax and general public expenditure cuts. As usual, the most severe impacts are likely to be borne by the same sections of society that have been most adversely affected by the pandemic, which are women, low earners and vulnerable groups. Covid-19 has already increased inequality in countries across the world and austerity would make this worse.

A little more than four months ago, I stood here in the Chamber and questioned aspects of the Stability and Growth Pact from the point of view of the insufficient flexibility it provides when countries are faced with extenuating needs and circumstances. My concerns around the conditions attached to IMF funding are very similar. The Social Democrats and I are very worried that the conditions attached to IMF loans and grants might be such that we are giving with one hand and taking with the other, tying low-income countries into another cycle of austerity. This Bill gives me a rare opportunity to raise this important matter in the Dáil Chamber because it is not talked about enough.

The IMF has too often pursued and prioritised economic growth and macroeconomic stability above all else. Our Minister for Finance is very much inclined to take the same kind of approach. I listened to him recently at an IBEC briefing when he spoke about the headline figures for the public finances. They were all fine but he did not look below them and at the difficulties that so many of our citizens are encountering with housing in particular but also with the high cost of living and the inadequacy of so many of our public services. For decades, the IMF has influenced governments the world over through lending, technical assistance and surveillance. It has pushed them to adopt contractionary fiscal policies at the expense of other important considerations, including equality and the social well-being of their populations.

Few developed countries know better than Ireland the negative effects of being locked into a cycle of austerity by terms attached to IMF loans. Parties that implemented many of these policies are slow to accept the contention of many economists that the pro-cyclical fiscal tightening implemented across Europe in the last decade and a half likely played a significant role in prolonging recessions and increasing unemployment in many countries, including here in Ireland. It is what the evidence now suggests and, unfortunately, the Oxfam report I refer to indicates that whereas the IMF has made strides in its own research and discourse, occasionally sounding the alarm bells on inequality, it has remained insistent on recommending harmful austerity policies in the aftermath of crises.

I wonder what checks there are, if any, on how Irish money might be used within the catastrophe containment and relief trust and poverty reduction and growth trust, and whether any of the harmful conditions I refer to will be attached to that money. Have these concerns been raised by our Government at all or highlighted? My concern is that they have not, and given Ireland's recent history, we should be all too aware of those concerns. They should have been raised at the highest level in respect of potential for similar conditions being attached to this money. I would like clarification on those points.

1:55 pm

Photo of Richard Boyd BarrettRichard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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It seems the IMF and Bretton Woods institutions are keen to rebrand themselves and this Bill seems to be linked to that effort by the IMF. The infamous structural adjustment programmes that were imposed by the IMF on this country and many other countries in the developing world or those which hit major economic crises have proved utterly disastrous because of the conditions linked to these loans provided by the IMF and World Bank. The global interventions of the IMF have been just a litany of disaster where the conditions attached to so-called financial support from the IMF were such that they made bad positions worse.

Invariably, the conditions that were attached to the loans were those of austerity, privatisation and deregulation. They were a way in which the wealthy countries of the world, a little bit like loan sharks but on a more sophisticated level and a grander scale, could dictate policy to countries that were recipients of those loans.

For much of the neoliberal period, for want of a better term, since the late 1970s or early 1980s, the damage wrought by the IMF and the World Bank was inflicted on developing countries in Latin America, the Middle East and Africa. With the economic crash of 2008, the damage came a hell of a lot closer to home. The infamous troika of the IMF, the European Commission and the European Union imposed conditions of austerity on foot of loans, supposedly to bail Ireland out after the financial crash created by bankers and developers. The cost was absolutely crippling to this country. We still have an enormous debt of €230 billion. Because of low interest rates, that debt is deemed to be sustainable. If interest rates begin to rise, however, which is almost a racing certainty, at a certain point that debt burden could become absolutely crippling. Bad as that is, the debt burden imposed on ordinary people as a result of the crimes of bankers, developers and the Governments that facilitated them was also linked to cruel and senseless, utterly counter-productive austerity demands.

The legacy of austerity remains with us, most obviously in the form of the housing crisis. Social housing provision - direct State construction of public housing - was effectively halted for more than a decade. We are paying a very bitter price for the demands of the troika to impose austerity in the context of public spending. It has left us with a chronic housing crisis inflicting extraordinary misery on ordinary working people just looking to put a secure, affordable roof over their heads. The origin of that crisis predates the austerity programme but it became worse by multiple factors as a result of the IMF troika loan programme. We are dealing with the consequences of that now. We can also see it in our health service. Tens of thousands of staff were taken out of the public health service as a result of the austerity measures and we are dealing with chronic capacity deficits in our health service today. There are hundreds of people on trolleys because we butchered the health service to get the supposed bail-out from these institutions.

