Iceland Got 'more Generous' Aid Than Thailand

[churchill]

REYKJAVIK (AFP) People in Thailand are upset by the fact that IMF treat people in Europe better than they treat people in Asia, said US economist Joseph Stiglitz in Reykjavik

US economist Joseph Stiglitz, winner of the 2001 Nobel Prize in economics, has been a sharp critic of policies advocated by the International Monetary Fund, contending that they aggravate crises and impose public hardship.

Iceland, which had suffered mightily in the current global downturn, last October needed a 2.1-billion-dollar (1.5 billion-euro) rescue loan from the IMF.

Stiglitz in a speech at the University of Reykjavik maintained that Iceland had in fact received gentler treatment from the IMF than had other countries, sparking resentment, for example, in Thailand, a Fund recipient in the late 1990s.

"The programme in Iceland has been very unusual for the IMF and you should recognize that, that they did not follow the standard prescription that they did in most of the world, which would have been immediate fiscal contraction, no capital controls and very high interest rates.

"You should understand that, that you got more generous treatment has caused a lot of resentment in the rest of the world. I was just in Thailand and people were saying 'double standards, you treat people in Europe better than you treat people in Asia.'

"So you should understand that there are consequences of the fact that you have been treated a little bit better."

In his speech he also warned that the global economy could suffer a double dip, a pronounced rebound giving way to another slide.

"It is difficult to know whether or when there will be a W," as such a course of events is often described, Stiglitz told AFP here.

"There are a number of substantial risks to the economy going forward. The risk to the financial sector, for instance, from commercial real estate....

"And there are risks to the real sector caused by states having a shortfall of revenue and the withdrawal of (government) stimulus packages in 2011 will be a negative shock to the economy."

Stiglitz, former World Bank chief economist and an advisor to US former president Bill Clinton, said household balance sheets had been "destroyed", which has meant that "savings have gone up from zero to 7-9 percent."

A rising savings rate cuts into consumer spending, which is responsible for roughly two thirds of US economic growth.

An "inventory adjustment" is under way, as companies build up their stocks, Stiglitz said.

But "because of the uncertainties, people are not hiring, unemployment is very high and foreclosures are likely to remain high," he said.

"The result of this is that if these negatives I have described play out, which is very likely, when the inventory readjustment is over, the economy will go into a double dip."

http://www.swedishwire.com/nordic/909-icel...-than-thailand-

[Naam]

Stiglitz in a speech at the University of Reykjavik maintained that Iceland had in fact received gentler treatment from the IMF than had other countries, sparking resentment, for example, in Thailand, a Fund recipient in the late 1990s.

"The programme in Iceland has been very unusual for the IMF and you should recognize that, that they did not follow the standard prescription that they did in most of the world, which would have been immediate fiscal contraction, no capital controls and very high interest rates.

Stiglitz is right but he is comparing apples with bananas. the crisis which we still face has changed the IMF's attitude bowing to political pressure from the major shareholders to forego the usual stringent conditions. the present crisis cannot be compared with Asia '97. Iceland had an offer from Russia to get loans in exchange for a military base. Russia did not offer anything to asian countries in 1997 and was itself in deep financial and economic sh*t only 9 months later.

[LaoPo]

Stiglitz in a speech at the University of Reykjavik maintained that Iceland had in fact received gentler treatment from the IMF than had other countries, sparking resentment, for example, in Thailand, a Fund recipient in the late 1990s.

"The programme in Iceland has been very unusual for the IMF and you should recognize that, that they did not follow the standard prescription that they did in most of the world, which would have been immediate fiscal contraction, no capital controls and very high interest rates.

Stiglitz is right but he is comparing apples with bananas. the crisis which we still face has changed the IMF's attitude bowing to political pressure from the major shareholders to forego the usual stringent conditions. the present crisis cannot be compared with Asia '97. Iceland had an offer from Russia to get loans in exchange for a military base. Russia did not offer anything to asian countries in 1997 and was itself in deep financial and economic sh*t only 9 months later.

....adding that one cannot compare the debacle in Iceland with the one in Thailand in the '90's.

Iceland, although a country island, has a mere 320,000 people versus the (then) 60 million in Thailand.

Also, the 2 largest banks who caused the drama were run and owned by private families with shady contacts, also in former Soviet countries and Russia itself.

There are some interesting topics about Iceland and the Icesave debacle, last year, here on TV:

http://www.thaivisa.com/forum/European-Ban...65#entry2260565

&

http://www.thaivisa.com/forum/Stash-Cash-t...48#entry2260948

edit:

This is VERY interesting reading...some nice "Gentlemen"" from Iceland

http://www.thaivisa.com/forum/Icesave-Sht-....html&st=25

Meet Mr. Icesave:....look at #4 in this post

http://www.thaivisa.com/forum/Icesave-Sht-...23#entry2267823

LaoPo

Edited September 8, 2009 by LaoPo

[hhgz]

"people were saying 'double standards, you treat people in Europe better than you treat people in Asia.'"

