19. nóvember 2009 | Gunnar Tómasson
16. nóvember 2009
Dear James and Bill,
Attached is my translation of an overview of the Icesave issue which I sent to all members of Iceland’s Althing on November 13 [sjá síðustu grein Gunnars á þessari síðu].
Althing is scheduled to act on the Icesave bill this week.
As detailed in my overview, the duplicity of Iceland’s contracting parties, the EU and the IMF in the case is breathtaking and shameless.
Iceland's government is bent on forcing its Icesave agreement through Althing.
Any comments which you, individually or jointly, might make on the subject matter would be greatly appreciated.
If Althing stands firm against the bullying of our “friends”, something good may still come from the Icesave disaster.
18. nóvember 2009
Brief statement from Bill and myself—use (or not) as you see appropriate
Statement by James K. Galbraith and William K. Black
James K. Galbraith holds the Lloyd M. Bentsen, jr. Chair in Government/Business Relations at the Lyndon B. Johnson School of Public Affairs, The University of Texas at Austin. William K. Black is Associate Professor in Economics and Law at the University of Missouri-Kansas City.
To our friends in Iceland.
We have reviewed the IMF staff report dated October 2009 and other materials concerning the question of sustainability of Iceland's gross external debt, estimated to be over three hundred percent of GDP as of now, and liable to rise sharply if the present exchange rate cannot be maintained.
We believe that these documents raise a number of grave questions.
The IMF report argues that a substantial part of the gross debt can be reduced by restructuring and by deleveraging Icelandic multinational corporations: in effect reducing their asset holdings and presumably their operations. This assumption depends on the capacity to liquidate external assets at or near their recorded value. Nothing in the report assesses whether this is, indeed, plausible. Therefore the optimistic assessment with respect to net debt (~15 percent of GDP) appears to us questionable.
The IMF macroeconomic projections for Iceland expect a deep recession, but followed by a sharp recovery of the growth rate of real GDP—despite very large tax increases and exceptionally large reductions in public spending.
There is no basis in domestic demand for this forecast. The assumption rests on a very large increase in net exports, for which neither historical foundation nor actual industries and markets appear to have been established. If a very large currency depreciation were pursued under these conditions, that would immediately raise the external debt burden in relation to GDP. It is also difficult to see how a business sector afflicted by a large decline in investment can simultaneously expand exports. Clearly the assumed surge in net exports can be had only by a large, sustained reduction of imports, affecting both investment and consumption, and therefore living standards.
The IMF report fails to consider the potential effect of large tax increases, cuts in public services, decline in domestic income, possible currency depreciation, and catastrophic unemployment on the incentive to emigrate for working people in Iceland. It seems to us self-evident that the vast burden now being placed on a minute work force will induce emigration. And as the country's liability becomes increasingly concentrated on those who remain, it will become more difficult for those who would like to remain, to do so.
Iceland is a very small country, with a very small working population. The question facing the Althing is whether the burdens now being dictated to Iceland can reasonably be accepted by the Icelandic people. We are not in a position to answer this question: we merely pose it. If the answer is in the negative, much more than the economy may prove to be at stake—but indeed the survival of the country as a going concern.
18. nóvember 2009
Yfirlýsing til vina okkar á Íslandi.
Eftir James K. Galbraith og William K. Black*
Við höfum farið gaumgæfilega yfir skýrslu AGS dags. 20. október 2009 og önnur gögn varðandi mat á sjálfbærni vergra erlendra skulda Íslands sem nú eru taldar vera yfir þrjú hundruð prósent af vergri landsframleiðslu og gætu hækkað mjög mikið ef ekki reynist kleift að viðhalda núverandi gengi krónunnar.
Við teljum þessi gögn vekja ýmsar alvarlegar spurningar.
Í AGS skýrslunni er því haldið fram að minnka megi talsverðan hluta heildarskuldanna með því að endurskipuleggja og draga úr skuldsetningu fjölþjóða íslenzkra fyrirtækja: í raun að minnka eignir þeirra og þá væntanlega umsvif þeirra. Þessi forsenda byggir á því að hægt sé að innleysa erlendar eignir á eða nálægt skráðu andvirði þeirra. Ekkert mat er lagt á það í skýrslunni hvort hér sé um raunhæfan valkost að ræða. Okkur sýnist því bjartsýna matið varðandi hreina skuldastöðu (~15 prósent af VLF) vera hæpið.
