Third, regarding the origins of Iceland’s crisis. I agree that they lie in the financial sector. Banks took outsized risks, and supervision and regulation failed to rise to the challenge. Privatization did set the stage for this, but this was not a matter of following IMF policy: we did not then and do not now have any policy which requires countries to privatize banks. I want to assure you that the IMF-supported program recognizes that this tragedy cannot be allowed to repeat itself. This is the key reason why there is a focus on reforms to strengthen banking regulation and supervision.
Dominique Strauss-Kahn’s letter to Gunnar Sigurdsson.pdf
Related posts:
rifek
2 years ago
S-K, you are a hypocrite.
1. This mess didn’t start with bank privitization but with Iceland’s desperate attempt to bolster its economy by selling out to Alcoa. That is the sort of rich vs. poor piracy the IMF has been enabling since its creation.
2. Icelanders weren’t stupid, but they were naive and in a tight spot when Alcoa came and made it rain money. Iceland didn’t have the economic and social institutions to handle the inflation nor the political and legal institutions to handle the corruption, and we are seeing the results. How many hundred times has the IMF assisted such pillaging, but has any facility developed for providing target nations with full disclosure or assisting them in making informed decisions? No, there is only the round condemnation of the “decadent” debtor when the inevitable collapse happens.
You are an errand-boy apologist for a gang of thugs, S-K. Why should anyone listen to you or put up with your pious bilge?
Blubber
2 years ago
rifek: Let me preface this by saying that I am by no means in favor of the IMF or their policies. In fact I think Iceland should try to do without the loan from IMF.
However, making them out to be the big bully and Icelanders into some childlike innocents does not improve the current situation.
The ICELANDERS who want the aluminum smelters and launch hate attacks against anyone who dares question the need for them are equally responsible. And are getting more active.
Iceland has 99.9% literacy, and a fair knowledge of languages. The information on the impact of the smelters, both on the environment and the economy is accessible.
Unlike many other countries who have faced the alu-giants, Icelanders could have quite easily said no. Except Icelandic greed got in the way.
The Icelandic “no-transparency” on energy pricing is home grown.
The local politicians were Icelanders.
The people who run smear campaigns against any Minister of the Environment who dares question the environmental data on the smelters and energy are all Icelandic. They are not victims of the big bad foreign powers.
rifek
2 years ago
Preface noted. My point was that the IMF is in no position to criticize on any of these points. For decades a collection of robber barons has taken advantage of cash-strapped countries with small town political structures, whether Nigeria or Equador or Iceland, and the IMF has enabled these “endeavors”, both by fronting capital and by providing collection pressure after it all inevitably goes wrong.
Blubber
2 years ago
I would still argue that victimizing the locals does not empower them to truly make a change. By focusing on whatever the “big bad wolf” does, we don’t see what the enablers are up to; the greedy local mini-kings (be they politicians, business leaders or what have you).
These companies can only establish themselves (in this predatory way)in places where the democratic process is flawed, such as it is in Iceland.
The IMF is what it is, neither good nor bad, it is about money. The statement by S-K is about money and how it was misappropriated in the privatization of the banks. A point that I happen to think is quite correct. It simply makes no monetary sense to put a national bank into the hands of people who have never run a bank.
However, I agree with you as well, that one of the big problems was the building of the aluminum smelters and the resulting bubble.
Both of these “projects” were possible because the democratic process in Iceland is deeply flawed.
When the Minister of Environment actually follows the democratic process and the law, there is a virtual lynch mob of locals on her door step. If these same locals read up on the IMF and how the IMF helps the aluminum companies, they would most likely think it’s a good thing.