The Irish taxpayer has been forced to bail out a fund designed to attract the “best and the brightest” American students to Ireland, after it lost almost $1million on the stock market.

The George Mitchell Scholarship Fund was established 13 years ago and aimed to recruit talented American students to Ireland. It initially was given a IR£2m grant from the Government.

The U.S.-Ireland Alliance, which controls the fund, has admitted that it has been hit by “market fluctuations” that saw its value decrease from $2.76million to $1.79 million.

"This represents a deficit of $971,167 (€726,418) on the original value of the fund," its annual accounts for 2009 reported.

Last year the Irish government brought forward legislation to provide up to €20 million to the Scholarship fund over the next five years, on the condition it would secure matching funds from the private sector.

Last October it paid over the first installment totaling almost €1.5million.

The Independent Senator Fergal Quinn questioned the allowance, considering a mere 12 students were being brought over each year.

"The world had changed and the Irish economy had changed this year. Twelve people does seem rather a small number of people for us to be spending that amount of money on," he said.

The 12  U.S. students are offered free tuition and accommodation in Ireland  and are given an expenses grant of $11,000 (€9,485) each. They are also offered additional grants to travel around Europe during their stay.

The fund was named after the former U.S. Senator George Mitchell who played a pivotal role in negotiating the Good Friday Agreement in the North.

Trina Vargo, the former policy advisor to the late Ted Kennedy, who spearheaded the establishment of the fund, has defended the fact that just 12 students were being brought to Ireland annually.

"It is not the case that €1.5m is being spent in a year on 12 scholars. The Alliance objective is to raise a $40m endowment which can be invested conservatively so that this programme continues, like the Rhodes Scholarship, forever," she told the Irish Independent.

"We continue to manage our endowment with the benefit of professional advice, seeking a prudent strategy that will promote a reasonable return with an acceptable amount of risk," she added.

Vargo has attacked Irish American leaders who have criticized the fund saying that Irish taxpayers monies should be used to help the struggling Irish education system and not spent on elite students.

Critics point out that Vargo has criticized US spending on the International Fund for Ireland to help peace projects in Northern Ireland at the same time as she accepts taxpayer funds from Ireland

 The American Ireland Fund voluntarily gave up funding from the Irish government when the economic crisis hit.