Iceland: Government and trade unions impose IMF austerity measures

[Hannah Bell]

On June 26, a comprehensive agreement was announced between Iceland’s government, trade unions and employers’ organisations, containing plans for sharp public spending cuts and tax hikes. The “stability pact” had been under negotiation for several weeks and is in response to pressure from the International Monetary Fund (IMF) for the government to seek a balanced budget by 2013.

Presented as an agreement for “shared sacrifice,” it will facilitate the bail-out of the financial elite at the expense of the working class. Such an approach has been endorsed fully by the Left Greens, the junior partners in the governing coalition...

The government has given way entirely to the dictates of the IMF. In total, the government will save 70 billion kronur (€390 million) through spending cutbacks and reorganisation over the next three years, while at the same time increasing income taxes and charges on everyday items such as soft drinks to meet a budget gap of 170 billion kronur over the next four years. The planned tax hikes will account for up to 58 billion kronur.

Another key demand of the IMF taken up by the government is the prompt removal of capital controls, which were enacted after the financial crash to defend the krona. In the agreement, the government gave a deadline of August 1 for proposals to be finalised regarding the lifting of these restrictions. Even now, with strict controls on foreign investment, the value of the krona has slid in recent months, down by around 3 percent against the euro since June 1. When capital controls are lifted, the value of the krona is set to plummet, which will have a devastating impact on working people through increased inflation.

A deadline of November 1 has been set for the resolution of the ownership of the banks. Currently, those banks nationalised last October have been divided into “old” and “new” entities, with foreign obligations remaining in the “old” institutions, while the “new” banks operate on a domestic basis...


http://www.wsws.org/articles/2009/jul2009/icel-j14.shtml



How come most countries in the world are suddenly in debt?

Who are they all in debt to?

Why don't they just refuse the demands of the IMF?

Why do the people have to pay for the deliberate thieving of crooks?


The world is being "reorganized" by the masters of the universe.

[Hannah Bell]

1. the unrec squad works nights, does it? truth will out, boys.

[snot]

2. k&r'd

[charlie]

3. Next up, the IMF riots

If you want to see what Friedmanomics can do to a country in short order, you can't do any better than Iceland. They remade themselves as a financial powerhouse and exploded into confetti inside of 5 years. 5 YEARS.

I don't know what's up with that un-rec already, here's a rec for you.

[HamdenRice]

4. Another day, another train wreck of an attempt to post about economics from World Socialist Website

Iceland for a time had the highest standard of living in the world. Much of that standard was achieved because the country enthusiastically embraced finance capitalism.

Iceland turned itself into something of a giant hedgefund, engaging in interest rate arbitrage between Asia and western Europe. When the financial crisis hit and their currency fell, their previously profitable arbitrage position was reversed, and they were saddled with mind numbing collective debt. Not everyone in Iceland was involved in these financial shenanigans, but many Icelanders went for the ride. When a country can afford to pay some of its people high salaries as "elf consultants" to scour building sites for imaginary creatures from Icelandic folklore, you are looking at a country that has gladly gone along for the ride.

The best reporting on what happened in Iceland was in Vanity Fair and the New Yorker.

http://www.vanityfair.com/politics/features/2009/04/iceland200904

The money they borrowed was from Asia, including China. China is a country of mostly poor people who work extremely hard in rice paddies and factories, live well within their means, and who have one of the highest savings rates in the world. Despite the lies you read about the country, China is definitely what it says it is -- a "socialist market" economy that tries to combine state and collective ownership of the means of production with market pricing.

You seem to be advocating that Iceland not pay back its debt to China. So you think that the most well off people in the world living in Northern Europe should stiff 700 million peasant farmers and another several hundred million factory workers, and yes their bosses, who put money in the bank that was lent to Iceland to play interest rate arbitrage games with.

You are saying that the country that embraced casino capitalism and lost should stiff the most successful socialist economy in the world -- and you cite an article from World Socialist Web Site as the reason. That is the socialism of fools.

Par for the course.

The lenders are, after all, yellow.

In your view, they should also stiff the Japanese, Taiwanese, Koreans and other Asians whose money funded the carry trade casino gambling that made Iceland temporarily rich.

As for the IMF, it has a well deserved reputation for screwing over workers, the public sector, education, health and anything else that can get in the way of a country paying back its debt. Moreover, for many years, the managing director was Michel Camdessus -- possibly the worst, most cruel banker in history. It was during his tenure that the IMF solidified its reputation because Camdessus routinely went well beyond the IMF's original purposes (stabilizing currencies, exchange rates and balances of payment) to imposing additional "structural adjustment policies" in poor countries.

But it would be nice if most progressives could grasp that the IMF was originally created by John Maynard Keynes, the greatest progressive economist in history, the one who gave us the intellectual foundations for the New Deal -- and I mean literally created by him, not by his writing or theories, created by him sitting down at the Bretton Woods conference with the western governments. The original purpose of the IMF was to carry out Keynesian policies, not Thatcherite ones, which it did under Camdessus.

The original purpose of the IMF was strictly to deal with balance of payments crises between developed countries, not to force "structural adjustment programs" on them, as Camdessus did.

The IMF is not, and never was, a private bank. It is a public international financial institution owned by the major governments of the rich and fast growing nations.

The World Bank is a separate institution with a different purpose, but it is also a public financial institution, not a private bank. It is sometimes thought of as the "sister" institution of the IMF. It was the chief economist of the World Bank, Joe Stiglitz, who wrote the devastating critique of the IMF, "Globalization and its Discontents."

