Sunday, 2 October 2011

Iceland out of the woods!

The New York Times reports that Iceland is no longer under an IMF programme. A report from the IMF pronounces that the “adjustment programme” was successful.

Iceland still has high unemployment and is a long way from a full recovery; but it’s no longer in crisis. It has regained access to international capital markets, and has done all that with its society intact.

And it has done it with very heterodox policies: repudiation of debt, controls on capital, and depreciation of its currency. And it has worked. We would be much happier with an unemployment rate that Icelanders consider high!

“We were told that if we refused the international community’s conditions we would become the Cuba of the north. But if we had accepted we would have become the Haïti of the north.” 

No-one told them there was a third option: default.

“During the first Icesave elections we were told that if we rejected the deal to pay, all credit lines would stop, we’ll be isolated from international society, the sky would fall, and there would be chaos in the streets. This came directly from the government ministers. When we rejected, nothing happened.

“Second time around, this time we had the best deal we could possibly get and it would spark an international feud, we would go to an international court and be forever indebted should we reject. The finance minister did interviews warning us."
“We rejected again. Nothing happened. And the last time I heard, we taxpayers don’t have to pay anything close to what was said initially, maybe nothing at all!”

The IMF report says:  
“Over the medium term, moderate growth is projected, led by investment and consumption. However, uncertainty about the sources of growth continues to weigh on prospects. Iceland is endowed with abundant natural resources, but the use of these resources remains an issue of intense public discussion. There has been considerable interest in new investments in power-intensive sectors, but technical and financial obstacles remain a challenge.”

So now, what’s the difference between Iceland and Ireland? The answer might be that Iceland is not completely out of the woods but is getting there.

Contrast Ireland, which is saddled with odious bank debt for at least the next generation.

Don’t mind the ESRI!

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