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Emerging From a Harsh Recession, Austerity Brightens Irish Economy

Associated Press

The morning light comes late and slowly in Dublin in January, but it perseveres. It seems a fitting metaphor for Ireland’s economy as it emerges from a long darkness.

After a particularly harsh recession, Ireland is enjoying a revival spurred by Prime Minister Charles Haughey’s fiscal austerity.

The turnaround is showing up in a moderate but steady economic growth rate, lower interest rates, a trade surplus. Even the unemployment rate is inching down from nearly 20%.

Ireland is improving physically as well. Dublin got a face lift during its millennium celebrations this year, and a huge financial center is being built on derelict docklands.

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But critics complain that the improvements in this small, green island republic of 3.4 million people are not filtering through to the jobless and destitute, some so poor that they have no bathrooms and feed their children cornflakes for dinner.

The Irish continue to emigrate at an estimated 32,000 a year, or 1% of the population, the highest level since the 1950s. That sometimes is cited as a contributing factor in the declining unemployment rate, although it has not been quantified.

Prime Minister’s Health

Others say the future is clouded by impatience for bigger and better results and by uncertainty introduced by the prime minister’s ill health. Haughey, 62, has been repeatedly hospitalized for kidney stones and a severe respiratory infection this year.

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The conflict in Northern Ireland, the British-ruled one-sixth of the island, also casts a shadow over relations between Ireland and Britain, its biggest trading partner, and the vicissitudes of modern life intrude on Ireland’s traditional, conservative culture.

“1988 is going to be one of the greatest years, from the point of view from the Irish economy, for at least 20 years,” Haughey said in a recent speech to the Fianna Fail, his political party. “We are ready to make a major advance in the Irish economy in the next three years.”

Even Michael Noonan, finance spokesman for the principal opposition party, Fine Gael, said in an interview, “Things are improving.

“They have our support on the main economic policies.”

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However, Noonan added: “The improvement of the economy is not felt in the day-to-day lives of people. That is something that, if it doesn’t change, will affect the consensus.”

Budget Slasher

Most dramatic has been Haughey’s transformation from big spender to budget slasher. When he became prime minister for the third time following the February, 1987, election, he moved quickly to cut Ireland’s runaway public borrowing for social services it couldn’t afford.

Such spending had begun a debt spiral a decade ago, and the economy worsened severely with the oil-price rises of the 1970s.

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Haughey, by the second year of his five-year term, has restrained public expenditure to cut public borrowing to about 5% of gross national product from a 1981 peak of 15%.

The moves were made possible by the unusual political consensus between the minority government and the principal opposition. Indeed, many of Haughey’s remedies are precisely those advocated by Noonan’s Fine Gael during its 1982-87 term of office.

Fine Gael under Haughey’s predecessor, Garret FitzGerald, governed in coalition with the socialist Labor Party, which constantly hampered Fine Gael’s austerity programs and finally brought the government down in a dispute over cuts in welfare spending.

The present minority government owes its survival partly to Haughey’s personal charisma, partly to Fine Gael’s knowledge that if the government fell now, it would be reelected with an increased majority.

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51% Approval Rating

An opinion poll published in the Irish Times in December gave Haughey’s party a 51% approval rating, its highest since the last election, against 26% for the opposition.

Said economist Jim O’Leary of Davy Stockbrokers, Dublin’s largest investment firm: “One of the best things that has happened to this country in the last three or four years is that we have a situation that the major parties have arrived at a consensus about economic policy.”

Although specific cutbacks have worsened unemployment, dampened consumer spending and drawn vociferous opposition from affected groups, the Irish generally support the tight grip as a much-needed measure, and confidence has been bolstered, experts said.

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The government has also begun to reform Ireland’s high taxes by bringing more people into the lowest income tax rate of 35%. But annual earnings above 11,500 pounds ($17,700) remain subject to an extraordinary marginal rate of 58%.

At the same time, a tax amnesty in the past year has earned the government a 500 million-pound ($770 million) windfall.

Exchange Controls

The government plans to relax exchange rate controls at the beginning of 1989, signaling confidence that the economy is strong enough for funds not to flee the country.

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Private economists expect the economic growth rate to be about 3% when all the figures are in for 1988, and the same for 1989, after a 4.8% spurt in 1987.

The economy, dominated by chemicals, pharmaceuticals, electronics, light engineering and agriculture, has been boosted by strong exports, some of which come from the many foreign-owned plants Ireland has attracted.

Exports increased 13.3% in 1987 to give Ireland its first current account surplus in 20 years.

Interest rates have declined to 8.5% from 14% in early 1987, and annual inflation is running at a 28-year-low of about 2.1%, which is expected to hold steady, compared to 20% in 1981.

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Those improvements have encouraged consumer spending 3% higher in 1988, after a flat 1987. They also have encouraged some investment and fueled a housing boom.

Drop in Unemployment

Unemployment has dropped below 18%, to about 234,000 jobless people, from a peak of 19.4% in January, 1987, and should continue declining.

But the big problems remain.

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Largely rural Ireland is still northern Europe’s poorest country, with per capita gross domestic product of $5,123 in 1987, according to the Paris-based Organization for Economic Cooperation and Development. It is one of the lowest figures in the 24-member group.

The Economic and Social Research Institute in Dublin says 1 million people are poor. Other studies show that nearly 40% of the population depends to some degree on social welfare payments.

“It’s hard for any mother to face that, to keep saying, ‘No, no,”’ Martha Carrig, a mother from Newmarket-on-Fergus, said in a recent documentary on poverty aired on RTE, the state television network.

An unidentified Waterford woman told RTE: “There are people hungry in this country. You come down and live with us and tell us we’re not hungry.”

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No. 1 Problem

Unemployment is Ireland’s No. 1 economic and social problem, critics say. It is exacerbated by the high birth rates in a 93% Roman Catholic country where most forms of contraception are illegal, by rigid labor union contracts, and by an emphasis on free education that has produced more students than there are taxpayers.

With no jobs to go to, college graduates are among the first to emigrate.

“People are voting with their feet. The ultimate vote of no confidence is to leave the country,” says Brendan Walsh, an economics professor at University College, Dublin.

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Ireland also is shadowed by the Protestant-Catholic feuding in Northern Ireland, where more than 2,700 people have died since 1969 and the outlawed Irish Republican Army fights with bombs and bullets to unite the predominantly Protestant province with the Irish Republic.


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