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FINANCE: Icelanders Question IMF Loan
By Lowana Veal*
REYKJAVIK, Nov 18, 2009 (IPS/IFEJ) - After eight months of waiting, Iceland is finally back on the agenda of the IMF.
The second instalment of the IMF loan was agreed at the end of last month and
has now been transferred to Iceland.
But was the loan worth waiting for? That is the question that many Icelanders,
including members of the Government and Opposition, are asking
themselves. Soon after the financial crisis in October last year, Iceland
arranged a deal with the IMF which consisted of a 2.1 billion dollar loan over
two years in the form of a Standby Arrangement.
The initial sum of 827 million dollars was made available immediately, in
November, while the second was due in February.
In order to receive the loan, which is to be paid out in nine instalments,
Iceland had to produce an economic programme for the coming years. The
IMF, for its part, produced an economic programme that involves conditions
about fiscal and monetary policy and the restoration of the bank sector with
which Iceland must comply.
One of the conditions was a 10 percent cut in spending which applied to all
government ministries. This was not a popular move: in fact, Johanna
Sigurdardottir, who is now prime minister but at the time was minister for
welfare, refused to implement the cuts in her ministry, saying it was not fair
on the people and that, in times of crisis, more welfare spending would
probably be needed rather than less.
Lilja Mosesdottir is one of the new MPs for the Left-Green Party which now
shares the balance of power with the Social Democrats. Like some of the
other new MPs, she was an academic economist before being elected to the
Althingi. Mosesdottir has been quite critical of the IMF loan. "The IMF is
implementing an economic programme that makes the crisis deeper and
overestimates the capacity of the state to take on debts of a private company,
i.e. Landsbanki and its Icesave deposits. It is apparent that IMF’s main
concern is that of protecting the interests of foreign capital owners and not
that of Icelandic taxpayers," she says.
Many Icelanders have held Britain and the Netherlands responsible for the
delays, as they were pressurising the IMF for a delay until a deal had been
made to reimburse savers who lost money on the Icesave savings accounts
when the Icelandic banks collapsed a year ago.
Another criticism stems around the size of the loan offered: could Iceland
manage with a smaller loan? Besides the IMF, Iceland has been promised a
joint loan from Denmark, Finland, Sweden and Norway of 625 million dollars
as well as a 200 million dollar loan from Poland and a 50 million dollar loan
from the Faeroe Islands.
The joint loan from the Scandinavian countries was, however, dependent on
the IMF approving Iceland’s revised economic programme.
In early October, before the second instalment of the IMF loan was agreed,
there was growing consensus within all parties of the Althingi, with the
exception of the Social Democrats, for a re-evaluation of the IMF loan.
"This is still the case within the Left-Green Party," says Mosesdottir. "IMF
pressures for a balanced state budget by 2013 which many party members
doubt is possible without destroying what is left of the Nordic welfare state,
i.e. free access to education and health as well as an extensive benefit system
for those unable to work."
Bjarni Benediktsson is the Chair of the conservative Independence Party (IP).
He says: "The IP considers it sensible to continue cooperation with the IMF. In
our opinion, however, conditions have changed since this cooperation was
started and there are indications that the size of the loans could be reduced
quite considerably."
According to the IMF, "the programme should be reviewed and circumstances
revised quarterly. It is thus in keeping with the programme itself that a
review should be made of the changed conditions. To be able to reduce
loans, measures must be taken to increase trust in the economic
management, which will lighten the pressure on the krona [Icelandic
currency] at the same time. The IP’s economic proposals specify these
measures," Benediktsson added.
For their part, the Progressive Party (PP) still has doubts about the IMF
programme and considers that it should be reviewed. Some PP members
went to Norway in October to try and get access to credit lines, whereby
funds would be available if requested.
"We consider that it is more important to have access to loan funds, for
instance through credit lines, than to take all the loans that it seems the
government intends to take," says Gunnar Bragi Sveinsson, chair of the PP
Parliamentary Group. "The government has not yet called for access to loan
funds except through the IMF programme, but this request is a basic premise
for the Norwegians to take the mater up in the Norwegian government."
In early November, an Icelandic branch of the international global justice
organisation Attac was founded. They want the IMF out of Iceland. Why?
"The IMF supported the whole privatisation process of the banks [which
happened in 2003] and outreach by Icelandic companies abroad. Also, the
IMF has almost never assisted countries in such a way that they have
benefited from it. The IMF’s latest report is completely reactionary," says Arni
Daniel Juliusson, one of the people behind the Icelandic Attac group.
Juliusson went on to say: "The IMF are proposing deeper cuts in Government
finances. A question mark is never set concerning the cuts, it is always
assumed without question in all media coverage, but in our neighbouring
countries the economy is encouraged by pumping money into the system and
decreasing the interest rates to almost zero. Here the interest rate is 11
percent and money is vigorously pumped out of the economy. This must be
stopped immediately."
In an article entitled "IMF out of Iceland", which appeared in Morgunbladid
newspaper a few days after the IMF agreed the second loan instalment and
was written by Juliusson and the Chair of the Norwegian Attac chapter, Emilie
Ekeberg, the authors say: "The ideology behind the IMF is the re-emergence
of the economy driven by foreign leverage and foreign capital. As options are
lacking - options that exist and have been named by bodies such as the
U.N.’s Stiglitz Committee [Economic Performance and Social Progress
Monitoring Committee] amongst others - the Icelandic authorities are forced
to follow IMF policy in order to regain trust in the global financial markets.
There is great pressure on the authorities not to resort to any measures,
whether in tax terms or environmental matters, which could alienate foreign
investors."
Politics professor Gunnar Helgi Kristinsson from the University of Iceland says
that Icelanders are still unhappy with the IMF. "The attitudes were mixed
from the beginning, but there is little doubt that they have become much
more negative due to the delays that arose because of the pressure of the
British and Dutch on the IMF Board," he told IPS.
Kristinsson points to a recent Capacent Gallup poll which was carried out last
month. In this, 71 percent of Icelanders say they bear little trust in the IMF
and only 6 percent bear great trust in it.
*This story is part of a series of features on sustainable development by IPS
and IFEJ - International Federation of Environmental Journalists for
Communicators for Sustainable Development (www.complusalliance.org). (END)
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