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Paying unguaranteed bondholders was unfair, admits former IMF chief

Speaking to the IMF, Ajai Chopra went on to say that eurozone partners had stopped Ireland from imposing haircuts on senior creditors.

IMF's Mission Chiefs to Ireland, Craig Beaumont (left) and Ajai Chopra.
IMF's Mission Chiefs to Ireland, Craig Beaumont (left) and Ajai Chopra.
Image: Sam Boal/Photocall Ireland

Updated 22:50

THE FORMER HEAD of the IMF mission to Ireland has said that it was “unfair” to make taxpayers pay for the support of banks while paying unguaranteed bondholders.

Ajai Chopra was speaking in an interview published by the IMF as part the their twelfth of Ireland’s loan programme. He made the admission when asked what lessons should be learnt from the Irish experience:

The second lesson is that it is unfair to impose the burden of supporting banks primarily on domestic taxpayers while senior unguaranteed bank bond holders get paid out. This not only adds to sovereign debt, but it also creates political problems, making it harder to sustain fiscal adjustment.

Chopra went on to say that eurozone partners has “precluded the Irish from imposing haircuts on senior creditors of insolvent banks”.

The principle of imposing losses on senior bank bond holders is “now becoming more accepted”, he said, but that this had happened too late for Ireland which had “paid off these creditors at great cost”.

Banks

In the fortright interview, Chopra  firstly argued that Irish banks did not do enough to deal with the problem of people in mortgage arrears, adding that NAMA was established to deal with large scale investment loans but that mortgage arrears were not given the same attention:

Ireland was quick to set up an asset management company, NAMA, to deal with the large problem loans, especially in the property sector. But it is also essential to deal with smaller distressed borrowers, a problem that became more acute with the rise in residential mortgages that are in arrears.

Dealing with this issue he said “took some time to develop a political consensus” and that in retrospect, “more rapid progress” would have been worthwhile.

The most recent IMF Mission Chief Craig Beaumont described the three year bailout as a “dramatic shock for Irish society”. He said, however, that some of the social impact attributed to the bailout’s policies were more a factor from the fallout from the banking crisis, saying that both issues can be “hard to disentangle”:

Often the bailout is linked to difficult budget measures, though Ireland had been undertaking such measures for 2–3 years before the program, and in the absence of EU-IMF financing, even larger measures would have been required.

Beaumont outlined how the policies of the bailout programme were decided saying that the IMF worked with the EU Commission and the ECB as part of a “very collaborative process” before producing proposals that were “very intensively discussed” with Irish authorities.

Chopra said that the Troika teams “made a concerted effort effort to have a dialogue with labor unions and with other organizations that had direct experience in dealing with vulnerable parts of society”, a process e described this dialogue as “very useful”.

Chopra said that his work with the Irish programme was the end of his 30 year career with the IMF. He concluded that Ireland’s persistence “despite uncertainty and some dark moments” gave him confidence that the economy will grow again and “to improve people’s lives”.

Originally published 16:00

Read: Austerity-only policy for Ireland was a mistake, admits former IMF chief >

Read: Troika Translator: What they said and what they meant >

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Rónán Duffy

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