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I lived in a country that recently required IMF support, Ireland, and have a positive view of the IMF as a result. Of course, there were conditions attached to
by derriz 9y ago
I lived in a country that recently required IMF support, Ireland, and have a positive view of the IMF as a result.
Of course, there were conditions attached to the loans but given that nobody else was willing to lend money to the state under any terms at all, it seemed fair enough. And the interest rate was nothing like "payday" rates.
The alternative (a "cold turkey" end to government payments - e.g. no salaries for police, doctors, teachers, etc.) would have caused huge long term damage to society, the economy and would have undermined the legitimacy of the state.
On a personal level, if I were lending money to a desperate down-and-out friend who had exhaused all the normal sources of credit including their family, I would probably also ask for lifestyle changes before giving them money.
- marcosdumay 9y agoTheir austerity rules are perfectly right, and are necessary for the country to grow and pay back the loan. But, specifically about Ireland, do you think you will ever pay your loans back? Looking from a distance I got the impression it's almost impossible, but you will certainly know it better.
- stephen_g 9y agoAusterity can only reduce growth, if you look at how sectoral balances work. You only get growth while the Government is cutting when the private sector (in aggregate) is taking on enough new debt to account both for the cuts and for the growth. Ireland is damned if they do, damned if they don't though, given that they can't control their own currency, so they actually have a risk of default on their primary currency.
- pm90 9y ago> On a personal level, if I were lending money to a desperate down-and-out friend who had exhaused all the normal sources of credit including their family, I would probably also ask for lifestyle changes before giving them money. While it might seem reasonable from a personal perspective, I don't think it really applies when you're considering an entire country (or any sovereign entity, for that matter). This mistake has been made before, and in many fields, so I don't blame you particularly (e.g. we think of personal indebtedness as "immoral" but deficit spending has largely been shown to be bountiful and a net positive when managed correctly). I'm personally not well versed in economics or genius enough to suggest alternatives, but I just wanted to point out that kind of fallacy when thinking about these things.
- pzone 9y agoActually in this case the analogy is completely correct. The notion that government borrowing is wildly different from household or corporate borrowing is only true in a limited sense, and only if we are talking about borrowing in a currency that the government itself issues. The IMF demands payment in Dollars/Euros, not the local currency. A country borrowing money has a hard requirement to pay back the loan in real (as opposed to nominal) terms. So it really is similar to any other lending. Let me also address deficit spending. It isn't such a magic bullet that a government can come up with more money to repay a loan by increasing its expenditures. It's about the same idea as the Laffer Curve. Sure, if things get extreme enough, the argument is correct. But most of the time things aren't that extreme. Most of the time, when a government needs to repay loans, fiscal discipline is useful and necessary.
- tim333 9y ago>The alternative ... no salaries for police, doctors, I'm not sure that was ever really an alternative. Much more likely would have to been to default on the debts like Iceland.