It is also worth pondering the connection between IMF policies and war. Particularly now that we are considering the horrors of Putin's invasion of Ukraine, it is worth considering the connection between war, civil breakdowns and IMF loans and structural adjustment programmes. These are rarely commented on. It is rarely said that preceding the current conflict in Ukraine, a structural adjustment programme imposed by the IMF was in place, imposing neoliberal policies and austerity on the people of Ukraine and doing considerable economic damage to that country.

Prior to the Balkans war, the civil war that tore Yugoslavia apart with the horrendous crimes of ethnic cleansing and the rise of horrific forms of nationalism in the Balkans, there had been a structural adjustment programme imposed by the IMF involving crippling austerity and wholesale privatisation of the public and state enterprises in that country. In fact, before the Balkans war there had been massive revolts by working people. Regardless of ethnicity, Serb, Croat or Slovenian, together and united, working class people were on the streets protesting against IMF austerity. It is arguable and I am convinced it is the case that part of the reason there was a bloody civil war in the Balkans, the first encroachment of this kind of serious war and conflict in Europe since the end of the Second World War, was that when the ordinary people in the former Yugoslavia revolted against IMF privatisation and austerity, the leaders of the Yugoslav regime decided to play the nationalist card in order to divert attention, divide and rule and deflect legitimate anger against economic austerity into a horrible campaign of nationalism and ultimately of ethnic cleansing and war. It is important to remember that.

Preceding the Arab Spring was the imposition of structural adjustment programmes in places like Egypt by Hosni Mubarak and in other regimes in north Africa and the Middle East, imposing crippling austerity and the wholesale privatisation of industries. Privatisation was always linked to corruption because the states that were willing to privatise state enterprises inevitably privatised them to the benefit of their mates, the clique around the Government that was imposing them. It is a bit like in this country when we privatised telecommunications and created billionaires like Denis O'Brien. They were the people who benefited. Russian oligarchs came from the wholesale privatisation of state enterprises and industries in the Russian economy. They created this whole layer of horrible oligarchs who then controlled the former state industries. From that is produced the sort of horrible regime we see with Putin.

That scenario is not limited to Russia, as horrible and obnoxious as its particular manifestation in Russia is. It is a more global phenomenon whereby the insistence of the World Bank and the IMF on linking loans to privatisation and austerity has proved disastrous and has usually assisted in the destabilisation of countries and often in the production of civil wars, certainly of wholesale corruption and often full-scale war. The warring brothers of those who ran those states played cynical games, whipping up militarism in order to deflect popular anger away from themselves and onto scapegoat groups or launching wars in order to divert people's attention away from the real problem, which was the impact of neoliberalism being pushed down their throats by the IMF and the World Bank.

It no surprise against that background that the IMF wishes to rebrand, as this Bill sets out to do. Instead of the infamous structural adjustment, we now have much more benign sounding grant and loan programmes such as poverty reduction and growth and catastrophe containment and relief. It sounds beautiful but has anything actually changed? The states that dominate the IMF and the World Bank are the wealthiest and most powerful. Inevitably, they exercise their influence on the conditions attached to loans given to poor countries, which are forced to go looking for these loans and then swallow the conditions attaching to them.

Inevitably, the wealthy countries attach conditions that are beneficial to them and which, almost invariably, operate to the detriment of the people who take the loans. The latter find themselves in hock to these institutions and, in effect, subject to their demands and whims.

There has, perhaps, been something of a recognition among some of these institutions, and among some of the big western powers which dominate them, that neoliberalism is a disastrous experiment that has failed. We saw some evidence of that recognition during the Covid crisis. When one is faced with a public health emergency, one realises, for example, that a privatised health service is not really a very good idea. Suddenly, it dawns on people that having a two-tier health service, with a public service that is overrun and private hospitals that have excess capacity but can only be accessed by people who have the money to pay exorbitant levels of private health insurance, is not the best type of health system to have facing into a public health emergency in which the health of every person is linked to the health of everybody else.

