For all the country’s efforts to play by the rules set out under its $90 billion rescue, the International Monetary Fund said on Friday that Ireland might not reach one of the central goals: regaining enough trust among investors to begin borrowing money on its own again next year.
The country’s initial progress toward returning to markets “could be fragile,” the IMF said in its latest review of the Irish program. It cites a possible future downgrade by credit agencies, a domestic economy in which demand remains weak and a damaging slowdown in exports because of Europe’s regional problems.
“The prospects for regaining the substantial access to market funding that is assumed in 2013 remain uncertain,” the IMF concluded.
It is a sobering conclusion as European leaders debate how to rekindle economic growth, whether to create a larger regional crisis-fighting fund and how to centralize control of national budgets. Throughout the region’s crisis, the aim has been to provide assistance when nations need it, but also to lay out policies that will wean them from international help as quickly as possible and allow them to borrow on their own again by selling bonds to private investors at market interest rates.
If a nation such as Ireland struggles to “graduate” back to independent borrowing, it does not bode well for less economically dynamic countries like Portugal — and could test the promise of European officials to stand by troubled nations for as long as they need to regain market access.
The amount of assistance funneled from richer European nations has taxed the political consensus on which Europe’s regional institutions depend, and none of the troubled countries has yet to turn a corner. Spain, another nation that has tried to comply with European and IMF advice, on Friday announced it would miss its deficit target this year — a revelation that came as European leaders approved a treaty committing their countries to smaller deficits.
In the first months of its bailout program, Ireland appeared to bounce back, recording strong levels of foreign investment, enjoying a surge in exports and avoiding the recession that continues to plague Portugal and Greece.
IMF Irish mission chief Craig Beaumont said in a conference call on Friday that he was “reasonably comfortable” the country would be able to sell a few billion dollars worth of short-term bonds this year.
But the Irish program envisions the country raising more than $18 billion on its own in 2013, an amount that may be out of reach.
The report outlined a deep set of problems that remain in the country, and showed how difficult it is proving for developed countries to dig out of the debt overhang that built up in recent years and find a path back to more stable growth.
In Ireland’s case, the fund said that banks had made progress in clearing bad assets from their books and restoring their financial health.
But households and small businesses remained under stress, with home prices falling and a strict bankruptcy law tying consumers to loans they cannot afford.
It may take a “protracted process” to reverse that situation, particularly with unemployment expected to remain well above 10 percent for the foreseeable future.