1 Published on August 10 th 2011 The Icelandic Economic Situation Status Report.
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Transcript of 1 Published on August 10 th 2011 The Icelandic Economic Situation Status Report.
Published on August 10th 2011
The IcelandicEconomic SituationStatus Report
2
Iceland
Population:
320,000
Capital:Reykjavík
Currency:Krona (ISK)Language:
Icelandic
Size:100,000 km2
3
Part A
The Financial Crisis
4
... with assets of the “big 3” banks 11 times Iceland’s GDP
In 2008, the banking sector had become gigantic ...
5
Then, in October 2008, the “big 3” failed in 3 days
7 October 2008 Landsbanki fails
8 October 2008Glitnir fails
9 October 2008Kaupthing fails
6
The financial crisis became a currency crisis ...
Exchange rate for one Euro
Capital restrictions imposed
Bank collapse
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... and the capital markets evaporated
9000
8000
7000
6000
5000
4000
3000
2000
1000
0
OMX Iceland 15 Index Performance, 1998-2008
8
Political instability followed ...
... and the first left-wing government in over 30 years was elected
9
The failed banks were split into “old” and “new” banks ...
... with Icelandic operations transfered to “new” banks and international operations staying in the “old” banks
10
In addition to the “old” banks, a part of the “new” banks was placed in ownership of creditors
S
Landsbankinn(formerly NBI)
Arion bank Íslandsbanki
Creditors of Landsbanki Íslands hf
Creditors of Kaupthing Bank hf
Creditors of Glitnir bank hf
Resolution Committee
Kaupthing bank hf*
19%
87% 95%
The FSA appoints the resolution committees
Icelandic State Financial Investments
Manages the state’s holdings
81% 13% 5%
Resolution Committee Resolution Committee
Landsbanki Íslands hf*
Glitnir bank hf*
*) Old banks, in resolution processSource: Vilhjalmur Thorsteinsson
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The government also entered an IMF programme to reduce the fiscal deficit
24 October 2008
The Icelandic government reaches an agreement with the IMF on a stabilization program,
including a $2.1 bn loan
28 October 2009
IMF's Executive Board approves the 1st review of the Economic Recovery Program
16 April 2010
IMF's Executive Board approves the 2nd review of the Economic
Recovery Program
29 April 2010
IMF's Executive Board approves the 3rd review of the Economic
Recovery Program
11 January 2011
IMF's Executive Board approves the 4th review of the Economic
Recovery Program
3 June 2011
IMF's Executive Board approves the 5th review of the Economic
Recovery Program
31 August 2011
Scheduled end of the Economic Recovery Program. A 6th and final review will be published
before the end of the program.
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Part B
The Current Landscape
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Iceland went into a recession ...
Real GDP, 2009 prices
... and public debt surged
Net public debt, % of GDP
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However, Iceland’s debt is manageable ...
... and Iceland has not defaulted on any loans
SwedenDenmark
SwitzerlandIceland
United KingdomTotal OECD
PortugalUnited States
Greece-2500% 0% 2500% 5000% 7500% 10000%
Net public debt (% of GDP)
Source: OECD
15
Homes struggle with higher unemployment ...
... and a lower living standard
Statistics Iceland’s Standard of Life survey
16
Inflation reached 17% when the currency collapsed...
... but has stabilized again
17
Despite the recession, Iceland still remains competitive compared to other economies
Globalization (KOF)
Competitiveness (IMD)
Economic Freedom (Heritage)
Property Rights (IPRI)
International Business (WEF)
Innovation (BCG)
Innovation (INSEAD)
Media Freedom (Freedom House)
181139
58191
177169
125183
125178
110167
132134
196
403130
2118171615
1111
42111
Iceland No. of countries
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Part C
Recent Developments
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Debt restructuring of …
… and initiatives by the banks and the government have been put in place to
speed up the process
... households and corporations is ongoing…
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One of the failed banks operated the online savings bank Icesave in the UK and Netherlands
The UK and Dutch governments demanded an Icelandic state guarantee to reimburse the deposits
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An agreement was reached three times
Agreement between all
governements
Icelandic Parliament Approval
Signing of the President
of Iceland
Approval in a National
Referendum
Approval of UK and Dutch
governments
I
IIAgreement between all
governements
Icelandic Parliament Approval
Signing of the President
of Iceland
Approval in a National
Referendum
Approval of UK and Dutch
governments
IIIAgreement between all
governements
Icelandic Parliament Approval
Signing of the President
of Iceland
Approval in a National
Referendum
Approval of UK and Dutch
governments
(Jun ‘09 – Sep ’09)
(Sep ‘09 – Mar ’10)
(Feb ‘11 – Apr ’11)
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After Icesave III was rejected, the matter is now with the EFTA Supervisory Authority (ESA)
It is estimated that the UK and Dutch governments will receive approximately 94% of their claim from the estate of the failed Landsbanki
Icesave aftermath
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Iceland’s current credit ratings
Aaa, Aaa1, Aaa2, Aaa3
Aa, Aa1, Aa2, Aa3
A, A1, A2, A3
Baa, Baa1, Baa2, Baa3
Ba, Ba1, Ba2, Ba3
B, B1, B2, B3
Caa, Caa1, Caa2, Caa3
Ca, Ca1, Ca2, Ca3
C
AAA, AAA-, AA+AA, AA-, A+A, A-, BBB+BBB, BBB-, BB+
BB, BB-, B+B, B-, CCC+CCC, CCC-, CC+CC,CC-, C+C
Investment Grade
Speculative Grade
Outlook NegativeNegative
AAA, AAA-AA+, AA, AA-A+, A, A-, BBB+, BBB, BBB-
BB+, BB, BB-B+, B, B-CCC+, CCC, CCC-CC+, CC, CC-C+, C
Stable
24
Since the crisis, the Central Bank has lowered interest rates ...
... and Iceland’s CDS spread is decreasing
25
The Central Bank has introduced a plan to remove capital restrictions in two phases:
the plan will be complete at the latest by the end of 2015
Phase I Reduction of
offshore ISK positions
Phase IIRemoval of
onshore ISK controls
26
The IMF fiscal consolidation program has reduced the deficit...
... and a budget surplus is projected in 2013
27
Despite a deep recession ...
2007 2008 2009 2010 2011-10-8-6-4-202468
Real GDP change (%)
NorwayIcelandUKIreland
Greece
... Iceland has recovered relatively quickly
28
Iceland has applied for membership of the EU …
… and formal negotiations started in June 2011
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Other notable events
An investigative committee released a report on the causes of the collapse ...
... and volcanic eruptions in 2010 and 2011 disrupted flights around the world
Image source: Flickr user fridgeirsson
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Other notable events
In 2011, a three year wage contract was signed for the bulk of Iceland’s workers ...
... and in 2010, a constitutional assembly was elected to reform the constitution
31
Other notable eventsIn May 2011, another volcanic eruption disturbed flights in Iceland, the UK, Scandinavia and Germany…
… but the eruption is now over and nobody was harmed. The impact of the eruption on daily lives was minor outside area close to the volcano.
Images from www.visir.is
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Despite the crisis, Iceland’s future is bright
• An educated workforce• Natural resources in abundance• Innovative and competitive businesses
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The full report with further details is available atchamber.is/statusreport
A mailing list is available atchamber.is/mailinglist