Þjóðhagslegu spár AGS fyrir Ísland gera ráð fyrir því að kröftugur vöxtur VLF fari í kjölfarið á djúpum samdrætti þrátt fyrir mjög miklar skattahækkanir og fádæma stórfelldan niðurskurð opinberra útgjalda.
Engar forsendur fyrir þessari spá felast því í innlendri eftirspurn. Spáin grundvallast á mjög mikilli aukningu hreins útflutnings sem virðist hvorki vera grundvölluð á sögulegum viðmiðum né atvinnugreinum og mörkuðum sem þegar eru til staðar. Ef gripið yrði til stórfelldrar gengislækkunar við þessar kringumstæður myndi erlenda skuldabyrðin strax hækka sem hlutfalli af VLF. Eins er vandséð hvernig atvinnugrein sem verður fyrir miklum samdrætti fjárfestingar getur samtímis aukið útflutning. Augljóslega getur hugsanleg uppsveifla í hreinum útflutningi einungis átt sér stað með varanlegum samdrætti innflutnings og þarmeð almennra lífskjara.
AGS skýrslan lætur undir höfuð leggjast að íhuga mögulega hvetjandi áhrif mikilla skattahækkana, niðurskurðar á opinberri þjónustu, samdráttar atvinnutekna, mögulegrar gengislækkunar, og stórfellds atvinnuleysis á flutning vinnandi fólks af landi brott. Okkur sýnist liggja í augum uppi að þær gífurlegu byrðar sem verið er að leggja á örsmáan hóp vinnandi fólks muni leiða til flutninga af landi brott. En um leið og erlendar skuldbindingar Íslands falla með sívaxandi þunga á aðra landsmenn þá verður erfiðara fyrir þá eftir eru og vilja búa áfram á Íslandi að gera það.
Ísland er lítið land með takmarkaðan fjölda vinnufærra einstaklinga. Við Alþingi blasir sú lykilspurning hvort það sé raunhæft að ætla að þjóðin sætti sig við þær byrðar sem Íslandi er nú fyrirskipað að axla. Við erum ekki í stakk búnir að svara þessari spurningu: við setjum hana einungis fram. Ef svarið er neikvætt er ekki aðeins íslenzka hagkerfið í húfi—heldur framtíð Íslands sem starfhæf efnahagsheild.
*James K. Galbraith er prófessor í stjórnmálum/viðskiptatengslum (Lloyd M. Bentsen, jr. Chair) við Lyndon B. Johnson School of Public Affairs, The University of Texas at Austin. William K. Black er lektor í hagfræði og lögum við The University of Missouri-Kansas City.
19. nóvember 2009
Hvort er skyldara að hafa það frekar sem sannara reynist eða hitt sem hentugra þykir?
Í þessu sambandi er af mörgu að taka í nýjustu skýrslu AGS um Ísland, t.d. eftirfarandi:
1. Data shown in Table 8, Iceland Balance of Payments, 2007–2014, in IMF Staff Report, October 20, 2009, p. 49 relates to the sustainability of Iceland’s external debt. (See http://www.imf.org/external/pubs/ft/scr/2009/cr09306.pdf).
Net interest payments over the period 2010–2014 are projected to total $9.3 billion or the equivalent of about 78% of projected 2009 GDP of $11.9 billion. This works out to an average of about 16% of 2009 GDP over the five-year period.
2. The original (October 2008) projection was for 2009 GDP to decline by 21% (from $16.9 billion in 2008 to 13.4 billion in 2009). The decline is now estimated at 29% (from $16.9 billion to $11.9 billion).
