Wednesday, 5 October 2011

Ireland has undergone first “audit” of national debt—results “truly frightening

An idea borrowed from developing countries and recently used to good effect by the Ecuadorian government has now been applied to the Irish debt.

Ireland has undergone its first “audit” of national debt—the results of which have been called “truly frightening.” The report, An Audit of Irish Debt, was commissioned by Afri, the Debt and Development Coalition and the trade union Unite and carried out by a team from the University of Limerick.

The report calculates a potential national debt of €371.1 billion. This figure includes a “conservative” estimate of the state’s contingent liabilities: money for which the state is on the hook in the event of a fresh collapse in the banking system. The €371.1 billion breaks down into €91.8 billion in direct Government debt and €279.3 billion in bank debt backed by the state.

Dr Sheila Killian of the University of Limerick, who led the research, said the audit “seeks to quantify and explain Ireland’s sovereign debt, both real and contingent, for which the Irish people have become responsible”. 

Frankly weird

The report concludes that the “constructive ambiguity” of the European Central Bank’s policy on bank bail-outs is “certainly not a concept consistent with transparency,” and it addresses what Dr Killian describes as “quite intricate layers of anonymity” in relation to bond-holders. The long-standing anonymity of bond-holders “has some justification” in normal circumstances; however, in times when bond-holders have influence on policy it is “frankly weird,” she said.

The €279.3 billion in bank debt includes €111 billion in guaranteed deposits and bonds under the Eligible Liabilities Guarantee Scheme, as well as €74 billion under the Deposit Guarantee Scheme. It also includes the €30.9 billion in promissory notes issued to Anglo-Irish Bank, Irish Nationwide, and the EBS, outstanding NAMA bonds with a nominal value of almost €29 billion, and a net increase of €34.6 billion in the national debt caused by emergency liquidity assistance provided by the Central Bank. The figures contain the caveat that a large part of the €91.8 billion raised by the Government was due to the banking crisis.

A crucial citizen's tool

Explaining the genesis of the audit, Neasa Ní Chasaide of the Debt and Development Coalition said that audits were “a crucial citizens’ tool” that had been used in campaigns against unjust debts in developing countries. In November 2008 Ecuador became the first country to undertake an examination of the legitimacy and structure of its foreign debt. An independent debt audit commissioned by the government of Ecuador documented hundreds of allegations of irregularity, illegality and illegitimacy in contracts of debt to predatory international lenders.

The loans, according to the report, violated Ecuador’s domestic laws, the regulations of the US Securities and Exchange Commission, and general principles of international law. Ecuador’s use of legitimacy as a legal argument for defaulting set a major precedent; indeed, the formation of a debt auditing commission sets a precedent in identifying illegitimate debt.

Subsequently, in June 2009 Ecuador announced that it had reached an agreement with 91 per cent of creditors to buy back its debt for 35 cents in the dollar.

If only!

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