The recent control of the International Monetary Fund (IMF) in Ireland is cause for concern.
Ireland is now saddled with an85 billion ($119 billion) loan -- 2.7 times the total tax take in 2010 -- administered jointly by the EU and the IMF (about 22.5 billion).
Total tax revenue in 2010 estimated by the Irish government was32 billion.
What are the economic consequences for Ireland in repaying this loan?
Who are the senior bondholders that will be guaranteed repayment with this loan?
And should the ordinary taxpayer have to repay this humongous debt?
Interest on the loan will run at about 3% for 2011.
In 2011 the Irish people via government collection of taxes will pay2.55 billion in interest alone on this loan. With long-term interest rates predicted to rise, a 25 basis point increase (.25%) in interest rates will add another 212 million to the debt.
At these rates, large chunks of Ireland ’s tax revenue will be absorbed in repaying the interest. The opportunity cost of the loan will necessitate a massive decrease in essential services to ordinary Irish citizens.
Many of the senior bondholders who have to be repaid operate from office suites in New York, Frankfurt and London. Who are these senior bondholders?
Some are as follows: Pioneer Asset Management is an investor in both Irish government bonds and Irish bank bonds. Pioneer is a subsidiary of Italian outfit Unicredit.
Deutsche Bank is another major investor in Irish government and bank bonds.
Barclays owns substantial Irish government and bank bonds, such as AIB.
U.S. companies Pimco, the Vanguard Group and Union Investments are major investors in Bank of Ireland’s bonds.
In short, the Irish taxpayers are bailing out U.S., German, and U.K. institutions, the major holders of these bonds.
Thus, the taxpayers of Ireland will be burdened into the next decade and beyond with a debt that guarantees risk for senior bondholders. As time progresses Ireland’s natural resources may have to be sold to the highest bidder to raise money to continue the repayment of the loan.
In the IMF draft document that refers to so-called “structural adjustments,” certain demands must be fulfilled by the Irish government. One conditionality states:
“Transfer of responsibility for water services provision from local authorities to a water authority, as appropriate with a view to start charging in 2012/2013.”
What this really means is that ordinary Irish citizens may have to pay much more for water beginning in 2012. The transference of water from local control to an “authority” will pave the way for privatization of water, probably to a U.K. or French corporation.
Irish people will be under the control of foreign shareholders in accessing their own water, a most cherished and necessary resource! Well-run organizations such as the Electricity Supply Board (ESB) may be privatized too, becoming controlled of foreign corporate ownership.
Ireland’s sovereignty will be further diluted. It will become a thing of the past.
In the tapestry of Ireland’s history there have always been threads of defiance and sacrifice for freedom.
The men and women of the 1840s and 1850s who emigrated, fleeing famine, worked across the U.S., Australia and the world in an effort to assist their families, both inside and outside Ireland; and later the men and women who fought and struggled for Irish independence, from the 1900s onwards.
There was a clear mission -- to rid Ireland of British colonialism and achieve an independent Ireland.
This was almost accomplished.
But now Ireland faces economic and financial colonialism as a direct result of gross banking negligence and government mismanagement of the economy.
Why should the ordinary Irish citizen repay monies borrowed to bail out the gross negligence and myopia of a handful of bankers?
Why should the taxpayer be saddled by a debt borrowed by a government that mismanaged the Irish economy and placed a blanket guarantee on bailing out bondholders of Irish banks?
Irish people should look deeper into the IMF and its economic consequences in other countries throughout the developing world.
One of the stipulations in the IMF draft document is the introduction of property taxes in 2011. Can the already burdened Irish taxpayer endure such a tax?
If history is any indicator to how much a people can endure further economic pain, I believe the Irish people will rebel against this new colonial master.
A starting point would be for the new Irish government to re-negotiate this IMF/EU loan and stand up to the senior bondholders now, before it is too late.
(A.P. Ó Máille is adjunct professor and teaches business at Baruch College-CUNY in New York City where he has taught since 2004.)