Ireland needs partners, not predators

Michael Burke04/01/2011

Michael Burke: One of the problems for those arguing for an investment-led response to the crisis is that €17.5bn of this economy's current assets are to be used to bail out Europe's banks, along with €67.5bn in new debts. These assets from the NPRF and central bank do not exhaust their current net funds, which at the latest count stood at a combined €44bn. But they are the most liquid component, and handing them over in this way meets both the predatory instincts of the international creditors represented by the EU and IMF, as well as the machinations of domestic politicians who have long espoused the Thatcherites' mantra that There Is No Alternative, and others who are happy to parrot it.

But, as Naomi Klein is fond of saying, there are hundreds of alternatives. The plundering of the NPRF and central bank assets in this way underlines the value of 'sovereign wealth funds' (SWF). The IMF argues that the existence of SWFs was decisive in ending the turmoil of the Great Recession, as they were instrumental both in stabilising financial markets as well as in significantly increasing State-led investment. Once again, the State demonstrated its innate superiority to the private sector in leading the whole of society out of a crisis created by the latter (naturally that is my judgement - not the IMF's).

Many oil producers have built up very substantial SWFs, and the Gulf States and Norway will soon be joined by Nigeria. But the biggest concentration of SWFs is to be found in the high-savings, high-investment economies of Asia. Of these, China has a number of SWFs which together make it the largest holder of such funds in the world.

Most domestic and international bodies have argued that any recovery in this economy is likely be export-led. We have insisted that there will be no meaningful recovery without a revival of investment - which can only begin with the public sector. These two views are not mutually exclusive. But if Irish growth is to be linked to the fastest-growing countries, or those with the greatest disposable assets, then it might be useful to ask: what areas might attract foreign investment?

Well, with very sizeable, untapped energy resources which languish underinvested in private hands, a key priority would be the re-nationalisation of those Irish resources so that they could be properly exploited. There are many joint venture possibilities for extraction - and most especially refinement - with a number of SWF partners, where the real value lies. This would need to be combined with deepwater infrastructure and port development, where this economy is already a significant laggard. This port and infrastructure development would also be of interest to Asian exporters looking for an outlet to Western European markets. Greece has signed deals with Abu Dhabi and Qatar in this way and is in talks with Chinese shipping giant COSCO to build a vast new container hub for Eastern Europe and the Baltic. None of these represents the loss of existing assets at fire-sale prices which is characteristic of the EU/IMF impositions, which is what is also planned here. Instead, it involves the creation of new assets for mutual benefit, along with jobs, investment and taxes. In addition, Ireland is responsible for 13% of the EU's high-tech exports, which are of great value to economies looking to add hi-tech inputs to their own production.

SWFs are also interested in financial assets and, because their revenues are overwhelmingly generated in US Dollars, they tend to be increasingly directed towards the Euro which is the only serious alternative to the US Dollar as a reserve currency. In this regard, the Chinese authorities have been most explicit, offering financial assistiance to all the stricken countries of the Euro Area, the latest being Spain. Late last year, the Portuguese Finance Minister came away from Beijing with promises of further support, including increased purchases of Portuguese government debt, as well as infrastructure investment, and has once more offered to buy Greek bonds when the state returns to international markets.

The current government cannot last long in the Dail. In any event, it has set its face against an investment-led approach to economic recovery and is the champion of deflation and lower growth, incomes and services. It seems that some of the opposition now accept accept this defeatist policy, their previous support for investment programmes lasting no longer than Xmas decorations. Yet there are alternatives, where both domestic resources and foreign partners can be marshalled in support of an investment-led route out of the crisis.

Posted in: Investment

Tagged with: investment


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