Public institutions can be changed, and thanks in part to Stiglitz's devastating critique, the IMF has changed. Its current managing director is a French Socialist, Dominique Strauss-Kahn:

http://en.wikipedia.org/wiki/Dominique_Strauss-Kahn

Strauss-Kahn was a member of the Union of Communist Students, worked for the French Planning Commission, then the Ministry of Industry in the Socialist government of France, and finally rose to Minister of Economics, Finance and Industry.

His directorship is obviously at attempt to change the image of the IMF, but also the substance of its policies. The fact that this pact was negotiated with labor is unprecedented.

Now as for your last questions:

"How come most countries in the world are suddenly in debt?"

If you mean "most" by population, "most" countries are not suddenly in debt. "Most countries" by population would include China and India. I realize that brown and yellow people don't enter the picture with certain people -- for example, the people who want rich northern Europeans to stiff poor Chinese socialists on their casino capitalism gambling debts -- but these yellow and brown people do exist, they are generally poor and hardworking, and they save ferociously. These two countries are not suddenly in debt. In fact, they are not in debt at all. They are the creditors.

If you mean total debt and savings (as opposed to governmental debt), then you can add Japan and Korea as net creditors also.

The people in debt were people who ran up credit cards, bought cars, took out mortgages to build McMansions -- you know, the ones you want to stiff the workers and peasants of Asia -- and their governments.

Iceland is "suddenly in debt" because it borrowed cheap overnight funds from Asia and lent it at higher rates, long term in Europe, while taking currency risk in Krona. When the Krona fell, they were "suddenly in debt" to the tune of tens of billions, despite having a population of around 300,000. Iceland's "sudden debt" also includes debts run up building fantastically luxurious hotels and condos in Reykjavík, debts run up betting on the stock of Iceland's banks, and yes, debts run up paying for "elf consultants."

"Who are they all in debt to?"

See above. The State Administration of Foreign Exchange of China was rumored to be managing several trillion dollars of western debt to China. NPR's This American Life estimated in one of their best reports on the financial crisis that at the beginning of the crisis, there was something like $70 trillion on global savings. Debt is the flip side of savings, because savings are loaned out to debtors. A lot of that is from Asia. A lot is also the proceeds of oil sales of Saudi Arabia and other gulf countries.

"Why don't they just refuse the demands of the IMF?"

Because if they do, they will never be able to get involved in the international financial system again. They would also in effect be stiffing China. That would not be good. The IMF is just the intermediary.

"Why do the people have to pay for the deliberate thieving of crooks?"

I know you have a low opinion of the yellow and brown savers of China, India, Japan, Korea and Taiwan, but doing back breaking work in a rice paddy or factory, saving 50%-75% of everything you earn, wracking up a few grand in the bank while you continue to wear an old worn Mao jacket, accumulating more net worth than the typical Hummer driving, MacMansion dwelling, McDonald's stuffed American, isn't in my mind "thieving" -- even if your Chinese bank ends up lending your life savings as overnight funds to Icelanders to play with in the interest rate carry trade.

Obviously it is in yours.

[blindpig]

5. Another sad testimonial to the falacy of 'working within the system'

The 'Left Greens' and trade unions are apparently co-opted by the power structure else they wouldn't has agreed to this onerous package. Nationalization and confiscatory taxes on the uber rich are things they might have done for a start, instead they dump on the masses.

[HamdenRice]

6. A few more "real" facts about the debts of hedge fund fraudsters you want to forgive

From Vanity Fair -- what Iceland did with the money it borrowed from Asia and that you think should be forgiven:

And so what they did with money probably says as much about the American soul, circa 2003, as it does about Icelanders. They understood instantly, for instance, that finance had less to do with productive enterprise than trading bits of paper among themselves. And when they lent money they didn’t simply facilitate enterprise but bankrolled friends and family, so that they might buy and own things, like real investment bankers: Beverly Hills condos, British soccer teams and department stores, Danish airlines and media companies, Norwegian banks, Indian power plants.

That was the biggest American financial lesson the Icelanders took to heart: the importance of buying as many assets as possible with borrowed money, as asset prices only rose. By 2007, Icelanders owned roughly 50 times more foreign assets than they had in 2002. They bought private jets and third homes in London and Copenhagen. They paid vast sums of money for services no one in Iceland had theretofore ever imagined wanting. “A guy had a birthday party, and he flew in Elton John for a million dollars to sing two songs,” the head of the Left-Green Movement, Steingrimur Sigfusson, tells me with fresh incredulity...

...The investigators produced a chart detailing a byzantine web of interlinked entities that boiled down to this: A handful of guys in Iceland, who had no experience of finance, were taking out tens of billions of dollars in short-term loans from abroad. They were then re-lending this money to themselves and their friends to buy assets—the banks, soccer teams, etc. Since the entire world’s assets were rising—thanks in part to people like these Icelandic lunatics paying crazy prices for them—they appeared to be making money. Yet another hedge-fund manager explained Icelandic banking to me this way: You have a dog, and I have a cat. We agree that they are each worth a billion dollars. You sell me the dog for a billion, and I sell you the cat for a billion. Now we are no longer pet owners, but Icelandic banks, with a billion dollars in new assets.

<end quote>

Yes, we need to forgive the poor Icelandic hedgefund operators, friends and families, and stiff the Asian lenders.

[Hannah Bell]

7. "we" don't have anything to do with it. Neither do the people of Iceland, or of asia.

But "we" will all pay to put money in the pockets of "our" elites.


"Why do the people have to pay for the deliberate thieving of crooks?


The world is being "reorganized" by the masters of the universe."