Unprecedented measures were taken during the Covid crisis, including the integration for a brief period of the private health service with the public health service. Of course, it was still done in the neoliberal way. Instead of fully integrating and absorbing the private health service into a fully public, single-tier national health service, the Government just paid out huge amounts of money to the private owners of the private system. There was a refusal to break from the privatised model and we see the same with housing. Yes, there is a recognition that we are facing a housing crisis and that a massive mistake was made in doing what the IMF and others told us to do after the crash of 2008, which was to stop building public housing. However, it is clear we have not really learned that lesson when we look at what is happening now. The vast majority of so-called social housing is still being sourced from private developers under Part V of the Planning Development Act, as amended, through leasing arrangements, through the purchase of property from those developers and so on.

There has been some rhetorical shift by the institutions we are discussing in the way they seek to brand their operations, whether at the international level of the IMF or at the state level of countries like Ireland. However, it is seriously doubtful whether there has been any real and fundamental shift - in fact, I am certain there has not - away from the neoliberal mindset that produced such a disastrous economic crisis in 2008 and such a disastrous response to it in the form of structural adjustment programmes. Of course, horrendous as it was, what we suffered was minor compared with what many countries in Africa, the Middle East and Latin America suffered in the 1980s at the hands of these institutions. I take the vague recognition on their part that the neoliberal model has failed and needs to rebrand itself as a sign of there being pressure on them, and on governments, to begin to shift their thinking. There are very serious questions, however, as to whether they will, in fact, shift their practice or if the change is merely a rebranding and we will continue to see the same disastrous conditions attached to loans, particularly when things begin to get tight.

Considering this country's current debt burden, we may well suffer very serious consequences as a result of the moneys owed to the sorts of institutions that imposed such disastrous conditions on the loans they gave after the crash of 2008. My colleagues and I have made the argument for writing off these debts, an argument that was resisted hotly by Fianna Fáil and Fine Gael, with the Green Party switching its position depending on whether it was in opposition or in government. Those debts should have been written off for many of the countries in the developing world on which they were inflicted in the 1980s and 1990s. It remains my opinion that they should be written off today. In the case of such catastrophe loans and loans dealing with poverty, they often simply fill the gap created by the conditions that were attached to loans that were given previously by the same lenders.

Rather than simply rebranding the structure whereby wealthy countries and wealthy people lend countries money to fill the gaps created by the previous, disastrous mistakes made by those lenders, we should be thinking about a new international order and eliminating the inequality that requires countries to take these kinds of loans in the first place. We must eliminate situations whereby countries are, in effect, subject to an economic system that is dominated by very large corporations and the states associated with those corporations, which use their incredible wealth to grab hold of resources and markets in order to increase their profits. Never are they interested in the welfare of the people in those countries. Their only interest is in how lending money and attaching certain conditions to it can possibly increase their sphere of influence or their access to certain markets.

I am not, therefore, holding my breath on the rebranding of the IMF. If it feels the need to do such rebranding, it is demonstrative of the fact it can no longer stand over the disastrous priorities and policies it has pursued for the past 20 years. Perhaps this rebranding will create the space in which we can argue for a fundamental break from the disastrous policies of neoliberalism and for a different type of international order that is about meeting the needs of society - the needs of human beings - and using the incredible wealth that exists in our world to satisfy people's basic needs for housing, health, education and decent infrastructure and public services. If we went for that sort of emphasis, we might see fewer wars and less military conflict of the terrifying sort that is happening in Europe, Yemen, the Middle East and many parts of the developing world.

2:15 pm

Photo of Cathal BerryCathal Berry (Kildare South, Independent)
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I welcome the Minister of State's opening statement, which was very detailed, technical and useful. I also welcome the Bill, which was supposed to have been pushed through some 15 years ago. Unfortunately, tragic events overtook us at the time.

The initialism "IMF" is, for good reason, quite an emotive one for people in this country. It is synonymous with our economic crash and the terrible national humiliation that led to the bailout, the troika and the years of austerity, the tail end of which are still with us even to this day. To be fair to the IMF, of the three components of the troika, it was the least bullish and the least hawkish on those austerity measures. Unfortunately, it was our own people, namely, the ECB and the European Commission, that were the most zealous in inflicting austerity on us. That said, the IMF did not help but it was, at least, the lesser evil of the three. I am glad to see that over the past number of years, the ECB, the European Commission and the IMF have changed and improved slightly, although there is plenty more to do. In particular, the IMF's performance during the pandemic in providing low-cost finance to resource poor countries has made a difference. I only wish that we had applied the same response to the financial pandemic back in 2007 and 2008 as was applied to the Covid pandemic, in which case we would not be in this terrible situation now, particularly in this country.

