Madam, – All the discussion about cutting budget deficits to 3 per cent of GDP by 2014 or cutting the 2011 deficit to 10 per cent of GDP is designed ultimately to satisfy the bond markets that Ireland can be trusted to repay its debts. But what happens if, after publishing our four-year budget plan and after presenting a severe budget for 2011, the bond markets are not convinced about our ability to actually deliver the target figures, and the interest rate for Irish debt continues to climb? We are then facing into a situation where we will be unable to raise new debt next April or May at any interest rate that we can afford.
To complicate matters further, we will almost certainly be in the throes of a general election next spring, with no indication that the (presumably) Fine Gael/Labour coalition will have policies that go any closer to satisfying the bond markets.
Indeed, the very prospect of this uncertainty will attract the interest of speculators who will drive the price of government bonds even lower. The inevitable consequence is that we will be forced into seeking the help of the International Monetary Fund and/or the EU stabilisation fund in a crisis situation.
I would suggest that our strategy should be to take the initiative and approach the IMF in advance of that crisis, ie, within the next few days. The IMF has two loan facilities available to its members called the flexible credit line (FCL) and the precautionary credit line (PCL). We should seek a loan of about €20 billion under one or other of these facilities, to be drawn down during 2011 or 2012 only if we cannot access funds from the bond markets at reasonable rates.
The IMF would want to be satisfied that we are taking all reasonable actions to address our budget deficit, but the proposals in our four-year plan should satisfy their requirements. That is why I am suggesting we should approach the IMF immediately, so that the four-year plan we announce is compatible with their requirements.
If we were granted this facility, the fact that the IMF would have shown itself willing to support us in this way would calm the markets and reassure them that the corrective budgetary measures we are taking are adequate, and have a good chance of being realised.
This should reduce predatory speculation in Irish bonds and bring interest rates down to more manageable levels.
We cannot leave ourselves at the mercy of the bond markets and the speculators. We must take pre-emptive action, and the IMF has facilities designed to do just that. Better to go to it of our own free will, rather than be forced into its hands in a crisis later.
DAVID BUTTIMER,
The Spa,
Tralee,
Co Kerry.