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Posted at 9:06 AM ET, 02/ 9/2011

Eyes on Irish economy are smiling (so far)

By Howard Schneider

Ireland's economic restructuring is on track so far, the International Monetary Fund reported Wednesday in a review of the country's progress under an international bailout program.

The work, however, is just beginning, and upcoming elections may tap opposition to the tax increases and cuts to social programs made as a condition for European and IMF fund loans.

Parliamentary elections are set for Feb. 25. The elections comes after the collapse of Prime Minister Brian Cowen's government, which was blamed for a bank bailout that left the country nearly insolvent and in need of $113 billion in emergency help.

"The public response to the program has remained favorable," the IMF concluded, "but a lingering domestic perception of inequitable burden sharing persists." Cuts to welfare programs and the extension of the income tax to cover more lower-paid workers proved particularly unpopular. The IMF noted that recent proposals now favor raising taxes on those earning more than about $130,000.

Ireland was able to end 2010 with a slight uptick in economic growth, but that was attributed to a dramatic drop in demand for imported goods. Imports are counted as a drag on growth.

The Irish economy overall remains in recession, with unemployment over 13 percent. And the country still faces major challenges rejuvenating its banking system, undermined by massive losses on real estate loans and development deals. The IMF-approved plan calls for the overall size of the banking system to shrink substantially, with the government likely to put two banks out of business.

By Howard Schneider  | February 9, 2011; 9:06 AM ET
Categories:  International Economics, International Monetary Fund  
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Next: Germany will be flexible on euro zone plan, official says

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