I am reassured by the Minister of State's comments on the refinancing of IMF loans. It is welcome that all the IMF loans that were provided to this country have been repaid or at least refinanced in full. I am encouraged by the vast majority of comments made by colleagues in this debate. Most people in the Chamber recognise the need for the IMF as a lender of last resort that is available to countries that are going through periods of particular tragedy.

It is important that low-cost concessional loans be available. I am particularly interested in the debt relief aspect. I do not believe we spend enough time debating debt relief in this Chamber. We have suffered from the effects of large debts ourselves. Many of us have travelled in and lived in resource-poor countries across the global south and will be aware that debt relief is an area on which we should be focusing more.

I have a couple of small points. I welcome the Bill but have some concerns, which I will outline. Could the Minister of State confirm in his closing remarks or a briefing thereafter that if we contribute to the NAB, the money will not come from the Exchequer but from special drawing rights, SDRs, in the Central Bank, effectively putting it off-balance-sheet? I accept the money going into the trusts will be Exchequer funding. However, could it be confirmed that the NAB does not involve Exchequer funding but Central Bank money?

On the low-interest loans — the concessional loans — how does Ireland influence the rate the IMF charges resource-poor countries? Can we influence the associated conditionality? Is it through the Minister for Finance or do we have technocrats and individuals sitting on the IMF board who can have an influence and push Ireland's values from that perspective? How can Ireland, particularly with its seat on the Security Council and as a country that is not afraid to express its values across the world, effect a greater amount of debt relief across the world?

I am not sure when the Central Bank last briefed Deputies. The Minister of State might consider arranging for it to brief finance spokespeople from the various parties and Independents, or at least giving it the opportunity to brief us on the activities of the IMF, particularly in respect of debt relief, concessional loans and any associated conditionality.

I welcome the Bill and am happy to support it. I would be grateful to have the clarifications, either in the Minister of State's closing remarks or a briefing thereafter.

2:25 pm

Photo of Ossian SmythOssian Smyth (Dún Laoghaire, Green Party)
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I thank all the Deputies who have contributed to this debate. I appreciate the Opposition's support for this Bill. Although it is described as technical, it does provide for what will be very practical and useful funds for poverty reduction and disaster relief.

I will address some of the questions raised, starting with those of Deputy Berry, the most recent contributor. His first question was on whether the NAB would be funded by the Exchequer. As I understand it, it is an investment from the Central Bank and will bear interest. It does not involve any cost to the Exchequer. Trust funds, however, are grants and would be expected to be given for earthquake relief or hurricane relief, for example. There is no repayment; they are cash grants. Provision has to be made within the Bill because there is a cost to the Exchequer associated with what the total amount of money could be.

The next question was on our input into the conditionality, how it is set and whether it is done by the Minister for Finance or officials. I shall give a more complete and better-informed answer on Committee Stage, rather than trying to answer the question right now.

Deputy Berry's next question was on whether the Central Bank could provide a briefing for spokespeople. I see no reason why not. I will contact the Central Bank and ask whether it will brief Opposition spokespeople. Although this Bill is just addressing the NABs and trust funds, this is an opportunity to discuss the operation of the IMF in general. Of course, the IMF is an emotive subject because the IMF was involved in a programme in Ireland in its not-very-distant history. It is not the case that the IMF arrives at one's door; it has to be invited in. When you have nowhere else to turn, you write to the IMF and invite it to come to your country, and then you form a programme with it.

Several Deputies raised the question of conditionality. A country applies to the IMF, in its capacity as a lender of last resort, for funding and agrees a programme with it. Sometimes the conditionality is controversial, and that is what leads to Deputy Berry's question about how it is formed. Conditionality is a core part of the agreement. It has always been. Under its articles of agreement, the IMF is required to establish adequate safeguards for the use of its resources in order to ensure loans to member countries are repaid as they fall due. This ensures resources will be available to other members in need. The safeguards include policy conditionality, implying that a country's government and the IMF must agree together a programme of economic policies before the fund provides a loan to the country. Essentially, conditionality serves two purposes. In the first instance, it helps countries solve balance-of-payments problems without resorting to measures that are harmful to national or international prosperity.At the same time, it safeguards IMF resources by ensuring the country's balance of payments will be strong enough to permit it to repay the loan, thereby protecting the fund's limited resources. While I recognise the significant challenges that conditionality can pose in the short term, as we can recall from our recent experience, the overarching goal of these measures is always to restore or maintain balance-of-payments viability and macroeconomic stability while setting the stage for sustained high-quality growth.