3. A rosy scenario is envisaged for 2010 – 2014, with the annual GDP (in US$) growth rate averaging about 6%.
4. The turnaround in the GDP growth rate from –29% in 2009 to a projected 5.9% in 2010 (from $11.9 billion to $12.6 billion) would be achieved despite a large cutback of budget expenditures. A bird’s-eye view of the projected turn-around in the fiscal position is provided in the following statement by the Ministry of Finance on the 2010 budget bill (http://hamar.stjr.is/Fjarlagavefur-Hluti-II/GreinargerdirogRaedur/RitogSkyrslur/Kynningarefni/2010/frettatilkynning_1_fjarlfrv.htm):
Í samræmi við áætlunina er gert ráð fyrir verulegum bata í afkomu ríkissjóðs á árinu 2010, m.a. að frumjöfnuður ríkissjóðs, þ.e. þegar vaxtajöfnuður er undanskilinn, verði neikvæður um 25,4 milljarða kr. á árinu 2010 í stað 126,7 milljarða kr. frumhalla á þessu ári. Heildarhalli á ríkissjóði lækkar einnig umtalsvert samkvæmt frumvarpinu og er hann áætlaður 87,4 milljarðar kr. Þessi bati hefur bein áhrif á handbært fé frá rekstri sem áætlað er að verði neikvætt um 95 milljarða kr. í stað um 174 milljarða kr. í ár.
Translation: Consistent with the plan the State Treasury's performance is envisaged to improve substantially in 2010, among other things, the basic balance on the State Treasury’s accounts, i.e. excluding net interest expenditures, is projected to be negative by ISK 25.4 billion in 2010 instead of a basic balance of ISK 126.7 billion this year. The overall State Treasury balance is also envisaged to decline substantially according to the budget bill and is estimated at ISK 87.4 billion. This improvement has a direct impact on the cash balance, which is estimated to be negative by ISK 95 billion [$760 billion at US$ 1 = ISK 125 and ca. 6% of projected 2010 GDP—insert] instead of ISK 174 billion [$1.392 billion—or 11.7% of projected GDP of $11.9 billion—insert] this year.
5. In a minority Finance Committee report on the Icesave bill last week, Ph. D. economist and Althing member for the Citizens' Movement Thor Saari commented on the Central Bank of Iceland's rosy BOP scenario for 2010–2014 as follows—in translation:
Payments of the Icesave loans are in foreign exchange (euros and pounds) and such foreign exchange must be earned through an export surplus. However, the Central Bank of Iceland’s figures show that the goods and services account has been negative during 12 of the past 19 years. The maximum surplus during this period has been ISK 22 billion in 1994 and for the seven years between 1990–2008 when the trade balance was not negative the cumulative surplus amounted to ISK 76 billion. The total deficit on goods and services account from 2000 amounts to ISK 632 billion or an annual average of ISK 70 billion. In contrast, the Central Bank’s projections this summer envisage an average export surplus of ISK 163 billion per annum over the next ten years. The Central Bank’s latest projections also envisage that export earnings will be approximately 50% of GDP, which is entirely unrealistic for this ratio has reached approximately 33% of GDP at its highest.
In light of the evolution of external trade in recent decades and the fact that Iceland is party to the European Economic Area agreement and, therefore, cannot prevented the inflow of goods and services, the Central Bank’s projection appears to be simply completely unrealistic, so unrealistic that it borders on fiction.
6. In a reply letter to a group of Icelanders, who sought to meet with him (http://thjodarsalin.blog.is/blog/thjodarsalin/entry/974168/). IMF MD Strauss-Kahn asserted last week (see http://www.imf.org/external/np/vc/2009/111209.htm) that the IMF had not made an agreement on Icesave a precondition for the first review of the IMF program which was delayed from February to October this year. I will follow this up later today.
Instead, Mr. Strauss-Kahn asserted, the precondition was set by the Nordic countries acting as prospective financial supporters of the IMF program.
In today’s news [18. nóvember 2009], the Permanent Secretary of the Norwegian Ministry of Finance disputes Mr. Strauss-Kahn’s assertion. However, the PR person of the Swedish Ministry of Finance confirmed Mr. Strauss-Kahn’s assertion.
Í svarbréfi Dominique Strauss-Kahn dags. 12. nóvember 2009 til Opins Borgarafundar segir m.a.:
I regret that I will not be able to meet with your group in person, but I hope that this letter has helped clarify the IMF’s stance on some of the challenges facing Iceland. The IMF’s resident representative in Iceland, Mr. Rozwadowski, whom some of you have already met, would be happy to meet with you to further clarify the Fund’s role in Iceland.
Að minni hyggju stangast ofangreindar tölfræðilegar upplýsingar á við umsagnir AGS um meinta sjálfbæra erlenda skuldastöðu Íslands.
Hér er þörf nánari útskýringa.
Gunnar Tómasson, hagfræðingur