The International Monetary Fund believed the Republic was “entering a potentially dangerous phase” in 2000, former minister for finance Charlie McCreevy told cabinet colleagues during budgetary discussions, confidential records show.
Government papers released under the Freedom of Information (FoI) Act record Mr McCreevy telling senior members of the Fianna Fáil-Progressive Democrats coalition about the IMF’s assessment of the economy in a document dated June 23rd, 2000.
“The concluding statement of an IMF team which reviewed economic developments here during May suggested that ‘Ireland is entering a potentially dangerous phase’,” he said.
As he held talks with Cabinet colleagues in preparation for budget 2001, Mr McCreevy said the fund had stressed the importance of adhering strictly to budgeted spending limits.
The IMF also advised “a tighter overall fiscal stance should be targeted if demand growth does not begin to moderate soon”.
The minister who presided over the early Celtic Tiger years also warned about the threat of "a resurgence of unemployment or emigration" as the risk of a "damaging wage-price spiral" intensified
Cautioned colleagues
The documents reveal Mr McCreevy's repeated attempts to drive down his ministerial colleagues' "grossly excessive" spending demands. He cautioned colleagues that conceding to excessive wage demands would lead to a "hard landing" for the economy.
The Irish Times sought copies of all cabinet papers from the year 2000 relating to budget 2001 under FoI. Cabinet papers are withheld for 10 years.
A recent trawl of documents relating to budget 2000, published in February of this year, revealed Mr McCreevy warned that foreign investors believed the economy was “heading for trouble if the boom is let rip”.
Inflation was the issue giving “grave concern” to the minister in 2000. In June of that year, he told colleagues Ireland had the highest inflation rate “by far” in the European Union at 5.1 per cent. By September it was 6.2 per cent, “with worrying over-heating evident in many sectors” of the economy.
By October, Mr McCreevy remained unhappy with the levels of reduced expenditure proposed by ministers. The gap between demands and limits decided by government in July was £1,488 million on current spending.
Reduced expenditure
He proposed a compromise under which levels should be cut by "less than half the gap".
The papers also show how the then minister for health, Micheál Martin, battled with Mr McCreevy for resources. Mr Martin prepared an aide memoire for Government outlining the consequences of reduced expenditure proposals in the estimates for 2001.
Mr Martin referred to “seriously inadequate” cancer and cardiovascular services. He said “serious shortfalls” in services were “highly visible and give rise to continuous outbursts of public criticism and negative publicity”.
He warned that if cuts proposed by the Department of Finance were implemented all major services would be affected at a time when “the public perception is that there is no overall public spending crisis”.
Mr Martin also said demand and dissatisfaction with services were growing. He told ministerial colleagues he was of the view that to begin to address valid public expectations and to maintain goodwill among groups in the health system, it was vital investment on the scale he proposed was agreed.
A compromise was reached.