Deputy Shortall asked about the exchange rate gap between SDRs and the euro. In other words, if we say in this legislation that a certain maximum amount of money can be spent on the trust funds and NABs, where that sum is denominated in euro but we actually pay in SDRs, with an exchange rate movement between the two, how do we cover the risk? That is a technical question. As Deputy Shortall said, the ECB had raised a question about this when looking at draft legislation. The answer to the question is that the Central Bank of Ireland, acting as Ireland's fiscal agent to the IMF, will take on the financial risk associated with making payments on behalf of the State in response to a call under the NAB decision. However, given the financial independence required of the Eurosystem and national central banks under Article 130 of the Treaty on the Functioning of the European Union, pursuant to which member states may not put their national central banks in a position in which they have insufficient financial resources to carry out their Eurosystem-related tasks, the Central Bank of Ireland requires a ministerial guarantee to participate in the NAB. This ministerial guarantee will cover all financial risk, including credit risk in the unlikely event that the IMF fails to repay, either in full or in part, the amounts owed, and exchange-rate risk arising from the fluctuations in the euro–SDR exchange rate. Exchange-rate risk would occur in the event that the euro appreciated over the term of the loan against the SDR, meaning a decline in the value of the principal amount and interest repayments under SDR terms relative to the euro amount on the Central Bank's balance sheet. Notwithstanding the two circumstances outlined, the purpose of the guarantee is to provide full compensation to the Central Bank for any shortfall. The specifics of the guarantee have been set out in a template letter, agreed in advance by the Department of Finance and the Central Bank of Ireland.

Deputy Berry and possibly others raised debt forgiveness. It was asked why the IMF requires a repayment from people in need. As Members can see, the trust funds do not require repayment; they are purely grants. In the case of a loan made by the IMF, if the members decide to forgive the debt, the members concerned can forgo repayment. They can always do that if they feel it is the wisest move. In this regard, we have only to consider the fund's comprehensive response to Covid-19, with financing totalling €173 billion provided to 93 members to support their pandemic response and recovery, as well as vital debt relief made available to 29 vulnerable low-income members.

As we move into the next phase of the crisis, the IMF continues to provide additional financing, technical assistance and policy advice to help countries recover and to build back better.

The IMF has reacted quickly to the devastating developments in Ukraine, approving emergency financing of $1.4 billion on 9 March and disbursing these resources to Ukrainian people that same day. As some Deputies may be aware, the IMF managing director has publicly committed to providing additional assistance to Ukraine. Fund staff have also been in daily contact with the Ukrainian authorities and has worked with its ministry of finance and central bank on crisis management measures to allow for the continuous functioning of the Ukrainian economy. Furthermore, the IMF also stands ready to provide support for Ukraine's neighbours. For example, the fund is request considering a request from Moldova to increase the financial assistance available under existing extended credit facility-extended fund facility programme.

To reiterate the intention behind the Bill, it is to allow Ireland to play our part in fortifying the fund and securing its ability to respond to future crises. It also provides another avenue for Ireland to fulfil its obligations as a strong economy, allowing us to channel critical support to those countries that need it most. The Bill, once enacted, will put in place a credit arrangement for up to €2.37 billion to be provided by the Central Bank, which may be drawn upon by the fund subject to an activation of the NAB and a specific call on the activated NAB by the IMF. This is a loan arrangement. Any money provided by the Central Bank in response to a call on the NAB will be repaid in full by the IMF. Furthermore, the fund will pay a daily interest rate on the sum which will be paid to the Central Bank on a quarterly basis.

Similarly, with regard to potential grant contributions to IMF trust funds, I do not underestimate the significance of committing to future payments up to an aggregate total of €325 million. Again, it is important to reiterate that, unlike the NAB, contributions to IMF trust funds will be in the form of grants with no expectation that the State will be ever be repaid. The IMF uses trust funds in order to deliver a sustained and targeted impact for a specific objective. For example, the poverty reduction and growth trust, PRGT, was used extensively during the pandemic to provide concessional loans at zero interest rates to low income countries to support economic recovery and the response to Covid-19.

Beyond the pandemic context, the catastrophe containment and relief trust, CCRT, allows the IMF to join international debt relief efforts for poor countries hit by the most catastrophic of natural disasters. The IMF perspective trust fund, the resilience and sustainability trust, will provide affordable long-term financing to support countries as they address macro critical longer-term structural challenges such as climate change, pandemic preparedness and digitisation. I commend the Bill to the House.

Question put and agreed to.