There’s been a fascinating debate going on online about Iceland this month.
Not surprising as Iceland is still involved in a $3.5 billion dispute with the UK and Netherlands over the collapse of Icesave. This is still a running sore in relations between these nations, but hopefully will be resolved soon.
The Icesave disaster is but one of many issues in the economy of Iceland, a small nation of just over 300,000 people and that some believe allowed their banks to fail in order to recover faster from the economic crisis of 2008.
This is the tenet of an article by Deena Stryker, a US blogger who wrote an article all about how Iceland had problems but allowed their banks to go to the wall and are now doing great.
Here are a couple of key sections from her piece:
“In 2003 all the country’s banks were privatized, and in an effort to attract foreign investors, they offered on-line banking whose minimal costs allowed them to offer relatively high rates of return. The accounts, called IceSave, attracted many English and Dutch small investors. But as investments grew, so did the banks’ foreign debt. In 2003 Iceland’s debt was equal to 200 times its GNP, but in 2007, it was 900 percent. The 2008 world financial crisis was the coup de grace. The three main Icelandic banks, Landbanki, Kapthing and Glitnir, went belly up and were nationalized, while the Kroner lost 85% of its value with respect to the Euro. At the end of the year Iceland declared bankruptcy …
“March 2010 referendum, 93% voted against repayment of the debt … but Icelanders didn't stop there: they decided to draft a new constitution that would free the country from the exaggerated power of international finance and virtual money. To write the new constitution, the people of Iceland elected twenty-five citizens from among 522 adults not belonging to any political party but recommended by at least thirty citizens. This document was not the work of a handful of politicians, but was written on the internet.”
The article provoked a massive response from Icelanders who were pretty upset, quite rightly, by the fact that the piece is riddled with inaccuracies. As various commentators state:
- Icelandic banks were privatized in a process spanning from 1998 to 2002.
- Iceland never declared bankruptcy because Iceland never went bankrupt. The banks went bankrupt.
- Iceland’s debt (as in The Central Bank) was equal to 57% of the GDP in 2003 and fell to 43% of the GDP in 2007, according to World Bank statistics. In 2009, that percentage reached 104%.
- In the 2010 referendum just under 60% voted against the terms of repayment (93% was from the first referendum on Icesave held in 2010. )
- Icelanders have never voted on whether or not they would pay their debt. They have voted on the terms of its repayment.
The reason I’m posting this is that I’m in Iceland this week and find a few key things that strike me as anomalies.
First, yes, there are still issues to be addressed and the economy is still in a fragile recovery.
Second, the economy is showing fruitful long-term signs as the nation is abundant in natural resources and seafoods, but still has short-term issues in paying down debt from the crisis.
Third, Iceland’s banks are rebranded and reviving: Kaupthing has become Arion Bank; Glitnir Bank has become Islandsbanki; and Landsbanki is still Landsbanki as, unlike the other two, it’s completely in the government's hands. Arion and Islandsbanki are part government owned and all three are recovering, gradually.
Fourth, the biggest issue is who owns Iceland?
This last point is illustrated by two big arguments here over sovereignty.
The first began when the geothermal resources company HS Orka was sold to the Canadian firm Magma Energy by the incumbent government. This is building a monopoly over Iceland’s energy, with the initial tranche of ownership being for a 65-year ownership of HS Orka’s geothermal resources with a 65 year option to renew. Now, the Canadian firm owns 84% of HS Orka, after making a further investment over the last few weeks.
The second controversy arose this week when Chinese property developer and poet , Huang Nubo, purchased a major slice of the country for €70 million.
This is potentially to build an East meets West transportation hub through Iceland, but others see this as a threat to the nation’s sovereignty again, as the area of land in question is about a quarter the size of Hong Kong.
Either way, Iceland’s troubles are far from over, and the key debate here is over Xenophobia versus Sovereignty.
If the economy is to win out, I’m guessing that Iceland will rapidly move from being a land full of pure blood to one full of many mixed nations intermingled in a hub of global trade.
Such a radical change will be hard for a country that has been so insular historically … but it's a bitter pill the citizens will have to swallow as they realise that this is a country that is up for sale to survive.
A space to watch.