Which people? The "man on the street", or some minor governmental functionary? A couple years ago, the US ambassador took a lot of heat for something that happened in 1997. He said something similar to, "With 20/20 hindsight, the US should have done more for Thailand." When the USD fell from 40 to 35 THB/USD, a Thai financial in the government mentioned it was payback for the way the US treated Thailand, a decade earlier. Summarizing this guy, "The Bank of Thailand will refuse to intervene, and the USD will fall to 30 in 6 months, or my name isn't jerka$$!" That was two years ago.

[Nilrem]

Stiglitz is partially right, but is not being forthright with the reason why Iceland is getting "gentler treatment". Behind the scenes there is a pivotal point presently evolving that could change the basic rules of the international financial system, which is why I believe Iceland is getting a better deal. The IMF loan would reimburse what Icelanders owe the Brits and Dutch, but Iceland's parliament (as of a few weeks ago) was in the process of legislating subordination of payback relative to the ability of Iceland's economy to pay. It's a brilliant move that countries like Thailand should study carefully. Eastern European countries are certainly taking notice. Neither financial theory nor worldwide practice has recognized a capacity to pay constraint since it was proposed as part of the plan to resolve Germany's WW1 reparations debt in the 1920s. Without growth in Iceland's Gross Domestic Product, there will be no debt service and creditors won't be paid if they try to punish Iceland. So, it's not a "double standard" between Asia and Europe as Thai's naively argue (and Stiglitz appears to imply), it's a change in standards due to a pivotal change (or threat of change) in the rules of international finance. I'd appreciate any updates to this David and Goliath story as it evolves. Thank you, Churchill, for this posting.

[12DrinkMore]

The IMF announced in April a major reform in its policy

http://www.imf.org/external/pubs/ft/survey.../POL041309A.htm

Streamlined approach aims to remove stigma of borrowing

Reform does away with "hard" structural conditionality

New focus on objectives rather than specific actions

and is also retrospective for existing loans

Starting May 1, structural performance criteria will be discontinued for all IMF loans, including for programs with low-income countries. Structural reforms will continue to be part of IMF-supported programs, but only when they are seen as critical to a country’s recovery. And the monitoring of these policies will be done in a way that reduces stigma, because countries will no longer need formal waivers if they fail to implement an agreed measure by a specific date.

I can only assume that Stiglitz is either well out of touch or has some other agenda in comparing an action that took place over a decade ago in totally different conditions to the IMF "bailout" of Iceland.

[loverboy44]

"people were saying 'double standards, you treat people in Europe better than you treat people in Asia.'"

Which people? The "man on the street", or some minor governmental functionary? A couple years ago, the US ambassador took a lot of heat for something that happened in 1997. He said something similar to, "With 20/20 hindsight, the US should have done more for Thailand." When the USD fell from 40 to 35 THB/USD, a Thai financial in the government mentioned it was payback for the way the US treated Thailand, a decade earlier. Summarizing this guy, "The Bank of Thailand will refuse to intervene, and the USD will fall to 30 in 6 months, or my name isn't jerka$$!" That was two years ago.

Do you really think that the Bank of Thailand can influence the US$ rate?

Thailand is simply to small to influence anything. They get influenced.

Besides, if they want to improve their economy they would be far more interested in a weaker baht than in a weak US$.

[KevinBloodyWilson]

REYKJAVIK (AFP) People in Thailand are upset by the fact that IMF treat people in Europe better than they treat people in Asia, said US economist Joseph Stiglitz in Reykjavik

If it were the case, *why* would it be the case?

Nothing happens for no reason.

[cocopops]

REYKJAVIK (AFP) People in Thailand are upset by the fact that IMF treat people in Europe better than they treat people in Asia, said US economist Joseph Stiglitz in Reykjavik

If it were the case, *why* would it be the case?

Nothing happens for no reason.

These things - making aid conditional on governments setting high interest rates and balancing budgets - were aimed at restoring international investor confidence in Asian nations. Which the IMF thought was necessary to prevent the currency crisis and the associated "run on the bank" from escalating further. However these actions are pretty much the opposite of what modern economic theory says you do in a recession - drop interest rates and stimulate with deficit spending. (yes, yes, I know - Keynes was an idiot and a communist according to your favorite <deleted> blogger)

The IMF, presumably, felt that international confidence was the most important issue. However the policies caused every man and his dog to default, which didn't exactly help matters.

Some folks around these parts felt that these policies - determined in Washington not Asia - were more about ideology and leftover racial superiority than economics. That ex-PM in Malaysia whose name I can't spell for example. Paul Keating said the same thing about a year back too. Which I suppose might be true in some ways. Note that the Asian governments at the time, while known for "crony capitalism", were pretty much all running surpluses so could not be accused of contributing to the crisis through fiscal irresponsibility.