THE International Monetary Fund has denied austerity measures are to blame for the sluggish Irish economy, saying that other factors are keeping growth flat.
Greece, Portugal and Ireland are complaining that the Fund underestimated the economic and social impact of drastic spending cuts and tax hikes in the bailout programs, but a senior IMF official said that was not the problem in Ireland.
The pace of the EU-IMF rescue program "has struck an appropriate balance and continues to do so for the period ahead, enabling Ireland to make steady progress in reducing fiscal imbalances while protecting the still fragile economic recovery," Ajai Chopra, deputy director in the IMF's European Department, said in a statement.
"With overburdened bank, household and SME (small and medium sized business) balance sheets, and weak growth in trading partners, a number of factors besides fiscal consolidation have been a drag on growth in Ireland," he said.
The IMF recently admitted that it had underestimated in Greece how deep the "fiscal consolidation," or austerity measures, in its bailout plan would force the economy into recession.
Critics say the severity of the measures are to blame for Greece's inability to get back to growth.
At issue was a revision of its "fiscal multiplier," which IMF economists use to estimate the impact of various actions, like spending cuts, on the economy.
The admission that the IMF got it wrong in Greece has been taken up by other countries undergoing IMF-European Union bailouts, with countries arguing for easier adjustment terms to cope with slower-than-expected growth.
Ireland sought an 85-billion-euro ($A108.01 billion) EU-IMF rescue package in November 2010 after it was devastated by the 2008-2009 global financial crisis.
As part of the rescue, Ireland agreed to painful austerity measures including spending cutbacks, state asset sales and tax hikes.
But growth has not returned as soon as hoped - last month the IMF forecast the Irish economy would expand a bare 0.4 per cent this year, if growth picks up in the second half as expected.
Since the IMF reassessed its multiplier, Irish officials have called for less austere reform requirements to encourage faster growth.
But Chopra argued that "in the current discussion of the impact of fiscal adjustment on growth, it is important to note that no single fiscal multiplier is applicable to all countries and circumstances".
"And although there is uncertainty around any estimate of multipliers, there is no compelling evidence that a higher multiplier was at work in Ireland than the one assumed under the program."
The IMF has been fighting pressure to ease austere reform terms in all the countries undergoing bailouts since the review of the multiplier.
On Thursday, IMF's Portugal mission chief Abebe Aemro Selassie told Lisbon that there is no way around a new, strong budget squeeze to reduce debt and return to capital markets.
In the face of public anger over tax increases, Selassie said it was "imperative" to press on with further measures.
"Debt remains high, and to ensure full recovery, the country needs to contain it," he warned.
"Portugal also needs to ensure that it can finance itself again at reasonable rates. This means that fiscal adjustment is imperative and needs to continue."
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