The Bad Luck of the Irish

Ashby Monk

I have to say, I’ve been captivated by what’s going on in Ireland with respect to the National Pension Reserve Fund. The Irish have been facing a very tough dilemma: Do they tap the NPRF or do they face economic dislocation and potentially even a sovereign default? This may seem like a no-brainer but consider this: when the NPRF was established in April 2001, the idea was that it would not be touched (at all) for over two decades. Here is the blurb from the NPRF website:

“No money can be drawn down before 2025 and, from then on, drawdowns will continue until at least 2055 under rules to be made by the Minister for Finance.”

This was the agreement that facilitated the political deal underpinning the existence of the fund. But this ideal has taken a back seat to more pressing problems. Indeed, the government tapped the NPRF in 2009 to save Ireland’s failing banks. And now, the National Treasury Management Agency seems to view the NPRF as a ready source of capital should further bailouts be needed:

“According to a briefing NTMA gave London analysts on Tuesday, Ireland has a cushion of cash reserves of €23bn as well as €25bn in the National Pension Reserve Fund…”

Granted, tapping the NPRF is far better than an Irish default. However, by dipping into the pension pot, the government has broken its original deal with the public. Moreover, it has shown that it can—rather painlessly—get access to these assets should it find it politically expedient. In my view, these are two factors that could, over time, de-legitimize the NPRF in the eyes of the public.

Anyway, I’m not passing judgement on Ireland’s decisions (although the country’s pensioners probably aren’t all that pleased). Rather, I’m just interested to watch the governance systems of pension reserve funds flex and strain under the weight of cash-strapped governments during the crisis…

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This website is a project of Professor Gordon L. Clark and Dr. Ashby Monk of the School of Geography and the Environment at the University of Oxford. Their research on sovereign wealth funds is funded by the Leverhulme Trust and The Rotman International Centre for Pension Management.

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