By Tasneem Brogger and Helga Kristin Einarsdottir
November 14 2008
Icelanders will take to the streets in their thousands tomorrow to protest the government’s failure to clinch a $6 billion International Monetary Fund-led loan while countries in less dire economic straits jump the IMF queue.
Weekly protests in downtown Reykjavik may swell to 20,000 soon, or 6 percent of the population, said Andres Magnusson, chief executive of the Icelandic Federation of Trade and Services. The islanders are venting their anger on politicians as prices soar, the krona collapses and the economy goes into reverse.
“Enormous mistakes were made, but those who made them are still in the same place,” said Hildigunnur Runarsdottir, a music composer who has attended five protests since the country’s banking system collapsed last month. “They don’t seem to be doing anything at all about the situation.”
The Atlantic island, which had the fifth-highest per capita income in the world last year, needs the money to finance imports and revive the banking system. Central bank forecasts that the economy will contract 8.3 percent next year may prove optimistic if the loan isn’t approved soon, said Lars Christensen, chief analyst at Danske Bank A/S in Copenhagen.
This “isn’t sustainable,” Christensen said. “You can’t starve the economy, and that’s what the government’s doing at the moment. Every day that passes makes the economic outlook worse.”
Many retailers are relying on credit from their suppliers to keep their shops stocked.
“I have a long-standing relationship with suppliers, who have given me 30-60 days credit,” said Gudrun Steingrimsdottir, who runs a lingerie store in central Reykjavik. “If the situation persists another month, I don’t know what is going to happen.”
Trouble is, neither does anyone else.
“The main thing that is creating unrest is that the government doesn’t come forward and inform the public what is on the agenda,” Magnussen said. “Nobody can get any information.”
As the currency fell and imports shrank, the inflation rate reached an 18-year high of 15.9 percent in October. Delays in sealing a loan package mean the central bank can’t return the currency to free float. The bank now holds daily krona auctions, with the currency trading for 178 against the euro on Nov. 12, compared with about 90 kronur per euro at the start of the year. The traded volume at that auction was 13.8 million euros.
“What I notice is how depressed people have become,” said Steingrimsdottir. “We know nothing. People seem to have lost all hope.”
The IMF is withholding approval of its $2.1 billion loan until other lenders agree to fulfill their commitments to a wider bailout, Fund spokesman Bill Murray said on Nov. 11.
Norway has pledged 500 million euros ($635 million), the Faroe Islands 300 million kronor ($50 million) and Poland $200 million. That leaves Iceland well short of the $6 billion it says it needs.
Complicating talks are U.K. and Dutch demands that the government repay depositors at the Internet unit of Iceland’s collapsed Landsbanki Island hf. Those debts may amount to as much as 5.5 billion pounds ($8.2 billion), the size of Iceland’s economy, according to a report by Jon Danielsson, an economist at the London School of Economics.
“By comparison, the total amount of reparations payments demanded of Germany following World War I was around 85 percent of GDP,” Danielsson said.
Iceland’s government has accepted it will have to reach a negotiated solution to the dispute with the U.K. and the Netherlands to get the IMF loan, the newspaper Morgunbladid said yesterday, without saying where it got the information.
Icelanders are shooting envious glances at Eastern Europe where Hungary and Ukraine received loans from the IMF within two weeks of asking. Iceland has little to show for its efforts, six weeks after its banking system started to collapse.
“It’s worrying enough that they’re not getting the $6 billion they’re talking about, but the fact they’re not even getting the $2 billion is very worrying,” Christensen said. “It’s amazing that Ukraine is able to get a $16 billion loan, one of the most corrupt countries in the world, and Iceland is not able to pull it off.”
Ukraine had its $16.4 billion loan from the IMF approved on Nov. 6. Hungary said on Nov. 11 it’s already drawn on the first 4.9 billion euro ($6.16 billion) tranche of its IMF-led 20 billion-euro loan.
While the IMF loans to Hungary and Ukraine make up less than 20 percent of those countries’ gross domestic products, Iceland needs loans worth more than its entire GDP to repay debts built up through five years of economic boom.
“We should have turned the music down when the party got out of hand,” Runarsdottir said.
Bottom line, it all started in the US.
Iceland has be hit extremely hard and things don’t seem to be improving.
People ganged up on police during the latest in a series of protests outside Iceland’s Althingi parliament in central Reykjavík on Saturday. Police were having problems with keeping the situation under control and one man was arrested.
From the protests on Saturday, November 8. Copyright: Icelandic Photo Agency.
Demonstrators were demanding actions to improve the economic situation, Fréttabladid reports.
“There is nothing wrong with people protesting in a democratic society but one also has to differentiate between legal peaceful demonstrations and riots,” Prime Minister Geir H. Haarde told Morgunbladid. “A demonstration is in real danger of becoming a riot when the parliament building is pelted with stones.”
Among actions undertaken by protestors was raising the Bónus supermarket-chain flag (a pink piggybank on a yellow background), from the parliament building roof.
Haarde said his government was trying to inform the public on the status of the situation as quickly as possible—lack of information is one of the issues angering demonstrators—with regular press conferences, via the websites of the ministries and elsewhere.
“People who ask for information should be able to receive it,” Haarde stated.
One problem leads to yet another.
Iceland’s Foreign Minister Ingibjörg Sólrún Gísladóttir presented yesterday a strategy for limiting expenses at her ministry in light of the economic depression, including cutting funds to development assistance.
Well you do what you have to do.
“Icesave deal expected quickly”, Iceland Foreign Minister
By Alex Elliott
November 13 2008
Ingibjorg Solrun Gisladottir, Icelandic Foreign Minister, says she is hopeful the negotiations currently underway in Brussels to work out a satisfactory settlement with the British and Dutch governments over Icesave compensation can be completed tonight or tomorrow, MBL.is reports.
Stod 2 television news reported this evening that the Icelandic delegation has adjourned the meeting until midnight, when their conclusions may be delivered. According to sources, the British government is reported to be demanding the equivalent of ISK 600 billion (USD 4.7 billion) to pay British Icesave customers up to the EUR 20,000 state guarantee. If an agreement is reached, it is thought Iceland will be free to take control of Landsbanki’s UK assets and sell them – generating crucial revenue. The burden on the Icelandic tax payer will likely be less than feared.
The Foreign Minister said in an interview with the Icelandic state broadcaster RÚV, that the government has received a very clear message on just how important it is to resolve the Icesave issue with the Dutch and British. It is important for the entire European economy. A lot is at stake if the issue is not successfully resolved very soon, she said.
Icelandic government willing to resolve Icesave dispute
By Lenka Vaiglova
November 13, 2008
Morgunbladid reported today that the Icelandic government believes that resolving the IceSave dispute is the only way to be granted a loan from the IMF.
EU member states have been exerting pressure on Icelandic authorities to negotiate mutually agreeable terms with the UK and the Netherlands towards IceSave depositors, and all EU countries agreed that Iceland should not be given the IMF loan before the dispute is solved.
The EU representatives also disagree with Iceland’s approach that the deposits up to 3.5 million ISK should be secured by the state where the affected bank has its headquarters. Iceland follows the regulations of EEA countries, although it is not a member of the EU itself. The EU reacts by saying that according to the EU stipulations, Iceland should compensate the depositors as their accounts were under Landsbanki, but not the responsibility of foreign daughter companies.
The debt put on Icelandic tax payers’ shoulders might amount to 600 billion ISK – about 2 million per head.