Economy & Trade, Europe, Eye on the IFIs, Financial Crisis, Global Governance, Headlines

FINANCE: Icelanders Question IMF Loan

Lowana Veal* - IPS/IFEJ

REYKJAVIK, Nov 18 2009 (IPS) - 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 (

Republish | | Print |

Related Tags

hatay web tasarım